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RWANDA’S PARTY-STATALS:

Are they contributing or impeding development?




                                                                                   Nilgün Gökgür
                                                                       nilgun.gokgur@gmail.com
                                                                            Scholar-In-Residence
             Institute of Development Policy and Management (IOB), University of Antwerp, Belgium
                                                                       April 27, 2012 - ANTWERP
OUTLINE

•   DEFINITION OF PARTY-STATALS
•   RWANDA’S ACHIEVEMENTS IN PERSPECTIVE
•   PARTY-STATALS IN ENTERPRISE LANDSCAPE
•   THREE BIG INVESTMENT HOLDINGS AND SUBSIDIARIES
     – CRYSTAL VENTURES LIMITED – CVL (Former Tri-Star)
     – HORIZON GROUP LIMITED – HORIZON GROUP
     – RWANDA INVESTMENT GROUP SA - RIG
•   CROSS-OWNERSHIP WITH SOEs AND MILITARY ENTERPRISES
•   DEVELOPMENT IMPACT OF PARTY-STATALS
    – PARTY-STATAL EFFICIENCY
    – DISTRIBUTION OF BENEFITS AMONG STAKEHOLDERS
        •   RWANDAN GOVERNMENT AND DEVELOPMENT PARTNERS
        •   OWNERS AND OPERATORS
        •   DOMESTIC AND INTERNATIONAL COMPETITORS
        •   UNEMPLOYED AND UNDEREMPLOYED RWANDANS
        •   ORDINARY RWANDAN AS CONSUMERS
•   CONCLUSIONS AND RECOMMENDATIONS

                                                          2
WHAT ARE RWANDAN PARTY-STATALS?


 Party-statals are not state-owned enterprises (SOEs)
 Party-statals are owned either fully or partially by the ruling
  party (RPF) together with directly or indirectly by the
  Government of Rwanda (MINECOFIN), directly and indirectly by
  the military (MINADEF), and RPF-connected business elite
 There is NO political distance between Rwandan state and the
  party-state statals; “elite capture” in play
 No publicly available data exist on their legal status, exact
  shareholding structure, assets, accumulation of economic rent
  or profits, allocation of operating surplus to investment and
  social obligations; and their borrowings from the financial
  sector and payback rate
 No donor requested a study on impact assessment on
  stakeholders—government, donors, owners and operators,
  competitors, labor and ordinary Rwandans as consumers

                                                                3
PARTY-STATALS
Ruling Party (RPF), State, Military and Business Elite Connectivity


                     GOVERNMENT                       RULING PARTY -RPF
                      of RWANDA




        MINIDEF                   MINECOFIN- 30              RPF-linked
                                      SOEs                  Business Elite




     Horizon Group Ltd        Crystal Ventures            Rwanda Investment
     2006                     Limited (CVL -              Group SA (RIG)
     2 fully-owned;           Former Tri-Star since       2006
     6 partially-owned        1994)                       3 majority-owned
     (CVL, SOEs, RDB,         8 fully-owned;              with GoR as an
     and one UK firm as       2 partially owned           equity partner;
     equity partners)         (GoR, SOEs, and             3 partially owned
                              Horizon Group as            with SOEs as equity
                              equity partners)            partners



                                                                                4
RWANDA’S GROWTH AND DEVELOPMENT IN PERSPECTIVE


   ECONOMIC GROWTH (8% on average over the last decade)
   REDUCTION IN POVERTY and INEQUALITY
      Poverty declined from 56.7% in 2005/06 to 44.5% in 2010/11
      Gini Coefficient decreased from 0.52 in 2005/06 to 0.49 in 2010/11
   GOVERNANCE INDICATORS
      Economic Governance (government effectiveness and regularity
       quality)
      Institutional Governance (rule of law and control of corruption)
      Political Governance (voice and democratic accountability,
       political stability and absence of violence)
   PRODUCTIVE EMPLOYMENT CREATION RECORD ALARMING
      Decline in on-farm employment from 89% of the working
       population in 2001/2 to 72% in 2010/11
      Without commensurate increase in employment /job creation

                                                                            5
ECONOMIC INDICATORS EXPLAINING GROWTH
2006         2007           2008           2009         2010       2011
                                 GDP Growth
9.2            5.5           11.2           6.0          7.6        8.8
                    Share of Public Investments in GDP
6.9            7.8           10.4          10.0         11.1       10.7
     Share of Domestic Private Investments (including SOEs) in GDP
12.8          12.4           13.1          11.3         11.7       12.0
                Share of Foreign Direct Investments in GDP
 1.2           2.2            2.2           2.3          0.8        1.5
                   Share of Government Revenue in GDP
12.1          12.3           14.9          12.8         13.2       14.1
                      Share of Official Grants in GDP
 8.0          9.7            9.5           10.0         11.7       12.9



    Source: Compiled from IMF, World Economic Outlook Database, September 2011




                                                                                 6
SECTORAL SHARE OF GDP


Sectors              2006 2007 2008 2009 2010 2011
AGRICULTURE           38   36   32   34   32   32
INDUSTRY              14   14   15   14   15   16
Mining                 1    1    1    1    1    1
Manufacturing          7    6    6    6    7    7
Electricity&Water      0    0    0    0    0    0
Construction           6    6    8    7    7    8
SERVICES              42   45   46   45   47   46
Adjustments            6    6    6    6    6    6
TOTAL                100  100  100  100  100  100



Source: Compiled from NISR, GDP – NATIONAL ACCOUNTS 2011



                                                           7
RWANDA’S ENTERPRISE LANDSCAPE

Type of Businesses                            Number of             %          Persons             %
                                              Businesses                      Employed
Enterprise sector (including                   116,839              95         224,659             80
party-statals)
Cooperatives                                      1,877             1           25,264              9
Non-Profit Organizations                          4,238             3           16,968              6
Public/Mixed Sector/Health and                     572              1           15,105              5
Education
TOTAL                                           123,526            100         281,946             100


     Source: Compiled from Establishment Survey 2011

    Employment in enterprise sector constitutes only 16% of non-agricultural workforce of
    1,406,000 according to EICV3, Main Indicators Report, NISR, 2010/11; remaining 84% work
    predominantly in Household Enterprises (HEs), a sub-set of micro enterprises with one worker
    and un-paid household help, and 2% in public works.
EMPLOYMENT BY ECONOMIC SECTOR IN 2011


                                                            Share of     Share Of
                                                           Employment   Businesses
AGRICULTURAL SECTOR                                             8           0.5
INDUSTRIAL SECTOR                                              13           4.1
-Mining                                                        0.1          0.0
-Manufacturing                                                 9.4          3.7
-Construction                                                  2.0          0.0
-Electricity/Water                                             0.1          0.3
SERVICES SECTOR                                                79          95.4
-Retail trade/repair of motor vehicles and                    34.1         52.5
cycles/transportation, storage
-Accommodation/food service activity                          21.2         26.7
-Other services                                               23.7         15.8
TOTAL IN PERCENTAGES                                          100          100
TOTAL EMPLOYMENT AND BUSINESSES                             281,946      123,526



      Source: Compiled from NISR, Enterprise Survey 2011


                                                                                     9
DISTRIBUTION OF EMPLOYMENT BY SIZE-CATEGORY IN 2011

                  Kigali       Southern     Western    Northern    Eastern    TOTAL
                   City        Province     Province    Province   Province
                                    LARGE (+100 Workers)
Businesses          51             16          22          12         5        106
Employment        12,600         4,900       17,800       8,800      900      45,100
                                MEDIUM (30 – 100 Workers)
Businesses         204            123          74          71        41        513
Employment        10,100         5,800       3,400        3,400     1,900     24,600
                                   SMALL (4 – 30 Workers)
Businesses        3,147          1,508       1,518        1,242     1,133      8,548
Employment        25,400        12,800       11,500       9,700     8,200     67,000
                                    MICRO (1 – 3 Workers)
Businesses        25,767        22,253       24,147      20,750     21,412    114,329
Employment        34,300        27,400       29,400      27,000     26,400    144,600

  Source: Compiled from NISR, Establishment Survey 2011




                                                                                10
FACTORS EXPLAINING TINY SIZE OF ENTERPRISE SECTOR


• Unsuccessful/failed privatization program
   •   Not proper sequencing of reforms for competition and regulation
   •   No proper competitive tendering process
   •   No Competition Law-Policy or Competition Commission
   •   Only in November 2011 Competition and Consumer Protection
       Law passed the Parliament / Ineffective Competition Unit at
       MINICOM
• Expansion of Party-statals over last 18 years
   • Now owners and operators of several privatized entities
   • Increasing cross-ownerships with the SOEs and the military
     enterprise and among themselves
   • Inevitable and unavoidable “elite capture”
   • Economic weight (share in GDP, investments and employment)
     and share in financial sector NOT yet measured but high and
     increasing….
THREE INVESTMENT HOLDINGS and SUBSIDIARIES IN VARIOUS
                 ECONOMIC SECTORS, 1994-2012

   CRYSTAL VENTURES             HORIZON GROUP LIMITED            RWANDA INVESTMENT
        LIMITED                        FULLY-OWNED                 GROUP (RIG) SA
        FULLY-OWNED             Horizon Construction 2006            MAJORITY-OWNED
Real Contractors 2005           Horizon Logistics 2006          CIMERWA 2006
NPD/CONTRACO 1996                                               RWANDA Energy Company
MUTARARA Enterprises 1995             PARTIALLY-OWNED           2008
INYANGE Industries 1997         Horizon Sopyra 2009             Peat Energy Company 2009
BOURBON COFFEE SHOPS            Gaculiro Property Developers    Multisectoral Investment
2007                            (GPD) 2008                      Group (MIG) 2008
GRAPHIC PRINTING                Building Materials Industries
SOLUTIONS 2009                  (BMI) 2009                             MINORITY-OWNED
INTERSEC SECURITY 1994          Commercial Complex in Kigali    Ultimate Concepts 2010
MEDIA GROUP SYSTEMS ?           2010                            Kigali Convention Center 2011
      PARTIALLY-OWNED           Green Horizon 2010              (in the process of getting its
MTN RwandaCell 1997                                             financing together despite
                                Africa Agropharm 2011
                                                                having reached IMF’s ceiling
Building Material Investments                                   of US$ 250 for non-
(BMI) Limited—East African                                      concessionary loans)
Granite and Ruliba Clays 2009


                                                                                         12
PARTY-STATAL CROSS-OWNERSHIP WITH
                 STATE-OWNED AND MILITARY ENTERPRISES
                             Year           Direct and Indirect Equity Participation in Party-
                          Established                             Statals
Caisse Sociale du            1962         CVL, Building Materials Industries (BMI), Real
Rwanda (CSR)                              Contractors (Kacyiru Apartments); Horizon Group,
                                          Gaculiro Property Developers (GPD), Building
                                          Materials Industries Ltd.(including East Africa
                                          Granite Industries and Ruliba Clays Ltd.); RIG,
                                          CIMERWA, Kigali Convention Center
Primeholdings                 2003        RIG directly, Ultimate Concepts, Kigali Convention
                                          Center directly, and indirectly in all other
                                          subsidiaries
Military Medical              2005        Horizon Group directly and indirectly in all its
Insurance Scheme                          subsidiary companies
(MMI)
ZIGAMA-Credit and             1999        Horizon Group, Horizon Construction, Horizon
Savings Society                           Sopyrwa, Horizon Logistics, Gaculiro Property
(CSS/Micro Finance                        Developers (GPD), Green Horizon, Commercial
Institution)                              Complex in Kigali City, Building Materials Ltd., Africa
                                          Agropharm




      Source: Compiled from data on party-statal websites and SOEs from MINECOFIN
                                                                                          13
IMPACT ON PARTY-STATALS ON EFFICIENCY


• FAVORABLE ACCESS TO STATE RESOURCES THROUGH
  GOVERNMENT CONTRACTS
     • PRIVILEGED POSITION IN PROCUREMENT
     • NO INCENTIVE MECHANISM TO DETECT INEFFICIENCY AND
       RENT-WITHDRAWAL SIMILAR TO ASIAN COUNTRIES
     • CASE STUDY: MERGING HOUSING BANK OF RWANDA (HBR)
       WITH RWANDA DEVELOPMENT BANK (April 2011) AFTER POOR
       PERFORMANCE OVER THE YEARS
• GUARANTEES OF FIXED ASSETS AND FIXED RENTS
     • PARTY-STATALS OPERATE WITH CONFIDENCE IN FIXED
       RENTS AS WELL AS FIXED GUARANTEES IN THE ABSENCE OF
       ANY PROPER RENT-MANAGEMENT SYSTEM
     • CASE STUDY: CIMERWA; GoR HAD TO INCREASE ITS EQUITY
       IN CIMERWA TO BORROW AND GUARANTEE LOANS FROM
       KENYA COMMERCIAL BANK AND AFRICAN DEVELOPMENT
       BANK FOR THE NEW PLANT; CIMERWA DID NOT INVEST AND
       INCREASE PRODUCTION, RWANDA HAD TO IMPORT AT HIGH
       PRICES. (October 2100)                            14
IMPACT OF PARTY-STATALS ON STAKEHOLDERS
•   RWANDAN GOVERNMENT AND DEVELOPMENT PARTNERS (NEGATIVE)
     • INCREASE AND DECREASE IN NET FISCAL FLOWS FROM INEFFICIENTLY
       OR EFFICIENTLY OPERATING ENTERPRISES

•   OWNERS AND OPERATORS OF ENTERPRISES (POSITIVE)
     • INCREASE IN PROFITS AND DIVIDENDS FROM EFFICIENT OPERATIONS
     • CROSS-SUBSIDIZATION POSSIBLY LEADING TO NEGATIVE GAINS

•   DOMESTIC AND INTERNATIONAL COMPETITORS (NEGATIVE)
     • DOMESTIC BUSINESSES WITHOUT CLOSE TIES TO RPF EXCLUDED
         • HIGH MARKET CONCENTRATION OF PARTY-STATALS
         • LARGE DEMAND ON DOMESTIC BANK BORROWING
         • PREFERENTIAL TREATMENT IN GOVERNMENT PROCUREMENT, IN
           TAXATION, IN USE OF SUB-CONTRACTORS RPF-LINKED SMEs
     • INTERNATIONAL BUSINESSES WITHOUT CLOSE TIES TO GOR
       EXCLUDED

•   UNEMPLOYED AND UNDER-EMPLOYED RWANDANDS (NEGATIVE)

•   ORDINARY RWANDANS AS CONSUMERS (NEGATIVE)
                                                                     15
CONCLUSIONS AND RECOMMENDATIONS


 TRANSPARENCY-LED REFORMS
    ENHANCING TRANSPARENCY AND DISCLOSURE
    MEASURING AND MONITORING STATE AND PARTY-STATAL
     RELATIONS IN TWO SEPARATE CATEGORIES:
       TWO CONSTRUCTION COMPANIES: CVL’s NPD/CONTRACO (civil
        works) and HORIZON CONSTRUCTION (building roads): PERHAPS
        NATION-BUILDERS BUT AT WHAT COST?
       REST OF CONTRUCTION PARTY-STATALS, CONSUMER GOODS
        PRODUCERS, AND OTHER PARTY-STATALS
    FORMULATING PRODUCTIVITY-AND-JOB-RICH GROWTH
 SEPARATING SOEs AND MILITARY ENTEPRISE FROM PARTY-
  STATALS
    INCREASING COMPETITION AMONG CONSUMER GOODS
     PRODUCING PARTY-STATALS AND THE ENTERPRISE SECTOR
 DEVELOPING EXIT STRATEGY FOR PARTY-STATALS
    ASSETS COULD BE TRANSFERRED TO PUBLIC SECTOR
    ASSETS COULD BE TRANSFERRED TO A TRUST FUND


                                                                    16

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Ppt nilgun gokgur rwanda’s party statals- april 27 2012

  • 1. RWANDA’S PARTY-STATALS: Are they contributing or impeding development? Nilgün Gökgür nilgun.gokgur@gmail.com Scholar-In-Residence Institute of Development Policy and Management (IOB), University of Antwerp, Belgium April 27, 2012 - ANTWERP
  • 2. OUTLINE • DEFINITION OF PARTY-STATALS • RWANDA’S ACHIEVEMENTS IN PERSPECTIVE • PARTY-STATALS IN ENTERPRISE LANDSCAPE • THREE BIG INVESTMENT HOLDINGS AND SUBSIDIARIES – CRYSTAL VENTURES LIMITED – CVL (Former Tri-Star) – HORIZON GROUP LIMITED – HORIZON GROUP – RWANDA INVESTMENT GROUP SA - RIG • CROSS-OWNERSHIP WITH SOEs AND MILITARY ENTERPRISES • DEVELOPMENT IMPACT OF PARTY-STATALS – PARTY-STATAL EFFICIENCY – DISTRIBUTION OF BENEFITS AMONG STAKEHOLDERS • RWANDAN GOVERNMENT AND DEVELOPMENT PARTNERS • OWNERS AND OPERATORS • DOMESTIC AND INTERNATIONAL COMPETITORS • UNEMPLOYED AND UNDEREMPLOYED RWANDANS • ORDINARY RWANDAN AS CONSUMERS • CONCLUSIONS AND RECOMMENDATIONS 2
  • 3. WHAT ARE RWANDAN PARTY-STATALS?  Party-statals are not state-owned enterprises (SOEs)  Party-statals are owned either fully or partially by the ruling party (RPF) together with directly or indirectly by the Government of Rwanda (MINECOFIN), directly and indirectly by the military (MINADEF), and RPF-connected business elite  There is NO political distance between Rwandan state and the party-state statals; “elite capture” in play  No publicly available data exist on their legal status, exact shareholding structure, assets, accumulation of economic rent or profits, allocation of operating surplus to investment and social obligations; and their borrowings from the financial sector and payback rate  No donor requested a study on impact assessment on stakeholders—government, donors, owners and operators, competitors, labor and ordinary Rwandans as consumers 3
  • 4. PARTY-STATALS Ruling Party (RPF), State, Military and Business Elite Connectivity GOVERNMENT RULING PARTY -RPF of RWANDA MINIDEF MINECOFIN- 30 RPF-linked SOEs Business Elite Horizon Group Ltd Crystal Ventures Rwanda Investment 2006 Limited (CVL - Group SA (RIG) 2 fully-owned; Former Tri-Star since 2006 6 partially-owned 1994) 3 majority-owned (CVL, SOEs, RDB, 8 fully-owned; with GoR as an and one UK firm as 2 partially owned equity partner; equity partners) (GoR, SOEs, and 3 partially owned Horizon Group as with SOEs as equity equity partners) partners 4
  • 5. RWANDA’S GROWTH AND DEVELOPMENT IN PERSPECTIVE  ECONOMIC GROWTH (8% on average over the last decade)  REDUCTION IN POVERTY and INEQUALITY  Poverty declined from 56.7% in 2005/06 to 44.5% in 2010/11  Gini Coefficient decreased from 0.52 in 2005/06 to 0.49 in 2010/11  GOVERNANCE INDICATORS  Economic Governance (government effectiveness and regularity quality)  Institutional Governance (rule of law and control of corruption)  Political Governance (voice and democratic accountability, political stability and absence of violence)  PRODUCTIVE EMPLOYMENT CREATION RECORD ALARMING  Decline in on-farm employment from 89% of the working population in 2001/2 to 72% in 2010/11  Without commensurate increase in employment /job creation 5
  • 6. ECONOMIC INDICATORS EXPLAINING GROWTH 2006 2007 2008 2009 2010 2011 GDP Growth 9.2 5.5 11.2 6.0 7.6 8.8 Share of Public Investments in GDP 6.9 7.8 10.4 10.0 11.1 10.7 Share of Domestic Private Investments (including SOEs) in GDP 12.8 12.4 13.1 11.3 11.7 12.0 Share of Foreign Direct Investments in GDP 1.2 2.2 2.2 2.3 0.8 1.5 Share of Government Revenue in GDP 12.1 12.3 14.9 12.8 13.2 14.1 Share of Official Grants in GDP 8.0 9.7 9.5 10.0 11.7 12.9 Source: Compiled from IMF, World Economic Outlook Database, September 2011 6
  • 7. SECTORAL SHARE OF GDP Sectors 2006 2007 2008 2009 2010 2011 AGRICULTURE 38 36 32 34 32 32 INDUSTRY 14 14 15 14 15 16 Mining 1 1 1 1 1 1 Manufacturing 7 6 6 6 7 7 Electricity&Water 0 0 0 0 0 0 Construction 6 6 8 7 7 8 SERVICES 42 45 46 45 47 46 Adjustments 6 6 6 6 6 6 TOTAL 100 100 100 100 100 100 Source: Compiled from NISR, GDP – NATIONAL ACCOUNTS 2011 7
  • 8. RWANDA’S ENTERPRISE LANDSCAPE Type of Businesses Number of % Persons % Businesses Employed Enterprise sector (including 116,839 95 224,659 80 party-statals) Cooperatives 1,877 1 25,264 9 Non-Profit Organizations 4,238 3 16,968 6 Public/Mixed Sector/Health and 572 1 15,105 5 Education TOTAL 123,526 100 281,946 100 Source: Compiled from Establishment Survey 2011 Employment in enterprise sector constitutes only 16% of non-agricultural workforce of 1,406,000 according to EICV3, Main Indicators Report, NISR, 2010/11; remaining 84% work predominantly in Household Enterprises (HEs), a sub-set of micro enterprises with one worker and un-paid household help, and 2% in public works.
  • 9. EMPLOYMENT BY ECONOMIC SECTOR IN 2011 Share of Share Of Employment Businesses AGRICULTURAL SECTOR 8 0.5 INDUSTRIAL SECTOR 13 4.1 -Mining 0.1 0.0 -Manufacturing 9.4 3.7 -Construction 2.0 0.0 -Electricity/Water 0.1 0.3 SERVICES SECTOR 79 95.4 -Retail trade/repair of motor vehicles and 34.1 52.5 cycles/transportation, storage -Accommodation/food service activity 21.2 26.7 -Other services 23.7 15.8 TOTAL IN PERCENTAGES 100 100 TOTAL EMPLOYMENT AND BUSINESSES 281,946 123,526 Source: Compiled from NISR, Enterprise Survey 2011 9
  • 10. DISTRIBUTION OF EMPLOYMENT BY SIZE-CATEGORY IN 2011 Kigali Southern Western Northern Eastern TOTAL City Province Province Province Province LARGE (+100 Workers) Businesses 51 16 22 12 5 106 Employment 12,600 4,900 17,800 8,800 900 45,100 MEDIUM (30 – 100 Workers) Businesses 204 123 74 71 41 513 Employment 10,100 5,800 3,400 3,400 1,900 24,600 SMALL (4 – 30 Workers) Businesses 3,147 1,508 1,518 1,242 1,133 8,548 Employment 25,400 12,800 11,500 9,700 8,200 67,000 MICRO (1 – 3 Workers) Businesses 25,767 22,253 24,147 20,750 21,412 114,329 Employment 34,300 27,400 29,400 27,000 26,400 144,600 Source: Compiled from NISR, Establishment Survey 2011 10
  • 11. FACTORS EXPLAINING TINY SIZE OF ENTERPRISE SECTOR • Unsuccessful/failed privatization program • Not proper sequencing of reforms for competition and regulation • No proper competitive tendering process • No Competition Law-Policy or Competition Commission • Only in November 2011 Competition and Consumer Protection Law passed the Parliament / Ineffective Competition Unit at MINICOM • Expansion of Party-statals over last 18 years • Now owners and operators of several privatized entities • Increasing cross-ownerships with the SOEs and the military enterprise and among themselves • Inevitable and unavoidable “elite capture” • Economic weight (share in GDP, investments and employment) and share in financial sector NOT yet measured but high and increasing….
  • 12. THREE INVESTMENT HOLDINGS and SUBSIDIARIES IN VARIOUS ECONOMIC SECTORS, 1994-2012 CRYSTAL VENTURES HORIZON GROUP LIMITED RWANDA INVESTMENT LIMITED FULLY-OWNED GROUP (RIG) SA FULLY-OWNED Horizon Construction 2006 MAJORITY-OWNED Real Contractors 2005 Horizon Logistics 2006 CIMERWA 2006 NPD/CONTRACO 1996 RWANDA Energy Company MUTARARA Enterprises 1995 PARTIALLY-OWNED 2008 INYANGE Industries 1997 Horizon Sopyra 2009 Peat Energy Company 2009 BOURBON COFFEE SHOPS Gaculiro Property Developers Multisectoral Investment 2007 (GPD) 2008 Group (MIG) 2008 GRAPHIC PRINTING Building Materials Industries SOLUTIONS 2009 (BMI) 2009 MINORITY-OWNED INTERSEC SECURITY 1994 Commercial Complex in Kigali Ultimate Concepts 2010 MEDIA GROUP SYSTEMS ? 2010 Kigali Convention Center 2011 PARTIALLY-OWNED Green Horizon 2010 (in the process of getting its MTN RwandaCell 1997 financing together despite Africa Agropharm 2011 having reached IMF’s ceiling Building Material Investments of US$ 250 for non- (BMI) Limited—East African concessionary loans) Granite and Ruliba Clays 2009 12
  • 13. PARTY-STATAL CROSS-OWNERSHIP WITH STATE-OWNED AND MILITARY ENTERPRISES Year Direct and Indirect Equity Participation in Party- Established Statals Caisse Sociale du 1962 CVL, Building Materials Industries (BMI), Real Rwanda (CSR) Contractors (Kacyiru Apartments); Horizon Group, Gaculiro Property Developers (GPD), Building Materials Industries Ltd.(including East Africa Granite Industries and Ruliba Clays Ltd.); RIG, CIMERWA, Kigali Convention Center Primeholdings 2003 RIG directly, Ultimate Concepts, Kigali Convention Center directly, and indirectly in all other subsidiaries Military Medical 2005 Horizon Group directly and indirectly in all its Insurance Scheme subsidiary companies (MMI) ZIGAMA-Credit and 1999 Horizon Group, Horizon Construction, Horizon Savings Society Sopyrwa, Horizon Logistics, Gaculiro Property (CSS/Micro Finance Developers (GPD), Green Horizon, Commercial Institution) Complex in Kigali City, Building Materials Ltd., Africa Agropharm Source: Compiled from data on party-statal websites and SOEs from MINECOFIN 13
  • 14. IMPACT ON PARTY-STATALS ON EFFICIENCY • FAVORABLE ACCESS TO STATE RESOURCES THROUGH GOVERNMENT CONTRACTS • PRIVILEGED POSITION IN PROCUREMENT • NO INCENTIVE MECHANISM TO DETECT INEFFICIENCY AND RENT-WITHDRAWAL SIMILAR TO ASIAN COUNTRIES • CASE STUDY: MERGING HOUSING BANK OF RWANDA (HBR) WITH RWANDA DEVELOPMENT BANK (April 2011) AFTER POOR PERFORMANCE OVER THE YEARS • GUARANTEES OF FIXED ASSETS AND FIXED RENTS • PARTY-STATALS OPERATE WITH CONFIDENCE IN FIXED RENTS AS WELL AS FIXED GUARANTEES IN THE ABSENCE OF ANY PROPER RENT-MANAGEMENT SYSTEM • CASE STUDY: CIMERWA; GoR HAD TO INCREASE ITS EQUITY IN CIMERWA TO BORROW AND GUARANTEE LOANS FROM KENYA COMMERCIAL BANK AND AFRICAN DEVELOPMENT BANK FOR THE NEW PLANT; CIMERWA DID NOT INVEST AND INCREASE PRODUCTION, RWANDA HAD TO IMPORT AT HIGH PRICES. (October 2100) 14
  • 15. IMPACT OF PARTY-STATALS ON STAKEHOLDERS • RWANDAN GOVERNMENT AND DEVELOPMENT PARTNERS (NEGATIVE) • INCREASE AND DECREASE IN NET FISCAL FLOWS FROM INEFFICIENTLY OR EFFICIENTLY OPERATING ENTERPRISES • OWNERS AND OPERATORS OF ENTERPRISES (POSITIVE) • INCREASE IN PROFITS AND DIVIDENDS FROM EFFICIENT OPERATIONS • CROSS-SUBSIDIZATION POSSIBLY LEADING TO NEGATIVE GAINS • DOMESTIC AND INTERNATIONAL COMPETITORS (NEGATIVE) • DOMESTIC BUSINESSES WITHOUT CLOSE TIES TO RPF EXCLUDED • HIGH MARKET CONCENTRATION OF PARTY-STATALS • LARGE DEMAND ON DOMESTIC BANK BORROWING • PREFERENTIAL TREATMENT IN GOVERNMENT PROCUREMENT, IN TAXATION, IN USE OF SUB-CONTRACTORS RPF-LINKED SMEs • INTERNATIONAL BUSINESSES WITHOUT CLOSE TIES TO GOR EXCLUDED • UNEMPLOYED AND UNDER-EMPLOYED RWANDANDS (NEGATIVE) • ORDINARY RWANDANS AS CONSUMERS (NEGATIVE) 15
  • 16. CONCLUSIONS AND RECOMMENDATIONS  TRANSPARENCY-LED REFORMS  ENHANCING TRANSPARENCY AND DISCLOSURE  MEASURING AND MONITORING STATE AND PARTY-STATAL RELATIONS IN TWO SEPARATE CATEGORIES:  TWO CONSTRUCTION COMPANIES: CVL’s NPD/CONTRACO (civil works) and HORIZON CONSTRUCTION (building roads): PERHAPS NATION-BUILDERS BUT AT WHAT COST?  REST OF CONTRUCTION PARTY-STATALS, CONSUMER GOODS PRODUCERS, AND OTHER PARTY-STATALS  FORMULATING PRODUCTIVITY-AND-JOB-RICH GROWTH  SEPARATING SOEs AND MILITARY ENTEPRISE FROM PARTY- STATALS  INCREASING COMPETITION AMONG CONSUMER GOODS PRODUCING PARTY-STATALS AND THE ENTERPRISE SECTOR  DEVELOPING EXIT STRATEGY FOR PARTY-STATALS  ASSETS COULD BE TRANSFERRED TO PUBLIC SECTOR  ASSETS COULD BE TRANSFERRED TO A TRUST FUND 16