Quick thought: Freedom or prosperity – the question for Rwandans

When people hear the name Rwanda, they think one of two things. They think of the atrocities of the Rwandan genocide, or of the movie hotel Rwanda, which is about the Rwandan genocide. It is unbelievable how those 100 brutal days still shape the way in which the world views the country over 20 years later. So what has actually happened in the tiny landlocked nation over the last two decades?

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To be brief, a lot has happened. Paul Kagame, Rwanda’s president, is clear evidence that democracy is not necessary to achieve growth. Kagame has already ruled for 18 years and a constitutional amendment may see him remain in power until 2034. Many outside of Rwanda, especially in the West highly criticize his inability to create a democracy, however his most loyal supporters back home in Rwanda will quickly let you know that votes cannot be eaten. Kagame, following the model of Singapore’s founder, Lee Kuan Yew, has almost single handedly lifted millions of Rwandans out of poverty.

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At first glance, he may seem like the typical African president, remaining in power for an extended period in order to ransack the nation. However, he prioritized national development when taking office in 2000, and since then, Rwanda has been one of the fastest developing countries in the world. Kagame is in fact so adored in the region, that he was elected as Chairperson for the African Union for 2018.

Although, Kagame has an ocean of critics, including human rights groups, he lets his work speak for itself. There is only one legal opposition party, and on more than one occasion, non-approved politicians that attempted to campaign for office were jailed. This shows that their is still significant room for improvement, but Kagame thinks he is the man for the job, and what he has achieved speaks volumes for what is possible in the coming decade shall he remain in power.

Rwanda’s technological readiness has also often been questionable but Kagame is already on the path to changing that. According to the economist, Kagame has allowed Volkswagen to set up the nation’s first car-assembly plant. VW have however been posed with a tough task. If a new Polo costs 33 times the average annual income, how will they sell them to the Rwandan citizens? The answer is they won’t. Instead, an agreement has been reached for VW to launch their cars into a ride-sharing service using a mobile application for the first few years of the cars life, afterwhich it plans to sell the cars in the second hand market where there is significantly more demand. Kagame, labelled it as a ‘new moment’ in the nation’s journey and it is innovation such as this that is allowing Rwanda to strengthen its weaknesses.

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Rwanda is the second easiest country in Africa to do business in, according to the World Bank’s ‘Doing Business Report’. Furthermore, looking at the Global Competitiveness Index, Rwanda is seen as the most competitive economy on the African continent, ranking 58th globally. Rwanda’s institutions are particularly strong (16th), with its public institutions even better at 11th. Crime, corruption, political instability and poor public health, aspects which have historically plagued Africa’s growth, are all negligible in Rwanda. Furthermore, the small Rwandan Stock Exchange and the National Bank of Rwanda have managed to land Rwanda second in Africa for financial market development. They do however have a lot of progress to make when it comes to infrastructure and higher education, but these are already high on their list of priorities.

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The tiny nation may still be very poor, but in the coming decade, as the country continues to improve its finance sector it will become a popular location for foreign investors to earn a comparatively low-risk high-return by the regions standards. Simultaneously, citizens’ standard of living should continue to increase. Ultimately, per capita incomes have rapidly risen over the last 20 years and will continue to do so – how concerned should citizens be that they do not have a functioning democracy?

Side Note:

In a well-known 2001 paper, The Colonial Origins of Comparative Development, Daron Acemoglu, Simon Johnson and James Robinson (MIT), establish that the main factor that impacts differences in income per capita are the strength of a nation’s institutions. Using econometric analysis, once they control for geography, culture and other often cited reasons for differing long run cross country growth, they ultimately determine that good institutions lead to economic growth. Their conclusion was not that a nation with weak institutions would be doomed, but instead that nations that strengthened their institutions would see other aspects of growth fall into place as the economy drove towards prosperity. It is exactly this that is happening right before our eyes. Rwanda serves as a case study for Acemoglu, Johnson and Robinson’s hypothesis, although they are likely not to agree with Rwanda’s favorable institutions coding due to a very low constraint on the executive.

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