THE STRUCTURE OF RWANDA'S ECONOMY
The economy generally refers to the institutional arrangement and the resource
base of the country. It is an institutional arrangement in which natural
resources, manpower and other man made resources cooperate to accumulate wealth
in the country. Therefore, the economy simply refers to the stock of wealth of
the country.
The structure of the economy refers to the
salient (basic) features or characteristics of the economy.
Salient features of Rwanda's economy
ü It is dominated by
the agricultural sector. Majority of Rwanda's
population is employed in the agricultural sector. It is also the major source
of food and foreign exchange earner for the country.
ü It has small but
growing industrial sector. Most of the
industries are small and mainly concentrated in urban areas. The industrial
sector contribution to GDP is approximately 11.3%.
ü It is a mixed economy.
There
is existence of both public and private ownership and allocation of resources.
Investments which require huge capital are owned and controlled by the
government.
ü It is a dual economy.
A
dual economy is one where there is co-existence of two contradicting sectors
where one is modern and desirable while the other is traditional and
undesirable. Rwanda is technologically, socially, economically and regionally
dualistic in nature.
ü It is an open
economy. Rwanda interacts with other countries in terms of trade. It
exports to and imports from other countries. Rwanda's exports are mainly
primary products while the imports are mainly oil products, capital and
manufactured goods.
ü It is mainly a
dependent economy. Rwanda greatly depends on other countries in terms of trade and
other resources for survival. It mainly depends on international trade as a
source of imports.
ü It is dominated by a
large subsistence sector. Most of the
production activities especially in agriculture are carried out for producers'
own consumption with nothing left for sale. The subsistence sector is greatly
reducing due to increased monetization of the economy.
ü It is dominated by
unskilled and semi-skilled labour force. Rwanda's labour force
is characterized by high levels of illiteracy due to low levels of education
and lack of experience for particular technical jobs.
ü There is wide spread unemployment and under employment. This is due to limited production, investment and other employment
creating activities resulting from the high degree of resource underutilization.
ü It is mainly characterized
by poor entrepreneurship. Rwanda's
economy is mainly comprised
of incompetent entrepreneurs
who lack the
required skills to
start and sustain
business enterprises. This leads to resource misallocation and
mismanagement.
The structure of the Industrial
(manufacturing) sector in Rwanda
1. It is mainly comprised of small scale industries. Most of the
industries operate on a small scale.
This is mainly due to
limited capital which makes it difficult to expand the production activities. However,
there are a few medium and large scale industries.
2. The industrial sector contributes
about 11.3% to GDP. The percentage is still low but it is
greatly improving.
3. The industries are mainly agro-based
processing firms. That is most of them use agricultural products as their raw
materials. There are few manufacturing industries engaged in assembling.
4. The
industries are mainly urban based. This is due to the favorable conditions
in urban areas for example availability of cheap labour, security, markets,
power supply, communication facilities etc.
5.
Industries mainly use labour intensive techniques of production with the exception of
a few large scale industries which use capital intensive technology.
6.
Industries mainly operate at excess capacity. This is mainly due to
limited capital markets and existence of monopoly tendencies in the economy.
7. Industries mainly produce for the local
market. Products are consumed domestically with little being exported.
This is partly attributed to the inward looking development policy of the
government.
8. The
manufacturing industries mainly use imported raw materials in the production
process with the exception of agro based industries which use the local raw
materials.
9.
Industries mainly use unskilled and semi-skilled labour. This is due to low
levels of education and skills possessed by labour.
Economic Implications (Consequences) of
the Industrial Sector
·
Positive Implications
1. It creates employment opportunities. This is due to the
existence of a number of small scale industries which mainly use labour
intensive techniques of production.
2. It encourages the exploitation of the local
resources. This increases resource utilization in the economy hence economic
growth.
3.
It helps to improve the welfare of the people. This is because
industries mainly produce consumer goods which directly contribute to the
standards of living.
4. It increases tax government revenue. This is done by
taxing a large number of small scale industries.
5.
It promotes inter sectoral linkages in the economy
especially
with the agricultural sector. This is because most of the industries are
agro-based.
6. It
promotes self-reliance and independence of the economy. This is due to the
existence of agro-based small scale and import substituting industries.
·
Negative Implications
1. It leads to rural-urban migration with its
undesirable effects. This is because most
of the industries are concentrated in urban areas. The youths leave rural areas
mainly in search for employment opportunities in urban industries.
2. It increases balance of payment problems. This is because
industries mainly depend on imported raw materials in form of intermediate and
capital goods. In addition, there are low exports from the industrial sector.
3.
It leads to unbalanced regional development. This is because most
of the industries are concentrated in urban areas. This promotes regional
dualism.
4. It
leads to technological unemployment. This is due to increased use of capital
intensive techniques of production especially in large scale industries where
machines replace labour in the production process. For example use of
computers.
5.
There is production of poor quality output hence low standards of living. This is due to the
use of poor techniques of production by small scale industries.
6. It leads
to low foreign exchange earnings. This is because most of the small scale industries mainly produce
for the local market with very little for export purposes.
7.
It promotes the dependence of the economy on other economies. This is due to over
reliance on the imported raw materials especially for the manufacturing
industries.
8.
It leads to low tax revenue for the government. This is due to
dominance of small scale industries which makes it difficult for the government
to collect taxes.
The Structure of Rwanda's Import and
Export sector (Foreign sector)
·
Exports
1. Rwanda
mainly exports agricultural (primary) and semi-processed
products that contribute over 50%
of Rwanda's GDP.
2. Rwanda exports a few services (invisible
exports) for example tourism, transport, security etc.
3. It exports minerals products on a very small
scale like cassiterite, coltan, wolframite, cobalt gold etc.
4. Rwanda's exports include both traditional
and non-traditional cash crops. The traditional cash crops include coffee, tea as the main cash
crops and the non-traditional cash crops include sunflower, pyrethrum flowers,
simsim, fruits like mangoes guavas etc. other exports include; fish, hides and
skins. This implies that Rwanda exports a small range of products.
5. Rwanda's
exports are mainly of poor quality with low value addition. This is because they
are mainly exported in their raw form.
6. Rwanda
exports a few manufactured consumer goods like textiles,
plastics, mattresses, soap, cement etc especially to the neighbouring countries
(Burundi)
7.
The prices of Rwanda's exports are low and they keep on fluctuating in international
markets. This is because the prices of Rwanda's exports are externally
determined.
·
Imports
1. Rwanda mainly imports manufactured consumer commodities
like textiles, drugs, beverages, cosmetics etc.
2. Rwanda imports producer (capital) goods like machinery,
computers, electric equipment, etc.
3. Rwanda imports fuel and petroleum products like petrol, kerosene
and diesel.
4. Rwanda imports skilled
manpower in form of expatriates like engineers, doctors etc.
5. Rwanda imports military hardware in form of guns,
bullets, tear gas etc.
6. Rwanda imports agricultural products like rice from
Pakistan, apples from South. Africa etc.
7. Rwanda's
imports are priced expensively and come from countries like China, Japan, Italy, Germany etc.
Economic implications of the
Import-Export Structure (Foreign Sector)
1.
Adverse balance of payments. This is due to increased import expenditure and reduced revenue
from exports
2. Unfavorable terms of trade. This Is due to high
import prices and low export prices.
3. Risk of imported inflation. This is due to heavy
dependence on expensive imports like fuel products.
4.
Limited and fluctuations in foreign exchange earnings. This is due to
fluctuations in the prices of agricultural exports.
5. Increased
economic dependence of Rwanda on other countries. This is in terms of
producer goods, petroleum products and other consumer commodities.
6. Poor provision of public goods and services. This is due to low government revenue from exports.
7. Increased
capital outflow in form of over reliance on expatriates. This also retards the
development of the skills of local man power.
8. Low levels the economic diversification due to dependence on a few
traditional exports.
9.
Importation of inappropriate technology due to heavy dependence on imported
capital goods especially capital intensive technology which leads to
technological unemployment.
10. Limited industrialization due to predominance
of agricultural exports.
Policy Measures to Improve the Import-
Export Structure
1. Establishment of import substitution
industries to produce goods which were formally imported.
2.
Establishment of export promotion industries to produce manufactured
goods for export as a way of reducing the predominance of exports of
agricultural products
3. Economic diversification in order to reduce over dependence on a
few agricultural exports.
4.
Establishing training institutions as a comprehensive policy aimed at training
local man power. This helps to reduce over reliance on expatriates
5.
Widening the export market by carrying out research and joining regional integration like
East African Community (EAC), Common Market for East and Southern Africa
(COMESA) etc.
6. Encouraging the exportation of non-traditional crops like sunflower,
flowers, fish, vernilla etc.
7. Improvement
of social and economic infrastructures to facilitate production, distribution,
transportation and marketing of exports especially in rural areas.
8.
Putting in place favorable investment policies that can attract both
local and foreign investors to produce enough commodities for domestic
consumption and export purposes,
9.
Promoting value addition to exports of agricultural products. This helps to increase export prices and
export earnings.
10.
Expanding the invisible export sector especially the tourism sector so as to increase the foreign
exchange earnings.
Dualism in Rwanda's economy
• Dualism refers
to the co-existence of two contrasting (contradicting) social-economic
(phenomenon) situations where one is modern and desirable while the other is
backward and undesirable.
• A Dual Economy is a social - economic system where there is co-existence of two
contradicting sectors where one is modern and desirable while the other is
backward and un desirable.
Examples of Dualism in Rwanda
1. Market (monetary) sector versus subsistence sector
2. Rural sector versus urban sector
3. Modern culture versus traditional culture
4. The rich versus the poor
5. The literate versus the illiterate
6. Capital intensive technology versus labour intensive technology
7. Skilled labour versus unskilled labour
Forms (Types) of Dualism in Rwanda
1. Sectoral
Dualism. This refers to the co-existence of two contrasting sectors at
different levels of development. For example monetary sector coexisting with
subsistence sector, industrial sector with high incomes coexisting with the
agricultural sector with low incomes
2.
Intra-Sectoral Dualism. This refers to the co- existence of different levels of development
within the same sector. For example the coexistence of modern agriculture and
subsistence agriculture within the agricultural sector
3.
Technological dualism. This refers to the co- existence the two contrasting techniques of
production in the economy. For example labour intensive techniques of
production co- existing side by side with the large scale capital intensive
techniques of production.
4.
Trade Dualism. This is the co- existence of two methods of exchange in the
economy. For example the coexistence of Barter system and monetary system of
exchange
5. Economic
(Financial) Dualism. This is the co- existence of two financial markets in the economy.
For example the coexistence of the informal and the formal financial markets
6.
Industrial Dualism. This is the coexistence of two contrasting types of industries in
the economy. For example the coexistence of inefficient small scale firms and
efficient large scale firms
7. Regional
Dualism. This refers to the co-existence of two regions at different levels
of development in the economy. For example the coexistence of the rural and
urban areas
8.
International Dualism. This refers to the co-existence of less developed countries and
more developed countries,
9.
Cultural Dualism. This refers to the co- existence of two contradicting beliefs in
the economy. For example the modern western culture coexisting with the
traditional culture
10.
Social Dualism. This refers to the co- existence of two contrasting social
economic classes of people in the economy. For example the rich coexisting with
the poor, the illiterate coexisting with the illiterate etc.
Causes of Dualism in Developing
Countries
1. Unequal income distribution which leads to
economic dualism.
2. Unbalanced natural resource
endowment hence regional and
international dualism.
3. Importation of inappropriate technology which leads to technological dualism.
4. Uneven distribution of social-economic infrastructure
between urban and rural areas
5. Political instabilities in different parts of the country.
6. Unwillingness to change from traditional cultural practices.
7. High
levels of poverty which makes some
parents fail to educate their children in good schools hence social dualism
Dangers (Problems) of Dualism
1. It leads to regional
imbalances with the rural sector always lagging behind the urban sector.
2.
It leads to rural urban migration and its associated negative effects due to concentration of jobs
and other benefits in urban areas than in rural areas.
3.
It leads to technological unemployment in case capital intensive techniques are
used in areas with abundant cheap labour.
4.
It creates difficulties in planning. That is, it becomes difficult to decide
on which sector to develop first. For example the case of agriculture and
industry
5. It
reduces government tax revenue due to the existence of the poor majority with low taxable
capacity and existence of a large subsistence sector.
6.
It discourages production and investment due to low aggregate demand for goods
and services as the majority of the people are poor and a few are rich.
Measures to reduce Dualism in Developing Countries
1.
Use of appropriate technology. That is production techniques used should be in line with the
social and economic requirements of the society.
2.
Delocalization of industries to reduce on the problems of regional imbalances resulting from
concentration of industries in urban areas.
3.
Implementing rural development programmes such as rural
electrification, rural infrastructural development etc, to control rural urban
migration.
4.
Monetization of the economy to reduce on the subsistence sector through modernization and
commercialization of agriculture.
5. Providing
free education. For example universal primary education (UPE) and universal
secondary education (USE) to reduce on social - cultural dualism
6. Use of progressive taxation to check on income
inequalities between the rich and the poor.
7.
Economic diversification. This is aimed at producing a variety of products for exports to
reduce international dualism.
8. Widening markets through economic integration so as to promote trade in the
economy.
Concepts of Economic dependence,
Inter-dependence and Independence
1.
Economic Dependence. This is where the country relies on specific
sectors or other economies in terms of resources and economic decisions for its
survival.
2.
Economic Interdependence. This refers to a situation where two or more countries rely on
each in terms of resources and economic decisions for survival.
3.
Economic Independence. This refers to a situation where the economy is mainly self-sustained
in terms of resources and economic decisions for its survival
Ways in which Rwanda is economically
dependent
1.
Trade dependence. Rwanda heavily relies on international trade in terms of imports
and exports for her survival.
2.
Direct economic dependence. Rwanda's political and economic decisions are heavily influenced
by foreign institutions like World Bank and developed countries (USA, England).
3.
External resource dependence. Rwanda heavily relies on foreign aid in terms of foreign capital,
grants and skilled man power for her growth and development.
4.
Sectoral dependence. Rwanda heavily relies on the agricultural sector for growth and
development as compared to other sectors.
Economic implications of Dependence on Rwanda's
Economy
·
Positive implications
1.
It promotes economic growth and development. Loans, grants and
direct foreign investments are used to produce goods and services hence
economic growth and development.
2. There
is acquisition of advanced technology under external resource dependency. This
leads to production of better quality goods and improvement in service
delivery.
3.
Skilled man power imported from other countries helps to fill the
skilled man power gap existing in developing countries especially in education
sector.
4.
Foreign dependence allows specialization among countries with all its advantages.
For example, under comparative advantages, the country can acquire certain
products cheaply from abroad than being producing them locally at a high cost.
Negative implications
1.
It leads to capital out flow due to over dependence on
foreign private investments. Foreign investors repatriate profits back to their
home countries leading to capital accumulation in the country.
2. It
leads to unemployment due to heavy dependence on foreign skilled man power and over
dependence on imported inappropriate technology.
3. It leads to neglect in the use of
local resources and exploitation of local entrepreneurial skills. This is due to over
dependence on foreign resources and manpower
4. Direct economic
dependence leads to development which is not in line with the social economic requirements
of the country. This is because economic and political decisions are made
externally without involving the participation of the people.
5. It worsens
the balance of payment position. This is due to heavy dependence on imports which leads to
increased import expenditure.
6. It leads to imported inflation due to heavy
dependence on imports especially the petroleum products.
7. It leads
to dumping. This is due to heavy dependence on cheap imports and this retards
the development of the industrial sector in the county.
Ways of reducing Economic dependence in
Developing countries
1.
Adopting the inward looking development strategy. This is achieved by
setting up import substituting industries to reduce heavy dependence on
imports.
2. Economic integration. This is aimed at
widening markets for the locally produced goods and promoting economic inter
dependence among the integrated countries.
3.
Export promotion policies. These are aimed at increasing the quantity and quality of exports
through value addition. This helps to increase on the foreign exchange earnings
which is used to import capital and consumer goods.
4.
Constructing and rehabilitating the social and economic infrastructure. This is aimed at
facilitating the production, distribution and marketing of goods and services
in the country.
5. Use
of appropriate technology. This helps to create more employment opportunities and increase
production in the country.
6.
Changing the education system. This is aimed at equipping man power with the required skills so
as to reduce over dependence on foreign skilled man power.
7.
Economic diversification. This is geared towards reducing over dependence on the
agricultural sector and widening the scope of exports,
8.
Adopting favourable government policies. For example subsidizing local investors
and setting up institutions like Rwanda Development Board (RDB) to stream line
the requirements from and the needs of the investors.
9.
Increasing the exploitation of natural resources. This is aimed at
reducing on the importation of raw materials from other countries required for
production.
10.
Political stability. This is aimed at promoting investments and production of goods and
services in the country and reducing on the expenditure incurred in importing
fire arms from foreign countries.
THE INFORMAL SECTOR
The informal sector is an intermediate sector which lies between the traditional
sector and the formal modern sector. The sector is mainly comprised of self-employed
persons like Hawkers, carpenters, street vendors, shoes shiners, taxi drivers,
Barbers, tailors, small retailers like canteen holders etc.
Features (Characteristics) of the
Informal Sector
1.
There is easy entry in business activities. Licenses either do
not exist, are cheap or forged in the process of getting them,
2. The sector mainly employs local resources in the production
process.
3. It mainly operates on a
small scale with low output
levels.
4. There is limited or no book keeping in carrying out
business activities
5. It mainly employs labour intensive techniques the production.
6. The sector is dominated by semi-skilled and unskilled labour
7. Production is mainly of low quality due to use of poor
production techniques.
8. Business activities are mainly operated in open space and semi-permanent
structures.
9. Production of goods and services is mainly for the
local market.
10. It mainly operates at excess capacity due to limited
capital employed.
11. On job training is common under the informal
sector.
12. Businesses are basically organized on the basis of sole
proprietorship employing a few family members.
Similarities between the Informal
sector and Small scale industries
1. Both mainly operate
on small scale with low out put
2. Both mainly employ limited capital for establishment and
maintenance
3. Both mainly use local raw materials
4. Both mainly produce consumer goods for domestic
consumption
5. Both contribute little to government revenue
6. Both have low employment capacity
7. Both mainly use labour intensive techniques of
production
8. Both mainly produce at excess capacity and
operate in the private sector
9. Both involve
limited or no book keeping.
10. Both are dominated by semi-skilled and unskilled labour
11. On job training is common in both the informal
sector and the small scaie industries
12. Both have a small profit margin
The Role (Contribution) of the Informal
sector to Development
·
Positive roles
1. It creates employment opportunities. This is because most
of its activities are labour intensive and are on self-employment basis.
2. It provides
a variety of locally affordable basic consumer commodities. This widens
the choice of consumers, especially the low income earners hence improving
their standards of living.
3. It reduces foreign
exchange outflow. This is because commodities which could be imported are
domestically produced and this helps to reduce on balance of payment problems.
4. It acts a cheap
training ground for local entrepreneurs. This promotes managerial
capacity building and helps to reduce government expenditure on training costs.
5. It facilitates
the exploitation and utilization of the idle local resources. This helps to improve
on the productive capacities in the economy hence growth and development.
6. It promotes the
equitable distribution of income. This is because the informal sector requires little capital to set
up and therefore, the low income earners can easily be involved in carrying out
business activities to earn income.
7. It
is a source of government revenue through taxation. The government taxes incomes
of employees and business activities of those involved in the informal
distribution. The revenue realized is used to construct social and economic
infrastructure. Like hospitals, roads, schools etc.
8. It
promotes commercialization of the economy. The informal sector
can later be transformed into a modern monetary sector.
·
Negative Contributions
1. It
encourages duplication of goods and services.
This
leads to resource wastage through wasteful competition.
2. It
leads to low government revenue. This is because it is
associated with a small tax base and high levels of tax evasion. This makes it
difficult for the government to realize the planned revenue required to provide
the necessary social services to the people.
3.
It leads to poor standards of living for the people. This is because it is associated with the production of poor
quality products.
4.
It limits the foreign exchange earnings
of the country. This is because it
does not encourage production for export purposes.
5. It encourages
under employment and disguised
unemployment. This because the sector mainly operates at excess capacity and on
a small scale
6. It leads to congestion
in semi-urban areas. This increases the cost of living in such areas.
7. It
leads to environmental degradation and pollution. This is in form of
air and water pollution which leads to negative externalities to society.
8.
It accelerates rural urban migration. The youths move to towns to engage in
petty but short run profitable activities. This leads to regional economic
imbalance and poor accommodation facilities in the sub-urban areas,
Problems Facing the Informal Sector in Rwanda
1. Inadequate capital required for business expansion due to low
savings and incomes.
2.
Limited entrepreneurship skills. This is due to limited skilled manpower needed for business
management and expansion.
3. Limited
markets for the products. This is due to low aggregate demand resulting from high levels
of poverty in the country.
4.
Limited access to credit
facilities from formal banks and rnicrofinance institutions. This is due to
lack of collateral securities,
5.
Inadequate supply of raw materials required in the production of goods and
services. This forces some of them to import hence increasing the cost of
production.
6.
High risks and uncertainties involved with investments in the informal sector. This is due to poor
planning and lack of proper business plans which leads to high failure rates of
business enterprises.
7.
Stiff competition from both imported and locally manufactured products. This makes it
difficult to market the products.
Measures to Promote the Informal sector
1. Providing
credit facilities by the government. There is need for the government to
provide credit facilities to the people involved in the informal sector at
subsidized interest rates. This helps people involved to access capital and
expand on their businesses.
2.
Adopting favourable government policies. This is in form of reducing taxes on raw
materials and other inputs used by the informal sector so as to reduce the
production costs.
3. Use
of appropriate technology. There is need for the government to
encourage and promote the use of production techniques which are cost effective
and are in line with the social and
economic requirements of the society. This helps to
increase on the quantity and quality of the products.
4. Economic
liberalization. There is need for the government to remove unnecessary
restrictions from economic activities to allow people involved in the informal
sector to carry out business freely with limited interference.
5. Formation
of cooperatives and associations. Such associations help individual producers to secure loans from
financial institutions and marketing of their products.
6.
Changing the education system. This is aimed at equipping the local man power with the required
entrepreneurial skills necessary for efficient management and allocation of
resources.
7.
Construction and rehabilitation of basic social and economic infrastructure. This is in form of
transport facilities, electricity, water facilities, storage facilities etc.
This is aimed at facilitating the production, distribution and marketing of
goods and services by the informal sector.
8.
Market expansion. There is need for the government to expand market for the sector
through economic integration, market research, promoting trade exhibitions and
encouraging economic diversification.
9.
Political stability. There is need for the government to ensure political stability.
This helps to create a conducive environment for the prosperity of the informal
sector.
10.
Increasing the exploitation of natural resources. This is aimed at obtaining
raw materials required for production of goods and services by the informal
sector
THE SUBSISTENCE SECTOR
Subsistence sector is a sector where production of goods and
services is meant for the producers' own consumption needs.
Features (Characteristics) of the
Subsistence sector
1. There is limited or no specialization and division of
labour
2. There is use of back ward and out dated technology. For
example use of hoes in the agriculture sector
3. Production is carried out on a very small scale with low output levels.
4. The sector is mainly comprised of semi-skilled and unskilled labour in
the production process.
5. Production of low quality output due to use of poor
production techniques.
6. There is dependency on family labour in the production process.
7. There is
low labour productivity due to the use of poor techniques of
production,
8. The predominant
system of exchange is through barter trade. That is exchange of
goods for goods.
9. There is absence of profit motive. Individuals simply
produce for basic survival.
10. Land is the basic factor of production characterized by
diminishing returns
Dangers (Problems) of a Large
Subsistence sector
1. It leads to low
government revenue. This is because it is associated with a narrow tax base due to limited
production activities. This makes it difficult for the government to realize
the planned revenue required to provide the social services to the people.
2. It leads to poor standards of living for the people. This is because it
is associated with the production of poor quality output.
3. It leads to low levels foreign
exchange earnings for the country. This is due to lack of production of goods and
services for export purposes.
4. It encourages
under employment and disguised unemployment. This because the sector mainly operates at
excess capacity and on a small scale with limited production activities
5. It discourages hard work and expansion of production due to
absence of profit motive.
6. It
discourages the monetization of the economy due to use of barter system of exchange. This limits trade
in the economy
7.
It limits the productivity of labour. This is due to use of backward technology which leads to production of
low output.
8. It leads to poor social and economic
infrastructure in form of poor roads, limited hospitals, limited financial
institutions and other communication facilities. This makes it difficult to
carry out trade
9.
There is lack of specialization under the subsistence sector. This limits production and its
associated positive effects like increased efficiency in production.
STRUCTURAL ADJUSTMENT PROGRAMMES (SAPS)
Structural adjustment programmes refer to the package
of policy measures and other institutional reforms recommended by International
Monetary Fund (IMF) and World Bank to governments of developing
countries with the aim of improving on the performance of their economies.
Aims (Objectives) of SAPS
1. To stimulate economic growth (GNP)
2. To expand the private sector so as to improve
efficiency in production of goods and services.
3. To increase employment opportunities in the economy.
4. To reduce on public (government) expenditure.
5. To promote the development of vital social and economic
infrastructure.
6. To promote domestic savings by strengthening
financial institutions in the economy.
7. To improve on resource utilization and allocation for sustainable
development.
8.
To reduce poverty and improve on welfare especially for the vulnerable groups
like the children, omen, and the handicapped.-
9. To reduce on foreign economic dependence by the economy.
10. To improve agricultural productivity through agricultural
modernization.
11. To reduce on the large subsistence sector so as to promote
trade in the economy
12. To promote technological progress in the economy through
inventions and innovations.
13. To increase government revenue by expanding the tax
base.
14. To Improve on balance of payment position of the country
15. To ensure equitable distribution of income.
16.
To control inflation so as to stabilize the Rwandan Frws and restore confidence in it
as a store of wealth and a reliable
medium of exchange.
Policy Instruments under taken by the
Government under SAPS
1. Privatization of public enterprises aimed at strengthening the private sector
2. Cost sharing in social service delivery. For
example in schools and hospitals
3. Retrenchment of civil servants aimed at reducing the
size of civil servants
4. Demobilization of soldiers aimed at reducing
government expenditure
5. Economic
liberalization aimed at efficient resource allocation through liberalization of
the exchange rate, interest rates, prices etc, to allow market forces of demand
and supply to operate
6.
Tax administration reforms aimed at improving tax collection and administration. This led to
the formation of Rwanda Revenue Authority in 1997
7.
Infrastructural development policy aimed at rehabilitating all high ways,
feeder roads, railways, ferries, airports, storage facilities, financial
institutions etc.
8.
Monetary policy reforms aimed at controlling money supply, encouraging deposits,
developing security markets, strengthening the supervisory role of the central
bank, encouraging the establishment of private financial institutions etc.
9.
Export promotion programmes through export diversification, value addition to improve on quality,
periodic devaluation of the Rwandan frws etc.
10.
Rationalization of investment laws aimed at encouraging investments in the
country. This led to the formation of Rwanda Development Board (RDB) in 2008.
RWANDA AS A MIXED ECONOMY
Rwanda
is a mixed economy. Resource owner ship, allocation and management of business
enterprises are done by both the government and the private sector. The
government makes major economic decisions. However the private sector is slowly
growing due to the privatization of some of the parastatals by the government.
THE PRIVA TE SECTOR IN RWANDA
The
private sector refers to the part of the economy where economic activities are
undertaken by private individuals.
Features of Rwanda's Private Sector
1. It is small but
slowly growing sector.
2. It is still a weak sector due to limited capital,
3. It mainly undertakes enterprises producing consumer goods for
the domestic market
4. The private sector is profit motivated
5.
There is existence of low production capacity due to use of poor
technology, ltd skills and low level of investment.
6. Business enterprises are mainly concentrated in urban
centers due to availability of markets
7. Limited involvement in long term risk ventures by individuals in the
private sector.
8. It is dominated by
small scale import substituting Industries.
Role (Implications) of the Private
Sector in the Development Process
·
Positive Role (Implications)
1. It
creates more employment opportunities. This is in form of the production
activities and business enterprises established. This increases income for the
population.
2. It
increases efficiency in resource allocation. The major aim of
private firms is profit maximization. Therefore, they employ efficient
techniques of production which leads to the production of more goods and
services hence economic growth and development.
3.
It increases government revenue through taxation. A strong private
sector helps to widen the tax base in form of employment and business
activities set up hence generating more tax revenue to the government. The
revenue realized is used to construct social and economic infrastructure tike
hospitals, roads, schools etc.
4.
It increases capital inflow in the country. The private sector
helps to attract foreign investments in the economy especially in high risk
ventures where private local entrepreneurs cannot invest. This increases the
level of investment in the country.
5. It
leads to the development of social and economic infrastructure. The expansion of the
private sector promotes the development of the social and economic
infrastructures in form of roads, schools, hospitals, financial institutions
etc.
6.
It promotes technological development in the country The private sector
facilitates technological progress through innovation, invention and technology
transfer due to foreign ownership of some enterprises. This leads to the
production of better quality goods and services.
7.
It reduces the balance of payment problems in the country. This is because the
private sector increases the production of goods and services for domestic
market. This helps to save the scarce foreign exchange which would be used for
import purposes.
8. It helps to reduce on corruption and
embezzlement of funds which is rampant in the public sector. This promotes
accountability in resource allocation in the economy.
9.
It promotes industrial development. The backward and forward linkages
created in the economy promote the establishment of small scale industries
which can later be developed into large scale industries.
10.
It leads to the production of a variety of
consumer commodities. This widens the choice of consumers hence improving their
standards of living through utility maximization.
Negative Role (Implications) of the
Private Sector
1.
It leads to wasteful competition through duplication of goods
and services. This leads to miss- allocation of resources in the economy.
2.
It leads to emergence of private
monopolies. This increases consumer exploitation as private monopolies restrict
output and charge high prices with the aim of maximizing profits.
3.
It promotes regional income inequalities in economy. This is because most
of the production and business are concentrated in urban areas neglecting the
rural areas.
4.
It leads to profit repatriation. This is due to the
dominance of the private sector by Foreign Direct Investment (FDI's). This leads to low capital
formation in the economy.
5. The
private sector under mines the provision of basic essential goods and
services which are nonprofit making. This is because the private
individuals aim at venturing in activities in which they maximize profits.
6.
It leads to technological unemployment. This is due to increased use of capital
intensive techniques mainly by the foreign investors and inefficient firms
being pushed out of the production process due to stiff competition.
7. It
leads to rural -urban migration. This is because most of the business activities are concentrated
in urban centers due to poor infrastructures in rural areas. This leads to
congestion and increased cost of living in urban areas.
Problems Facing the Private Sector in Rwanda
1.
Inadequate capital. This is mainly due to low levels of incomes and limited access to
credit facilities from financial institutions due to lack of collateral
securities. This limits the expansion of business opportunities in the economy.
2. Low
levels of technology. There is use of simple technology especially by
the local private investors. This leads to the production of low output and of
poor quality hence low levels of economic growth and development.
3.
Unfavorable government policies in form of high taxes, low taxes on
imports, high interest rates on loans etc. This reduces the profits and kills
the initiative by private investors.
4.
Economic instabilities. For example inflation, exchange rate fluctuations etc. Inflation
increases the costs of production hence discouraging the growth of the private
sector.
5. Stiff
competition from the imported manufactured products. The imported goods
are cheap and of high quality while the locally produced goods are expensive
and are of poor quality. Therefore, they out compete the locally produced goods
by the private sector.
6. Limited
entrepreneurship skills. This is due to limited skilled manpower needed for business
management and expansion which leads to low profit margins and in many cases
closure of business enterprises.
7.
Limited markets for the products. This is due to low aggregate demand resulting from high levels
of poverty in the country.
8. Inadequate supply of raw materials required in the
production of goods and services. Most of the raw materials and capital goods are imported from
other countries. This increases the costs of production hence limiting
production in the private sector.
Policies (Measures) to Promote the
Private Sector
1.
Economic liberalization. There is need for the
government to remove unnecessary restrictions from economic activities to allow
people involved in the private sector to carry out business freely with limited
interference,
2.
Adopting favorable government policies. Such policies include providing economic
incentives like subsidization of factor inputs and tax holidays to private
investors. This is aimed at reducing the production costs hence promoting the
private sector.
3.
Providing credit facilities by the government. There is need for the
government to provide credit facilities to the people involved in the private
sector at subsidized interest rates. This helps people involved to access
capital and expand on their businesses,
4. Construction
and rehabilitation of basic social and
economic infrastructure. This is in form of transport facilities, electricity, water
facilities, storage facilities etc. This is aimed at facilitating the
production, distribution and marketing of goods and services by the private
sector.
5. Establishment of organizations to promote
private sector investment. Organizations like Private Sector Federation (PSF) and Rwanda Development
Board (RDB) have been set up to promote the activities of the private sector in
the country.
6.
Training the local manpower. This is aimed at equipping the local man power with the required
entrepreneurial skills necessary for efficient management and allocation of
resources.
7. Improvement in the level of technology. There is need for the
government to encourage and promote the use of better techniques of production
which are cost effective and are in line with the social and economic
requirements of the society. This helps to increase on the quantity and quality
of the products.
8.
Market expansion. There is need for the government to expand market for the sector
through economic integration, market research, promoting trade exhibitions and
encouraging economic diversification.
9. Privatization of inefficient parastatals. There is need for the
government to privatize the inefficient parastatals to allow the private
individuals get involved in economic activities. This enables the growth and
development of the private sector.
THE PUBLIC SECTOR
• The public sector is that part of the economy where resources are owned and
allocated by the government on behalf of its citizens. That is, the government
owns the means of production and carries out the major economic decision on
behalf of the people.
• Public Enterprise (Parastatal). This is an organization set up by the government through the act
of parliament to provide certain services to the citizens. Examples include; Energy, Water, and Sanitation
Authority (EWSA), Rwanda
Revenue Authority (RRA), Rwanda Social Security Board (RSSB) etc.
The Role of the Public Sector
(Parastatals) in Economic Development Positive Role
1.
It provides productive social and economic infrastructure. This is in form of
water supply, power supply, roads, schools, hospitals, financial institutions
etc. This leads to the development of the industrial and agricultural sectors.
2. The public sector has the ability to
operate risky businesses ventures which require large capital that cannot be raised by private
individuals.
3.
It promotes proper planning of the economy. Parastatal
organizations make economic planning easy because they enhance government
control of the development plans and programmes unlike the private sector which
is outside the state control.
4.
It promotes technological development in the country. The public sector
spear heads technological progress especially in developing countries. This is
because it has the ability to carry out research aimed at inventing and innovating
of the existing technology.
5. The public sector helps to redistribute
income and wealth in the economy. This is done by carrying out progressive taxation and evenly
distributing the social and economic infrastructure. This helps to ensure
balanced regional development and reduce income inequalities.
6. The public sector
is in position to provide basic essential goods and services which are nonprofit
making. Some business ventures are commercially un-profitable and not
attractive to the private sector which is profit orientated and yet they may be
economically and socially desirable. The state comes in to provide such vital
services through parastatal bodies.
7. Parastatals
help to create more employment opportunities. This is in form of
the production activities and public enterprises established to provide
services to the people. This is possible even if the parastatal is making
losses.
8.
Parastatals help to protect consumers from exploitation which is common under
the private sector. This is because the government aims at promoting the welfare
of the people.
9.
They help to generate government revenue. The government can set up
public enterprises which are used for income generating activities. Such
revenue is used to finance consumption and development expenditures by the
government.
Negative Role
1. There is inefficiency
in managing public enterprises. This leads to the provision of poor
quality services due to lack of competition hence poor standards of living.
2. There is limited production of a variety of consumer
commodities. This limits the choice of consumers hence limiting their tastes
and preferences.
3. It leads
to emergence of state monopolies. This leads to provision of poor quality services hence poor
standards of living.
4. There is low productivity
of workers in the public sector. This is due to lack of motivation and
strict supervision by the government.
5. It
leads to budgetary deficits and balance of payment problems for
the country. This is as a result of increased government expenditure in
form of subsidization of parastatals which are not economically productive.
6. Some appointments for the management of parastatals are politically motivated. Some times parastatals are managed by
people who lack the required skills and experience hence miss management of
public funds.
7. It promotes regional income inequalities in economy. This is due to
concentration of development and economic activities in particular areas
neglecting other areas based on political reasons.
Problems Facing the Public Sector
(Parastatals) in Rwanda
1. Inadequate
capital. This is mainly due to low
levels of government funds required to finance its recurrent and development
expenditures,
2. Economic instabilities. For example inflation,
exchange rate fluctuations etc. Inflation makes planning and budgeting
difficult by the government. This makes it difficult to implement government
programmes.
3. Inadequate
infrastructural facilities. This is reflected in form of poor
transport network, poor storage facilities and limited financial institutions
and of which are concreted in urban areas. This makes it difficult to produce
and market the produced goods and services.
4. Limited
skilled man power. This is due to low levels of education and inadequate skills
required for business management. This leads to miss management of the
parastatals.
5.
Limited markets for her products. This is due to low aggregate demand resulting from high levels
of poverty in the country.
PRIVATIZATION
Privatization refers to the transfer of ownership of public enterprises from
government to private Individuals. It is aimed at building a strong private
sector to promote efficient allocation of resources and efficient service
delivery.
Note.
Nationalization. This is the process by which the government takes over the
ownership and management of privately owned enterprises.
Forms of Privatization
1.
Divestiture. This refers to the total (outright/complete) sell of all
government shares in public enterprises to private individuals. This enables
private individuals and companies to have decision making power in these
enterprises.
2.
Demonopolization (Deregulation /Liberalization). This involves removing unnecessary
restrictions from the entry of the private individuals to certain investment
activities. The aim is to increase competitiveness in the economy, For example
the Rwandan government liberalized the telecommunication sector, broadcasting sector,
financial sector etc.
3.
Contracting. This is where the provision of goods and services is transferred
from the public to the private sector but the government has the sole right
over the ownership of the enterprise. For example a contractor can tender
construction or maintenance of the road while ownership remains to the
government. Therefore the state still owns the enterprise but the management is
privatized.
4.
Joint ownership (Partial privatization). This is where the government and the
private sector co-own shares in an enterprise. For example Water supply and
sanitation rural areas of in Rwanda (Northern Byumba Province).
5. Repossession.
This
involves the government returning certain enterprises to their rightful owners.
For example in Uganda, due to the privatization exercise, all properties under
the Departed Asians Custodian Board (DACB) were returned to their
rightful owners.
6.
Leasing. This is where the government rents public enterprises to private
individuals for a given period of time. For example renting out public markets,
hotels etc.
Reasons for Privatization of Public Enterprises
1.
To create more employment opportunities. Privatization leads to efficient
allocation of resources which leads to the expansion of production and business
activities. This increases employment opportunities in the long run
2.
To increase efficiency in resource allocation. Privatization promotes
competition and efficiency in resource use. This leads to the production of
better quality goods and services at reduced prices. This improves the
standards of living of the consumers.
3.
To increase government revenue through taxation. Privatization helps
to create a strong private sector which helps to widen the tax base in form of
employment and business activities set up hence generating more tax revenue to
the government.
4. To
increase capital inflow in the country. Privatization helps to attract foreign
direct investments in the economy. This increases the level of investment in
the country.
5. To
develop social and economic infrastructure. The expansion of the
private sector through privatization promotes the development of the social and
economic infrastructures in form of roads, schools, hospitals, financial
institutions etc.
6.
To promote technological development in the country. Privatization
facilitates technological progress through innovation, invention and technology
transfer due to foreign ownership of some enterprises. This leads to the
production of better quality goods and services,
7. To
facilitate the exploitation and utilization of the idle local resources. The major aim of
private firms under privatization is profit maximization. Therefore, they
employ efficient techniques of production which leads to the production of more
goods and services hence economic growth and development.
8.
To reduce the balance of payment problems in the country. Through
privatization, there is increased production of goods and services for domestic
market. This helps to save the scarce foreign exchange which would be used for
import purposes.
9.
To promote industrial development. The backward and forward linkages
created in the economy through privatization promote the establishment of small
scale industries which can later be developed into large scale industries.
10.
To increase the GDP of the country. Privatization increases the contribution
of the private sector to the GDP. This is because it increases output and
resource utilization in the economy.
11.
To widen the consumer choice. This is because privatization encourages the production of a
variety of consumer commodities which leads to improved standards of living
Disadvantages (Demerits/ Costs) of Privatization
1.
It encourages wasteful competition through duplication of goods
and services. This leads to miss allocation of resources in the economy.
2.
It leads to emergence of private monopolies. This increases
consumer exploitation as private monopolies restrict output and charge high
prices with the aim of maximizing profits.
3. It
leads to income inequalities in the economy. Privatization if not
well controlled leads to income inequalities whereby production enterprises may
be concentrated in the hands of a few rich individuals.
4. It leads to profit repatriation. Privatizing public
enterprises to foreign investors leads to capital outflow in form of profit
repatriation. This leads to low capital formation in the economy.
5. Privatization
under mines the provision of basic essential goods and services which are nonprofit
making. This is because the private individuals aim at venturing in activities
in which they maximize profits.
6.
It encourages rural -urban migration. This is because privatization encourages
the concentrated of business activities in urban centers due to presence of
market and better infrastructures. This leads to congestion and increased cost
of living in urban areas,
7.
It increases foreign control of
the economy. This is through foreign direct investments which are set up in the
economy which sometimes act as agencies of foreign influence. This undermines
the national sovereignty of the country.
8.
It leads to over exploitation of natural resources. This is because
private individuals aim at maximizing profits. This leads to environmental
degradation and failure of the economy to be self-sustaining in the long-run.
Problems being faced in the Process of
Privatization
1.
Opposition from the public. This is due to discontent and the general ignorance of the public
about the benefits of the privatization exercise.
2. Poor valuation of parastatals. Parastatals are sold
cheaply hence making losses by the government.
3. Presence of under developed capital markets. This makes it
difficult to sell the shares to the public.
4.
High levels of poverty among the nationals. This forces the
government to sell the parastatals to foreigners which increases economic
dependence.
5.
High cost of the privatization exercise. This is in terms of the wages and other
form of facilitation given to the people employed by the privatization unit.
6.
Political sabotage by politicians who oppose the government. Opposition politicians
sometimes unfairly criticize and block the sale of enterprises aimed at
frustrating the government and to advance their interests.
7.
Political instabilities in some parts of the country. Political instabilities discourage
potential investors from buying the public enterprises
8. Small domestic market. This discourages
potential buyers due to the limited market for the produced goods and services.
9. Inadequate trained manpower required to
competitively value the public enterprises.
Revision Questions
Section A questions
1 (a) What is meant by the
term Dualism (b) Give any three ways of reducing dualism in your
country.
2 Give four causes of dualism in your country
3 Give four forms of dualism existing in your country
4 State any four examples of economic dualism in your county
5 (a)
Distinguish between a mixed economy and a dual economy (b) Mention two features
of a mixed economy
6 State any four salient features of Rwanda's economy
7 (a)
Differentiate between Economic dependence and inter dependence, (b) Mention two
ways in which your country is dependent
8 (a)
Distinguish between economic resource dependence and direct economic dependence
(b) Mention two demerits of direct economic dependence in your country.
9 (a) Define the term informal sector? (b) Mention three features of the informal sector
10 Give four merits of the informal
sector in your country
11 Mention four problems faced by the
public sector in your country
12 (a) What is meant by structural
adjustment programmes.
(b) Mention three structural adjustment
programmes that your country has implemented,
13 State four objectives of
stabilization policy.
14 (a) what are public enterprises? (b)
Give any three reasons for privatization of public enterprises
15 Mention four demerits of
nationalization of firms
16 (a) Define the term Divestiture (b)
Mention four costs of divestiture to your country
17 Outline four demerits of large
subsistence sector in your country.
18 Mention four features of
agricultural sector in your country.
19 (a) What is meant by economic
liberalization.
(b) Mention two negative consequences
and two advantages of economic liberalization in your country
20 (a) Distinguish between nationalization and privatization
of enterprises, (b) Give any two merits of nationalization of enterprises in an
economy,
21 (a) What is meant by parastatal organizations? (b) State
three problems faced by public enterprises in your country.
Section B questions
1 (a) Describe the structure of the
economy of your country (b) Examine the factors responsible for the under
development in your country.
2 (a) Explain the features of the industrial (manufacturing)
sector in your country (b) What are the socio - economic implications of the
features in (a) above to the development process of your country?
3 (a) Outline the nature of
"Dependence" of the economy of your country
(b) Explain the negative consequences of Dependence on the economy of
your country.
(c) Suggest the solutions to reduce external dependence of your country
4 (a) Describe the structure of the
foreign sector of your country
(b) What measures should be taken to increase the export earnings in
your country?
5 (a) Explain the reasons (Account) for
privatization of public enterprises (Parastatals) in your country
(b) Explain the
problems being faced (stagnating factors) in the privatization of public
enterprises in your country
6 (a) Explain the relationship between the informal sector
and small scale firms in your country, (b) Assess the contribution of the
informal sector to your country.
7 (a) Distinguish between the private sector and public
sector (b) What are the cases for and against a large private sector in an
economy?
8 (a) Explain the problems faced by the
private sector in your country
(b) What policy
measures are being taken to increase the size and performance of the private
sector in your country?
9 (a) Explain the various forms of privatization existing in
your country. (b) Discuss the merits and demerits of divestiture in your
country.
10 (a) Distinguish between trade liberalization and economic
liberalization (b) What are the consequences of economic liberalization in your
country?
11 (a) what are the major features or
characteristics of subsistence economy
(b) Examine the disadvantages of having a larger subsistence sector in
an economy
