Introduction

Government Policies

In 2001, the GOR issued the Poverty Reduction Strategy Paper (PRSP). The PRSP recognizes that a successful poverty reduction policy must be based on a high rate of growth of the economy. In this respect, following the liberalization measures introduced since 1996, the major challenges in the medium term are increasing export earnings, increasing agricultural production, supporting to non-farming activities in rural areas, and diversifying the economy, the latter comprising development of services, including information and communication technologies related services. A major emphasis is placed on market oriented education, to create a competitive, highly skilled labor force that can exploit fully the advantages of national bilingualism.

Strategic prongs specifically oriented to improving the economy of poor rural people and rural poverty reduction include: securing land tenure, development of micro-finance institutions based on savings mobilization, improved natural resource management and fight against land degradation, investing in rural transport and market infrastructure, participatory agricultural technology generation and transfer, demand driven agricultural research, measures to reduce rural food insecurity, and promotion of off-farm income generating activities and employment. The institutional reform aimed at strengthening the rural community representation in the lower levels of local public administrations, through a democratic election process is designed to increase representation and empowerment of the poor in the development planning and implementation process. The process of reconciliation is encouraged through dialogue and careful weighing of public interventions to avoid conflicts and discrimination.

Privatization Policy (with regards to the Tea sector): The privatization program set up by the GoR in 2003 concerned all 9 tea factories managed by OCIR-Thé. Assets proposed for the privatization include the factory, the industrial bloc, woodlots and social infrastructures (mainly workers’ houses). With regards to factories that are processing smallholders’ and/or smallholders’ cooperatives green leaves production, a percentage of their share capital after privatization will be allocated to smallholders or their cooperatives, such as follows: (a) 10% for smallholders and, (b) between 15 and 35% for cooperatives^[1] . In 2002/2003, MINECOFIN launched a pilot privatization process for 2 tea factories: Mulindi and Pfunda. Pfunda was successfully privatized in November 2004^[2] while Mulindi privatization offer has been removed from the market (price offered by private investors too low compared with the estimated industrial asset value and percentage of share capital detained by the Mulindi cooperative i.e. 35% considered too important by private investors).

In the light of the difficulties to negotiate the privatization of the remaining tea factories with private national and/or international investors, the Privatization Secretariat will contract a local consulting firm with a view to analyze the three following scenarios opted by the GoR for the privatization of the remaining tea factories: (a) sale of the tea factories assets to private investors with or without smallholders and/or cooperatives stake in the share capital, (b) leasing of the tea factories assets to private investors and, (c) management contract to operate tea factories awarded to private investors. The GoR has pushed aside the possibility of privatizing tea factories through smallholders holding 100% of their share capital. This option has been considered too risky with regards to the current lack of capacity of smallholders to effectively and efficiently own and manage a tea company^[3] . The results of this analysis will be available at the end of 2005 and the GoR final decision with regards to privatization of the 8 remaining tea factories will be taken during the first semester of 2006. This new deadline offers to the reformulated tea component time to set up and build up the financial resources of a smallholders’ financial institution that will be able to participate in the privatization process of the remaining tea factories.

Land Law: A new Land Law has been drafted and should be enacted by the GoR in 2006. The draft Land Law specifies that rural and agricultural land could be sold or leased to individuals or associations with legal personality. Terms and conditions for sales of land vary with the nature and size of the land. Terms and conditions for leasing contract are to be discussed on a case by case basis. Leasing duration is comprised between 3 and 99 years.

[1] With regards to share capital allocation for the 3 existing and registered cooperatives, the proposal of MINECOFIN through the Privatization Cabinet was as follows: 35% for the cooperative in Mulindi, 20% for the cooperative in Shagasha and 15% for the cooperative in Mwaga-Gisakura.

[2] Pfunda Tea Company Ltd share capital is held by a London-based company (LAB International) at 55%, the GoR holding the remaining 45%. In accordance with its privatization policy, the GoR has transferred 10% to the smallholders while the remaining 35% will be proposed to Rwandan investors. Price paid by LAB is USD 1.06 million. LAB has made affirm commitment to invest an additional USD 1 million to modernize and develop plantations in Pfunda. It has also committed to take over all employees currently working in the factory.

[3] The option consisting in smallholders holding 100% of the company and contracting out a tea specialist as Manager of the factory is also considered as too risky. In line with its policy aiming at promoting private investments, the GoR favors a mixed shareholding comprising of private investor(s) holding a major share and smallholders and/or smallholders’ cooperatives/associations holding a minor share specialized management

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