Republic of Rwanda

Small and landlocked, the Republic of Rwanda is a hilly and fertile land of some 13.2 million inhabitants (2022). Located in the Great Rift Valley and known as the ‘land of a thousand hills’, Rwanda shares borders with the much larger Democratic Republic of Congo (DRC) to the west, as well as with three East African countries, Tanzania, Uganda and Burundi.

Since the genocide of 1994, Rwanda has maintained its political stability, with a parliament currently made up of a majority of women. The ruling Rwandan Patriotic Front party has an absolute majority in parliament and President Paul Kagame, who had the constitution revised in 2015, is currently serving his fourth term since taking office in March 2000. However, tensions along the border with the DRC threaten stability and the prospects for peace in the region.

On the economic front, Rwanda aspires to become an upper-middle-income country by 2035 and a high-income country by 2050 through its National Transition Strategies and Vision 2050. The aim is to transform Rwanda into an East African hub with modernised agriculture, knowledge-based industry and services, through economic growth and prosperity and a high quality of life and standard of living.

Before the onset of the Covid-19 pandemic in early 2020, Rwanda's economic growth exceeded 10% in 2019, mainly due to significant public investment in the implementation of the national transition strategy. In 2020, however, the containment and social distancing measures essential to controlling the Covid-19 pandemic had a negative impact on economic activity, with GDP falling by 3.4%, the first significant drop since 1994. However, Rwanda subsequently experienced a significant economic rebound. In 2022 and 2023, GDP grew by 8.9% and 8.2% respectively. Despite this growth, the country faces structural challenges such as headline inflation, which rose from 13.9% in 2022 to 14.3% in 2023, reflecting the fallout from the high cost of imported goods and low domestic food production.

The Rwandan economy is heavily dependent on significant public investment and has prioritised an inclusive economic growth programme, which involves close cooperation with the World Bank, the IMF and major Western donors (over 40% of the national budget is financed by international aid). The government's close cooperation with the International Monetary Fund and the World Bank has earned the country a reputation as a reliable and effective partner. As a result, its public debt has increased considerably in recent years. The debt-to-GDP ratio rose to 56.7% in 2019 (from 19.4% in 2010) and reached 71.3% of GDP in 2020, following an increase in borrowing requirements due to the pandemic. Thereafter, the ratio continued to rise, reaching 75.9% in 2021 and 81.6% in 2022. The risk of over-indebtedness is considered moderate thanks to the structure of the debt, which is largely made up of concessional loans. The private sector will have to play a greater role in ensuring economic growth. However, the small size of the domestic market, low domestic savings, skills shortages and the high cost of energy (the most expensive electricity in East Africa) are some of the main obstacles to private investment.

Overall, the main structural challenges facing Rwanda are a growing external debt, a constant balance of payments deficit (with agricultural exports in successive decline), very modest industrialisation, a restricted formal sector, a high rate of unemployment or underemployment of at least 40% of the working population (particularly affecting women and young people), growing income inequality between the top 10% and the rest of the population (although inequality has decreased at community and ethnic level), and heavy dependence on foreign aid. Sustaining strong long-term growth will depend on the country's ability to address these structural challenges.

Rwanda has achieved substantial improvements in health and living conditions: the infant mortality rate has fallen by more than two-thirds in 20 years, from 185 in 2000 to 41 in 2020 (the world average rate is 39 in 2020). Former health minister and paediatrician Diane Gashumba attributed this progress to the fact that 91% of births are now carried out in hospitals, thanks to improved health facilities and services. In addition, the country is close to achieving the goal of universal primary education. Nationally, life expectancy at birth has improved from 29 years in the mid-1990s to 67 years in 2022.

Luxembourg's intention to renew cooperation between the two countries was expressed by the Minister for Cooperation and Humanitarian Affairs, Franz Fayot, during his visit to Kigali in October 2021 as part of African Microfinance Week. The first project implemented by Luxembourg Cooperation in Rwanda dates back to 1989, and concerned the health sector. The other sectors targeted by Luxembourg's intervention were rural development, education and vocational training. Luxembourg Cooperation finalised the withdrawal of its bilateral cooperation with Rwanda at the end of 2013, after 25 years of presence in the country.

From 2022, Luxembourg Cooperation will focus its activities on the following three sectors: technical and vocational training, the environment, and inclusive and innovative finance. At the same time, human rights, good governance, gender equality and digitalisation are cross-cutting priorities that Luxembourg Cooperation integrates into all its projects.

Luxembourg Cooperation currently has four projects implemented by LuxDev in the three areas mentioned above. In addition, Luxembourg Cooperation contributes to Basket Funding for Pro-Poor Development, a fund designed to support the Rwandan government's efforts to promote local economic development and reduce poverty in the country's 16 most disadvantaged districts.

The Luxembourg Cooperation also has two delegated cooperation mandates in Rwanda:

• the cooperation mandate delegated to Enabel for the ‘Kwihaza’ project;
• the cooperation mandate delegated to the Agence française de développement for the ‘Support for technical training and employability in Rwanda’ (AFTER II) project in the field of vocational training.

LuxDev country office was set up in August 2022, to be fully operational in 2023.

Sources: World Bank, BTI Transformation Index