The Rwandan economy continued to achieve strong growth in 2022 despite global headwinds and an unprecedented increase in food prices, according to the 20th edition of the Rwanda Economic Update report released today.
Rwanda’s GDP grew by 8.4% in the first three quarters of 2022, after reaching 11 percent in 2021. Growth was spurred by the services sector, especially the revival of tourism, leading to the improvement of employment indicators to levels similar to those at the beginning of the pandemic in early 2020.
However, rising food prices may have exacerbated poverty and food insecurity, according to the Rwanda Economic Update.
The increase in international commodity prices, related to the war in Ukraine combined with the poor harvest in Rwanda, have led to substantial increases in energy, transport, and food prices, with urban inflation rising to 21.7 percent in November 2022.
Rising food prices particularly affected the poor, who devote a large share of their spending to food and appear to have faced higher food inflation than richer households did.
Measures adopted by the government to mitigate the effects of inflation over the past year notably include an increase in subsidies (primarily on fuels, fertilizers, seeds, and public transit), increased spending on social protection, and increases in teachers’ salaries, as well as government contributions to school feeding programs.
“While the authorities have taken several measures to mitigate the impact of inflation on households, further steps are required to protect the poor and vulnerable from the impact of rising food prices as well as strengthening policies to address food insecurity and prevent child stunting,” according to Peace Aimee Niyibizi, World Bank Economist.
Going forward, Rwanda’s economy is projected to expand at a slower pace in 2023-2025. While tourism is likely to continue to recover, external demand is likely to weaken as a result of a major increase in interest rates by the central bank to reduce inflation.
In its special focus on “Making the most of Nature-Based Tourism in Rwanda”, the report provides a thorough analysis of challenges and opportunities in the nature-based tourism sector in Rwanda.
“Nature-based tourism holds tremendous potential for creating employment and spurring economic growth in Rwanda. But to fully use that opportunity, innovative actions would be needed to mobilize more resources, beyond government budget, and enhance private sector participation to protect natural assets and develop appropriate infrastructure” said Rolande Pryce, World Bank Country Manager.
Tourism is a major source of Rwanda’s foreign exchange earnings and tends to generate a higher proportion of formal sector jobs than other sectors, according to the Update.
Within the tourism sector, nature-based tourism, which accounts for 80% of leisure and business visitors in Rwanda, not only helps protect biodiversity and advance Rwanda’s efforts to adapt to climate change, but also plays an important role in job creation: for every US$1 million (about Rwf 1,050 million) that nature-based tourism activities inject into the economy, it is estimated that an additional 1,328 new jobs could be created.
The report notes that nature-based tourism in Rwanda faces significant challenges, including potential limits on the expansion of revenues for one of the primary international attractions (gorilla trekking) degradation of the natural assets that underpin the sector, risks presented by infectious diseases, land degradation and overexploitation of natural resources, and the impact of climate change.
Investment requirements to address the main biodiversity and conservation challenges hampering the development of nature-based tourism in Rwanda are estimated at US$97.5-107.7 million for the period from 2019 through 2030.
The Update recommends the acceleration of efforts to secure private sector participation in financing and operating nature-based tourism facilities by introducing innovative financing methods to secure the necessary investment, as well as strengthening capacity and the management of tourism facilities and services.
The participation of local communities is essential for the success of nature-based tourism development. Efforts are required to enhance revenue sharing mechanisms and increase incentives for local communities to conserve natural assets and unlock new opportunities for community-led enterprises that generate revenue from tourism and sustainable management of natural resources, including forests. This is essential to address poverty, to mitigate poaching threats and other illegal activities, and to reduce the unsustainable exploitation of the natural assets that are vital for successful nature-based tourism, according to the Update.