Politics & Policy

Rwanda’s Economic Miracle

As America dithers, Rwanda follows the free-market path to prosperity.

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.”

#ad#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.”

#page#While Washington Democrats are too protectionist to pass free-trade agreements with either Colombia or Panama, Rwanda has joined Burundi, Kenya, Tanzania, and Uganda in the East African Community (EAC), a NAFTA-style pact. The EAC has lowered its import tariffs on consumer products from 30 percent to 25, and on intermediate goods from 15 percent to 10. Capital machinery and raw materials now face no import taxes whatsoever. Rwanda also has opened its oft-shuttered borders. Goods now can cross these frontiers 24/7.

The Bush and Obama administrations greeted the 2008 economic crisis and its aftermath by nationalizing AIG, Chrysler, Fannie Mae, Freddie Mac, GM, and other organizations. Obama subsequently led Democrats in a federal heist of the health-care industry.

#ad#Meanwhile, Rwanda identified 72 state-owned companies for privatization and has sold off all but ten, including hotels, banks, and the national telephone company.

Once liberated from the government’s all-too-visible hand, newly privatized tea companies began to grow “orthodox” or long-leaf tea, target niche markets, and sell green tea as well as smooth and invigorating black varieties. Such innovations already have pushed industry revenues from $22 million in 2003 to $56 million in 2009. Amazingly, Rwanda’s largest tea company, Sorwathe in Kinihira, now exports green tea to China. This is like shipping petroleum to Saudi Arabia.

Cally Alles, general manager of Sorwathe’s tea plant, conducts quality control on his factory’s product.

Cally Alles, general manager of Sorwathe’s factory, is one of Rwanda’s chief employers. He has a payroll of some 3,000 workers and maintains contracts with farmers who cultivate the scenic tea plantations that surround his mountain-top facility. He very much appreciates the Rwandan government’s pro-business attitude. “The president himself meets us personally,” Alles says, after hosting a delightful lunch overlooking a luxuriant valley bright-green with tea bushes. “He has met us once a year. And he now has promised to meet us twice a year. I don’t think you can ask for more than that in terms of good relations between an investor and a government.”

Alles recalls when the government attempted to encroach excessively upon his enterprise. “The Tea Authority felt that they should have their own representative at every factory, either to police or, as they said, control everything that’s going on in the factories,” Alles remembers. “We asked them who was going to pay for his salary, his lodging, his board. It appeared that eventually we would be paying for him. We didn’t really think it was necessary. So we complained to the president at one of these meetings. And he promptly called the Tea Authority up and asked them what they were trying to do. The president is very bright. He understood very quickly the problem. He told them, ‘That’s not the way you do things. You don’t put an inspector in every taxi, just to control things . . . or someone at the reception desk in every hotel.’ And so, the Tea Authority promptly withdrew that. Sanity prevailed.”

The author inspects samples of tea, from freshly picked leaves to the strong stuff that helps him cope every morning.

For all of their celebrated progress, Rwandans still have concerns. “I really would like the private sector to measure up. And for us to do this, we need easier access to finance,” pleads tour promoter Jacqui M. Sebageni of Thousand Hill Expeditions. “If we could have an easier way of borrowing money, let’s say, then I think we would step up to the plate.”

Rwandans reel under 18- to 24-percent interest rates. Credit cards are rarely accepted, and Rwandan francs elicit cold stares among currency-exchange clerks at the airports in Nairobi and Amsterdam. Monetary reform would be a wise addition to Rwanda’s national to-do list.

Rwanda remains poor; it has miles to climb before reaching even Kenya’s level of per-capita GDP ($535 vs. $911). But it has transcended its recent genocidal past and is on the move. Rwanda improves steadily and does so with infectious self-confidence. These days, alas, it’s hard to say that about America.

— New York commentator Deroy Murdock is a nationally syndicated columnist with the Scripps Howard News Service and a media fellow with the Hoover Institution on War, Revolution and Peace at Stanford University. Murdock visited Rwanda thanks to a grant from the SEVEN Fund of Cambridge, Mass. The views expressed here are his own and do not necessarily reflect those of the SEVEN Fund.

Deroy Murdock is a Manhattan-based Fox News contributor and a contributing editor of National Review Online.

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