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AfricaMay 1 2006

Reasons to be cheerful

Were it not for the genocide, Rwanda would barely register. Small, landlocked and poor, the country’s prospects have never been good. But in Kigali, James Eedes finds some cause for optimism.
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Twelve years after the genocide, Rwanda is still dealing with the aftermath. Up to 40,000 alleged genocidaires are in Rwandan jails, most of whom still have to appear before a traditional gacaca tribunal of elders and community members to judge their fate. Many of the victims’ family members still face a long wait to find out how their loved ones died and where their bodies were dumped. The government has still not been able to fulfil its promise to give every victim a dignified burial.

Despite outward signs of peace and calm, tensions between Tutsis and Hutus simmer, and could be ignited if left untended. A huge amount still needs to be done if recent history is to be redressed, let alone development assured for the future.

Aid dependent

The country is critically dependent on foreign aid, has few natural resources, a poor infrastructure, particularly transport and power, and is vulnerable to armed insurgency from eastern Congo. The gross domestic product is shy of $2bn, equating to a per capita income of just $235. About 85% of the population subsists on small plots and the already densely populated arable land is under further pressure from returning refugees. Prospects for expanding tea and coffee production, the country’s biggest export earner, are limited.

The world abandoned Rwanda during the genocide; its efforts now to right that wrong are producing mixed results. Debt relief and average annual donor support of $200m-$400m have helped the government to restore macroeconomic stability and led to a mini-construction boom. But there is little evidence of what lasting impact this aid will have. Two bank privatisations, however, do give reason for optimism.

In late 2004, private equity investor Actis acquired an 80% stake in Banque Commerciale du Rwanda (BCR), the second largest commercial bank in the market. Actis, which was formed out of CDC Capital Partners, has a dual mission: to be development-focused and seek attractive returns.

“Rwanda is a unique opportunity,” says BCR managing director David Kuwana. “There is major reconstruction and development that needs to be done, which obviously creates opportunities for the bank. But the biggest attraction is the way the government has set itself up to rebuild the country. It is almost like a private company: when the president speaks, things happen.”

Positive factors

For all the challenges, Mr Kuwana highlights two major positive factors: little corruption and no political interference (the government retains a minority stake in BCR).

Actis concluded the deal in September 2004 and was in control by November. With massive restructuring on the cards, there were no expectations that the full-service bank would turn in a profit. However, by the end of 2005, the bank was able to report a tidy £1m ($1.8m) profit and an active loan book that had grown from £8m to £17m, says Mr Kuwana.

So far, BCR has been able to make gains from doing the basics right. “We have advertised, sorted out the branding and made the customer experience sexy, young and dynamic. And we have started marketing directly to clients. It helps that we are seen as a British bank, which in this market implies a culture of performance. French banks are perceived to be slow and Belgian banks complicated.”

That same mentality has been introduced into BCR’s organisational culture. Out went regimented hierarchies, poor communication and bureaucratic credit decisions. Staff who could not change were forced out. (This problem is mirrored in the public sector: president Paul Kagame, who does not speak French, is pressing for greater efficiency but old colonial-era habits remain).

When Kenyan-headquartered Fina Bank acquired Banque Continentale Africaine from the Rwandan government in 2004, 85%-90% of the loan book was non-performing. Because of the genocide, most of the bank’s customers had either been killed or had fled. In the aftermath, dormant accounts had been looted.

Like Actis, Fina is simultaneously profit-oriented and development-minded. “We are not a giveaway operation but we are willing to look at product types that other bank won’t,” says managing director John Taylor. Fina has launched a leasing product, the first of its kind in the market. “You finance a truck for a village and that village is transformed,” he says.

Liability weaknesses

Like many other African countries, Rwanda’s banking market is a dichotomy: well-developed to serve the small corporate sector, including embassies and aid agencies, and severely underdeveloped to serve the retail or small and medium-sized enterprise (SME) market properly. Mr Kuwana and Mr Taylor highlight weaknesses on the liability side of their balance sheet. Almost all deposits are short term and, without an active capital market, the only long-term funding available is expensive credit lines from international development finance institutions. Lending to the markets where it is needed – to SMEs, in particular – is thus constrained.

“Instead of 10 relatively undercapitalised banks chasing deposits, the central bank should force consolidation by increasing the minimum capital requirement [from $2.8m]. It makes sense to have fewer institutions with more branches, extending services into the rural areas where they are most needed,” says Mr Taylor.

Belgolaise Bank is known to want to offload its 50% stake in Bank of Kigali, the biggest local bank. With the right approach, the market has potential. For the moment, at least, that means putting development before profit.

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