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Rwanda: Looking beyond economic growth numbers (Part one)

Written by Aimé Sindayigaya edited by Jules Niyibizi

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The narrative of the remarkable economic progress made by Rwanda post 1994 has dominated debates worldwide. Most of these accounts are centred on the impressive growth rate of the Gross Domestic Product (GDP) that Rwanda achieved in the last two decades and which has mainly stood at high single digits. However, as Moses Abramowitz, a renowned expert in business cycles and economic growth said in 1959: ”We must be highly sceptical of the view that long term changes in the rate of growth of welfare can be gauged even roughly from changes in the rate of growth of output”. Yet despite such cautions, economists and politicians often give the impression that GDP growth and well-being are nearly the same. What policy makers should be aiming for is welfare or well-being rather than more GDP for its sake (Coyle, 2014). A more in-depth analysis reveals that there is an increasing discrepancy between Rwanda’s reported economic progress story and the well-being of the majority of its population. The following account provides evidence of this and allows stakeholders to look beneath the reported economic growth numbers of Rwanda.

Household income

pic 6Whilst the Economist ranked Rwanda 10th on  the world’s fastest growing economies list in the world (2011) the African Development Bank (AfDB) ranked Rwanda  3rd smallest middle class economy among 44 African countries surveyed in its  report The Middle of The Pyramid: Dynamics of the Middle Class in Africa. The AfDB reported that only 2.6% of the Rwandan population is categorised as stable middle class with the capacity to spend between US$4 – US$20 per day. The floating middle class that is able to spend between US$2 – US$4 a day is estimated at 5.10% of the population in Rwanda. This class could fall back below the poverty threshold if exogenous economic shocks strike. Considering its high record of economic growth over the last two decades, one would have expected that Rwanda has developed a burgeoning middle class. Unfortunately this is not the case. Indeed only 82% of the country’s population continues to live on less than US$ 2 per day.  Moreover, the seemingly poverty reduction achieved in Rwanda is based on the country’s poverty line not on the international poverty threshold of US$1.25 per day. Had the former been used to measure poverty level in Rwanda, 63% of the country’s population would still be counted as living well below the poverty line in contrast to the official and widely reported figure of poverty level of 44.9%.

Income distribution

Not only is the average household income very low, but it is also unequally distributed in Rwanda.  A recent joint report by The United Nations Economic Commission for Africa (UNECA) and African Union (AU), entitled Dynamic industrial policy in Africa  revealed that inequality undermines effort to reduce poverty in Africa. The poorest 20% of the population often accounts for less than 10% of total income while the richest 10% controls from quarter to half of it or more in Africa. The report mentions Rwanda among the few African countries where the richest 10% earn more than 40% of total income and the poorest 10% earn between 3 and 5%. Rwanda’s Gini index[1] level is 0.49 and remains the highest among the East African Community[2] (EAC) member states. The Human Development level of Rwanda is affected by low and unequal distributed income in the country. This is because the level of household income determines the living standard of that household. A 2014 UNDP report shows that although Rwanda’s overall human development index (HDI) is increasing, the country loses 33.2% of its HDI due to inequality in life expectancy, education and income.

Unequal distribution of land among households across the country is a significant cause of the low and unequal average household income in Rwanda. The majority of Rwandans who live in rural areas earn their income through selling their harvest from their cultivated land(s) or through working as labourers on the land. However, there is an increasing inequality in land distribution in Rwanda according to a study on agricultural, technical and economic conditions and food security in the country, published by Internationale Zusammen arbeit in 2011. The study found that more than a quarter of agricultural households cultivated less than 0.2 ha in 2006. This happened despite the existence of land holdings of hundreds or even thousands of hectares in Rwanda. Interestingly, most of these lands are held by government and military representatives, other members of the urban elite and foreign investors. Land is increasingly becoming a precious asset in Rwanda. Persistent scarcity and unequal distribution of land make it a contentious asset in the country.

The increasing inequality of land distribution is intertwined with land rights inequality among households across the country. A study of land rights inequalities in Rwanda of 2011 revealed that households headed by women (35 % of all households in Rwanda are headed by women) or young persons, households who have been displaced due to conflict or people who resettled in village settlements referred to as “imidugudu” have weaker land rights. Therefore, it is not surprising that stakeholders with more influence and resources exploit inequalities in land rights and acquire lands from the vulnerable and the poor. Such land transfers from the majority that are vulnerable and poor towards the few that are rich works to the detriment of Rwanda’s economic and human development. This is so because it expands income inequalities within the country.

Inequality in household income is exacerbated by the fact that Rwanda is moving its economy from being an agrarian to a knowledge-based economy. Young people who have not access to quality education and gained relevant qualifications will be left behind and they are the majority. With noted low and unequal household income, only few can afford private schooling in Rwanda or abroad which offer better quality education than the public schools available in the country.  A global report by UNESCO published in 2012 reads in reference to Rwanda that “(…) it is not clear that ICT and other services, which tend not to create as many jobs as other types of industry, can help children of poor parents escape from poverty in a country where 90% of the population is engaged in agricultural production and the secondary gross enrolment ratio is only 36%”. Have  policy makers in Rwanda anticipated the social inequality that may rise as Rwanda is pursuing its vision to transform its economy from an agrarian economy to a knowledge-based economy?

The way forward

In their 2008 report that aimed at identifying the limits of GDP as an indicator of economic performance and social progress, Noble price winners Joseph Stiglitz and Amartya Sen; and Professor Jean Paul Fitoussi, recommended to shift emphasis from measuring economic production (GDP) to measuring people’s well-being by giving greater weight to household income and how this is distributed.  In the case of Rwanda, the aforementioned account suggests that the well-being of a large number of the country citizen is still very low despite high economic growth achieved by the country.

Alternative measures of well-being and social progress that should be given greater consideration include the human development index (HDI) that measures social progress in the income, health and education of a country population, and the happiness index that measures the quality of life and social progress in a more holistic and psychological term. Rwanda performs poorly in these measurements as well. Rwanda loses a significant portion of its HDI level due to inequality and the country is ranked among the bottom five countries on the world happiness index.

Low and unequal distribution of income and its driving factors are genuine challenges affecting many ordinary people in Rwanda, in spite of ongoing economic progress stories portrayed in the Rwandan and international media. Therefore, objectivity in narrating Rwanda’s economic progress story is a prerequisite along with looking beneath the reported macroeconomic progress of the country to accurately ascertain the actual economic performance of Rwanda. Click here to read part two


 

[1] GINI index measures the extent to which the distribution of income within an economy deviates from a perfectly equal distribution. A Gini index of or close to 0 represents perfect equality while an index of or close to 1 implies perfect inequality

[2] The EAC is the regional intergovernmental organisation of the Republics of Burundi, Kenya, Rwanda, Uganda and the United Republic of Tanzania.

The views expressed by the author in the above article are solely the author’s personal views and not his employer

Insightful Quotient is a website that encourages debates on how to achieve sustainable development in developing countries using an intercultural cooperation. Therefore, we welcome your insightful arguments that provide scrutiny and ideas that can elaborate further the analysis and suggestions detailed in this article.

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