Foreign direct investment (FDI) in Rwanda

FDI in Figures

Although FDI stocks have increased in recent years due to Rwanda's political stability and measures focused on improving the business climate, FDI flows still remain rather weak. According to UNCTAD 2022 World Investment Report, inflows fell from USD 274 million in 2020 to USD 212 million in 2021, following the global economic crisis triggered by the Covid-19 pandemic. Over the same period, the number of Greenfield Investments doubled, as it went from 5 in 2020 to 10 in 2021. Furthermore, by the end of 2021, the stock of FDI was estimated at USD 2.9 billion. Investments are mainly targeting the sectors of mining, construction and real estate, infrastructure and information and communication technologies. According to statistics from Rwanda Development Board (RDB), the main investing countries are Portugal, the UK, India and the UAE.

The government of Rwanda is seeking to attract more FDI and, in 2015, it approved a new Investment Code aimed at providing tax breaks and other incentives to investors. In addition, the country has no statutory limit to foreign ownership or control, nor any official economic or industrial strategy that discriminates against foreign investors. In 2021, the Rwandan government adopted a law that provides incentives to reduce operating costs, attract talent and promote innovation and diversification in companies investing in the country. Rwanda has also provided investment incentives relevant to SDG-related sectors: preferential tax rates for investors undertaking energy generation, transmission and distribution, whether peat, solar, geothermal, hydropower, biomass, methane or wind. On the other hand, the low human resource capacity of Rwanda, the poor infrastructure, its landlockedness and its high operating costs are some of the factors that limit the potential attractiveness of the country (with the political instability of its neighboring country, the Democratic Republic of the Congo, which has had an impact on the entire Great Lakes region and has discouraged international companies from investing in this region. According to UNCTAD, in 2018 the country first requested a settlement of disputes between investors and States (in English ISDS) concerning mining rights on its territory, involving a foreign company. However, Rwanda offers many advantages to the investors: a large methane reserve, an expanding mining potential which remains to be explored and the reputation of being one of the least corrupt countries in Africa. Finally, the Government has continued to develop liberal policies to make Rwanda a hub of trade and services. This strategy has been very successful since the country has been considered one of the most reformist states of the past 15 years.

What to consider if you invest in Rwanda

Strong Points

Among the reasons to invest in Rwanda are:
-a steady and high growth rate (averaging over 7% in the last decade)
-it is one of the most favourable business environments on the African continent
-significant progress in governance and relative political stability
-low levels of corruption (for the standards of the region)
-important natural resources: the country has reserves of cassiterite, coltan, gold and precious stones (like aquamarine, ruby, sapphire)
-a high potential for the tourism industry
-governmental incentives for foreign investors.

Weak Points

Some of the factors that could hinder Rwanda’s attractiveness for FDIs are:
-a high dependence on commodity prices and international aid
-the country’s location, with exposure to geopolitical tensions in the Great Lakes region
-a high demographic pressure, with one of the highest population density rates in Africa
-a shortage of qualified labour
-its small domestic market and,
-insufficient coordination between the RDB, RRA, the Ministry of Trade and Industry and the Rwanda Directorate of Immigration and Emigration can lead to inconsistent application of incentives for FDIs.

Government Measures to Motivate or Restrict FDI

The government of Rwanda seeks to attract more foreign direct investments and in May 2015 approved a new Investment Code aimed at providing tax breaks and other incentives to investors, such as:
- for an international company with its headquarters or regional office in Rwanda, a preferential corporate income tax rate of 0%
- for any investor, a preferential corporate income tax rate of 15%
- corporate income tax holiday of up to 7 years
- exemption from taxation on capital gains
- exemption of customs tax for products used in Export Processing Zones
- VAT refund (foreign firms should receive VAT tax rebates within 15 days of receipt by the RRA, although many companies reported delays in the reimbursement process, from a few months up to several years in some cases)
- accelerated depreciation
- immigration documents facilitation
- various Special Economic Zones have been established, including the Kigali Free Zone (KFZ) and the Kigali Industrial Park free-trade zone.
Further details on benefits under the Investment Code can be accessed here: https://www.visitrwanda.com/investment/how-to-invest/one-stop-centre/