Kigali, Rwanda — It must puzzle Rwandans to watch the loud squabbling between and within America’s political parties over keeping old tax cuts for just two more years.
President Obama on Tuesday defended his tax-cut deal with Republican lawmakers by calling them “hostage takers.” Obama’s fellow Democrat, New York congressman Anthony Weiner, complained that the president “seems to go from zero to compromise in 3.5 seconds.”
The Washington Wrestling Federation is a world away in style and substance from today’s Rwanda. During a four-day visit here, I found that the enthusiastic consensus for pursuing the free-market path out of poverty resembled an Amish barn-raising. Rather than practicing the class warfare that cripples America, Rwandans are pulling together to become prosperous.
“What Rwanda has to offer is really a vision for the private sector,” says Jean-Philippe Kayobotsi, private-sector adviser to President Paul Kagame. “Over the years, we have made drastic reforms to improve the investment climate.” In the World Bank’s Doing Business index, Rwanda was ranked the No. 1 reformer in the world last year and No. 2 this year. Kayobotsi, a University of Chicago Business School graduate, adds, “We intend to continue reforming in order for Rwanda to be the easiest place in Africa to do business. . . . We intend to continue the reform process and deepen the reform process so that, ultimately, we can become the Singapore of Africa.”
With annual growth averaging 8 percent since 2004, Rwanda is becoming increasingly self-reliant. “In 1995,” says Patrick Kabagema of Rock Global Consulting, “foreign aid was 100 percent of the government budget. Today, it’s 40 percent. Give another ten years to Rwanda, and there will be no foreign aid.”
In the World Bank’s 2011 report, Rwanda is tied with America as Earth’s ninth-easiest country in which to start a business. As recently as 2008, Rwanda was ranked No. 71. Overall, Rwanda has moved from the 150th-best place to do business in 2008 to 58th for 2011. Only Georgia (the nation) has scaled that ladder more quickly.
The Rwanda Development Board promises to register new companies in just one day, down from a two-month wait — or worse — before these procedures were reformed.
Through the Rwanda Development Board (RDB), explains Robert Bayigamba, chairman of the Private Sector Federation, “we are able to have the business-registration process finished in 24 hours. It’s now one single window where all the authorizations are given. From land to the permit to stay in Rwanda, anything you need, the representatives of those organizations are sitting in the same building.” The cost “depends on your business plan, but generally is no more than $1,000.”
Before the RDB’s “one-stop center” opened in 2008, Bayigamba says, this process took “maybe more than two or three months. It took that long to apply from one department to another. And it also cost a percentage of the investment capital. So if you decided to invest $20 million, you had to pay 2 percent — in the beginning. That has been removed.” This alone would save such an investor $400,000 in upfront fees.
At this writing, Americans still have no clue what tax structure will apply on New Year’s Day. Rwanda’s leaders play no such games with their people’s finances.
“We are focused on making it simpler for businesses to get into the tax system and be compliant,” says Emmanuel Hategeka, permanent secretary of the Ministry of Trade and Industry. “One of the things we are looking at is a flat-tax system, which is currently under study. . . . A number of options are on the table, including a 15 percent flat-tax rate.”
Rwanda has ditched its capital-gains tax, dropped its 6 percent “arrival tax” on investment capital, dumped export taxes, decreased dividend-withholding taxes from 15 percent to 5 percent, and accelerated depreciation on purchased assets. Ranging from 20 to 28 percent, Rwanda’s corporate taxes easily trounce America’s 35-percent business levy.
America’s housing market suffers, at least partially, because sliced and diced mortgage-backed securities have muddied the titles on many homes. In contrast, Rwanda opened the National Land Center in 2008. “That center is there to address some of the major land issues we have, including identifying, measuring, and titling all of the land parcels in the country, and clearly attaching a parcel to an owner,” Hategeka notes. “Of course, that is going to help us a great deal in terms of avoiding social conflicts because everybody knows his parcel. It also is going to be easier to issue titles. . . . These titles can be used as collateral to get loans, and so on and so forth.”