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Economic Situation in Rwanda

In this paper, we are going to discuss the economic situation in such a developing country as Rwanda. In particular, it is necessary to carry out growth diagnostics and propose the strategies, which may help to overcome the difficulties that this state currently faces. In this work, we rely on the research articles, written by Richard Hausmann and Lant Pritchett. In their study, they analyze those factors which contribute to expansion and acceleration of the country’s industry; they also study the hindrances that prevent many nations from achieving sustainable success (2005). The ideas that they express can be quite applicable to Rwanda. Our task is to use their findings within the context of a specific region.

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Yet, prior to doing it, we should first define such a concept as developing country, because it has a wide range of meanings. Traditionally, this notion refers to those nations with rather low income rates. Still, this term may also imply political instability, insufficient level of education, cumbersome bureaucratic apparatus, and so forth (Sandord et al, 2003., p 9). In point of fact, Rwanda is a classical case of such nation, especially, if we take into considerations ethnic enmity, deep-rooted in the population and the notorious Genocide of 1994 (Briggs et al, 2006, p 20). To some extent, this contributes to continuous stagnation.

As regards the economic situation in the region, we need to point out that for a long period of time Rwanda has been one of the German colonies, and almost every postcolonial county has to pass through the stages of political, economic and cultural evolution (Briggs, p 11). Judging from certain financial parameters, we can argue that Rwanda is heavily dependent on agriculture. Furthermore, we can say that it has rather scarce natural resources. Being landlocked, it has no access to sea. In part, this is the reason why so many international investors believe that is rather unproductive and imprudent to invest capital in the finance system of this state. Given the fact that infrastructure of the region is very far from being advanced, foreign companies tend to avoid any relations with the Rwandan government (ICG, 2002). Nonetheless, it seems that these are just the consequences or aftermaths of some policies.

While conducting growth diagnostics Richard Hausmann and Lant Pritchett attach primary importance to such parameters as total productivity, the cost of financing, availability of production factors, specifically, they speak about infrastructure and human capital (Hausmann et al, 2005, p 8), As far as major bottlenecks are concerned, the authors focus on high cost and low return of domestic investment. Consequently, the country is not attractive to both outside and internal investors. The only possible outcome is constant stagnation that aggravates with time passing.

In order to gain a more compressive understanding of Rwandan problems, it is vital to pay attention to issues such as low productivity of labor force. This can be explained by several reasons: first: lack of qualification. It is no secret that in the vast majority of cases, Rwandans do not possess sufficient skills. Apart from that, it can be ascribed to poor living conditions that often lead to counterproductive work. Strong dependence is not only due to geographical position of the country and absence of natural resources. The country reached this deadlock because many people are not competent enough in order to work in industry. At first glance, this statement may seem rather rude, but it can be substantiated by statistical data, which indicates that more than nine percent of Rwandans are involved in agricultural works (ICG, 2002). There is another facet of this issue; we should not forget the infrastructure (communication, transport, medical institutions) and it is in a very poor condition. Thus, we may argue that economic growth can be achieved only by resolving these problems. At this stage, we should analyze possible means of doing it.

A great number of scholars dedicated many works to the study of growth accelerators or those influences that may catalyze the evolvement of the economic system. These influences are often defined as “triggers”. Among them, we can single out the following ones: external shocks or interventions, political changes such as democratization, economic reforms (Hausmann et al, 2005, p 319; Barro, 1997, p 54). There has been a widely-held opinion that democratization of the country, transition to free trade and capitalism always boost the development of the country. To some extent, this hypothesis is quite grounded but these reforms cannot be effectively pursued if the nation does not provide a sufficient basis for them.

Economic history tells us that the transition to free trade can be successful under the condition that the nation has a highly-skilled labor force as for instance, the Asian Tigers (South Korea, Taiwan etc). The progress can be accounted by for high proficiency and competence of the population (Oosterbaan, 2000, p 147). Unfortunately, Rwanda cannot boast of it. Naturally, no one can deny the fact that the stabilization of political situation in Rwanda brought some improvements. The nation began to exports some of its products to European states, but these are predominantly agricultural products, whereas many fields still remain unexplored, particularly mineral resources (charcoal, methane, and the deposits of gold). These stores are not very abundant but this opportunity cannot be neglected. Therefore, we can presume that in this case, political liberalization cannot overcome all obstacles, even economic reforms does not ensure stable growth.

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The strategies that can be proposed will yield quick results. Its essence mostly lies in increasing the quality of education in Rwanda. Many scholars maintain that very often this policy is essential for every developing country, because in turn, it will enhance the productivity of labor force. The major objective is to become more industrialized; especially we take into account the fact Rwanda has mineral industry to develop. The second measure that should be taken is the simplification of bureaucratic mechanism, and re-organization of infrastructure. The will make the economic system more mobile. Yet, it is very unlikely that Rwanda can accomplish it on its own, because it has only recently recovered after the Civil War. It goes without saying that the nation is in urgent need of international support. Thus, we can say this issue is two-sided: on the one hand, the country must find financial assistance, and on the other, they need to utilize this money in the most careful way.

To conclude, the governments of less developed nations can hardly make considerable accomplishments only through liberalization of economy and democratization of the political system, because these steps are only constituent parts of a larger reform, which includes improvement of education and infrastructure. At this point, Rwanda slowly extricates itself from long-standing financial stagnation. On the whole, we can state that the progress can be ensured by such premises as 1) complete absence of military conflicts; 2) the help of more advanced states; 3) effective utilization of this aid.


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