RURAL SMALL AND MICROENTERPRISE
PROMOTION PROJECT

THE ECONOMY, SECTORAL CONTEXT AND IFAD STRATEGY

1 The Economy and Rural Sector
2 Lessons Learned from Previous IFAD Experience
3 IFAD’s Strategy for Collaboration with Rwanda

The Economy and Rural Sector

Rwanda is a resource-poor, overpopulated country. Its population of about eight million is predominantly rural (90%) and growing at approximately 3% per year. The genocide of 1994 resulted in the destruction of much of the country’s social and economic infrastructure, human resource base and institutional capacity. The situation returned to normal with the restoration of peace and the return of refugees in 1995/96. The gross domestic product (GDP) in 1996 stood at only 72% of the 1990 level. Per capita income, which was USD 250 in 1993, fell to USD 180 in 1996 but had risen to USD 230 by 2001. Following the Government’s policy reforms to stimulate economic recovery, growth has been sustained. Fiscal balances improved substantially as a result of tax reform, prudent fiscal policies, recovery of exports and massive inflows of external grants and loans on highly concessional terms. The external value of the Rwandan franc has remained relatively stable. Nonetheless, low coffee prices and high petroleum prices have exerted significant pressure on the balance of payments.

Farming is the principal economic activity of the Rwandan people and agriculture is practised on all land types, including land of marginal quality and steep slopes. Rwanda’s agricultural growth of 0.5% per annum in the 1980s dropped to minus 3.9% in the 1990s. While production of the main crops has increased, yields have in many cases fallen. Much of the production increase has been achieved through expanding the cultivated area rather than through improved productivity. The slow economic growth in the agricultural sector reflects a constrained resource base, declining soil fertility and little use of modern inputs. Recognizing the limited opportunities for further employment in agriculture, the Government has adopted a policy of stimulating off-farm non-agricultural activities to increase rural income levels.

In its Vision 2020 and the Poverty Reduction Strategy, the Government identified six key objectives. In the context of this project the most pertinent are: rural and agricultural development to generate income outside agriculture and introduce new technologies; private sector promotion, including encouraging the formal organization of informal enterprises; human resource development; raising education levels and addressing HIV/AIDS issues (with a particular focus on gender); and improved governance, including decentralization and sectoral strategies.