UNIT 2: PROMINENT SECTORS OF INVESTMENT IN RWANDA

Key Unit competence: 

To be able to create sustainable investments that contribute towards socio-

economic development of the country

Case study

Mahoro is an associate nurse graduate. After her parents died in 2005, she
continued with the agricultural work that her parents used to do turning it into
agri-tourism business as one of the outstanding investment opportunities in
Rwanda. Mahoro had to assume all the responsibilities looking after her 3
siblings/brothers and sisters.

She started from one cow, sheep and angora rabbit for shearing and farms
in different kinds of petting-zoo or safaris, and a small farmland using her
knowledge in entrepreneurship obtained in O’level sought advice from her
immediate relatives. Her relatives advise her to apply for a loan in Umurenge
Sacco and luckily she was granted a loan after presenting a good business
plan, she had in mind expanding and while having a dream of being self employed.

Some of her friends discouraged her by advising her to apply for the job and
go to work at a health post but she kept deaf ear. Mahoro has secured a
contract from Everywhere Travel &Tours company Ltd to connect tourists
with her agri-tourism farm.

Questions
1.
a) Identify ways in which Mahoro’s farming activity is different from other
farmers as usually done in your locality.
b) What motivated Mahoro to undertake the above activities?
c) Suggest the contribution of her investment to the economic
development of the country
d) How does the government of Rwanda assist the youth to benefit more
from available investment opportunities?
2. Discuss the contribution of youth employment.
3. Describe methods of ranking investment proposals.

2.1. Meaning of investment and investment opportunities

Assume that you are invited by Rwanda Development Board to address the youths
in your home community. The organizer requires you to talk about prominent
investment sectors in Rwanda. Attempt the following questions which would be
entailed in your speech:

1. Explain the meaning of investment
2. Describe different prominent investment opportunities in your community

2.1.1. Meaning of Investment

Investment is defined as the commitment of current financial resources in order
to achieve higher gains in the future. From an economic perspective, investment
and saving are different; saving is known as the total earnings that are not spent on
consumption, whether invested to achieve higher returns or not. An investment can
refer to any medium or mechanism used for generating future income, including
bonds, stocks, real estate property, or a business, among other examples. The
investment opportunities in Rwanda are numerous. Below are some of the
outstanding investment areas in Rwanda.

2.1.2. Investment opportunities in Rwanda

In Rwanda, potential opportunities for investment abound, particularly in the sectors
of agriculture, education, health, and financial services.

a) Agriculture

Agriculture is a major economic sector for the people of Rwanda, employing about
70% of the total population. Rwanda’s principal crops include coffee, pyrethrum,
tea, flowers, beans, Irish potatoes, rice, wheat, sugarcane, among others. About 61%
of Rwandan soil is suitable for agriculture as the soils are fertile. The government
of Rwanda is tangibly committed to boosting the development of the country’s
agri-sector. It has invested considerably in infrastructure, responsive institutions,
inclusive markets, and innovation & extension while creating and enabling
environment for private sector investment. Meanwhile, investment opportunities
exist in Dairy, Poultry, Meat processing, Horticulrure, Aquaculture, Mechanization,
Crop sourcing, Blockchain, Agri-tourism, Manufacturing of irrigation equipment,
among others.

b) Diary 

According to Rwanda Agricultural Exports Development Board (NAEB), Rwanda
exports substantial quantities of milk and milk products to the region.

The intraregional trade in dairy products within the EAC has continued to gain momentum
benefiting the Rwandan diary industry. The main products exported are milk and
yogurt.

There is a call for more investment in dairy infrastructure, rural roads, processing
plants, as well as acquiring better animal breeds to increase productivity. The
quality of milk products for the dairy sector should also be improved to become 

sustainable and improve livelihoods of farmers. Stakeholders are trained especially
in managerial and business skills.

The government has been working on elimination of challenges like lack of access
to electricity, credit and market information to empower the private sector and help
it focus on the export market.

c) Poultry

An entrepreneur in this type of agribusiness concentrates on the keeping and
selling of birds for meat, eggs, feathers and skins. The types of bird commonly kept
in Rwanda include: chicken, ducks, turkeys, Guinee fowls etc.

To feed a growing population with shifting tastes and food consumption habits, the
agriculture industry will need to evolve in the coming decades. Some predict that,
by the end of the century, 13 African cities will surpass New York City in population.
And as African economies grow and their citizens become more urbanized, they are
likely to increase their standards of living and meat consumption. In Rwanda, there
is a lot of meat produce. This is a great opportunity for entrepreneurs who are able
to add value on the meat produce so as it can be stored for so long and multi-serve.

e) Horticulture

Entrepreneurs dealing in this business, grow fruits and vegetables. Rwanda’s
horticulture sector is characterized by an ideal climate, fertile soil and an abundant,
hardworking labor force.

The potential to develop a vibrant horticulture industry in Rwanda is undoubtedly on
the move. The country has a strong competitive base that hinges on its comparative
advantages such as fertile soils, abundant water resource, and abundant labor
force that are used to produce quality and competitive horticulture products sold
on the regional and international markets.

There are several types of horticultural products that can be grown in Rwanda
which include:

 – Vegetables: Tomatoes, green pepper, French beans, chilli pepper, carrots,
 hot paper, onions among others.
 – Fruits: Avocados, mangoes, pineapples, passion fruit, bananas, and
 strawberry.
 – Nuts: Macadamia and groundnuts.
 – Spices: Parsley, Chilli, Lemongrass, Ginger, Garlic, processed pepper, Mixed
 spices, Celery among others.
 – Flowers: Roses, Zantedeschia flowers, Agapanthus, Calla lilies, Tuberoses,
 Alstroemeria and Ornamental sunflowers.

f) Aquaculture

 In this type of agribusiness, entrepreneurs can deal in fish farming, crocodile
 farming, etc. Fishes are highly needed by hotels and restaurants in Rwanda. These
 fishes can be rearing in fish ponds.

g) Mechanization

Lack of access to tilling tractors on both hilly and flat land, few investors importing the
equipment are still hampering the progress in embracing agricultural mechanization.
Agriculture mechanization in Rwanda consists of different farm machinery which
performs different farm operations from: land development and land preparation,
planting, crop treatment, harvesting, post-harvesting and Agro-processing. This is
an opportunity for investors who can invest in providing mechanization machinery
to farmers who need them. 

h) Agri-tourism

Agri-tourism provides educational explorations that allow tourists to learn more
about agricultural practices and cultural values in Rwanda. Agri-tourism, as a form
of individual relaxation, satisfies the needs of various groups of the middle class.

For Rwandans that may have vast land on which to conduct agriculture activities,
can embrace this new cluster of agri-tourism and develop required products.
The products and services assigned to real agri-tourism are comprised of
observation of agricultural production process, plant production, animal production
and some processing, and guided or individual farm (ranch) tours.

They also include; real participation in the process of plant production, animal
production and processing (e.g. help in cow milking, hay making, etc.), animal
demonstrations or shows, sheep shearing, angora rabbit shearing, direct contact
with domestic animals or the nature of farms in different kinds of petting-zoo or
safaris.

i) Manufacturing of irrigation equipment

As explained above, Rwandan agriculture mechanization needs the employment
of different machinery. Most of the machineries are imported, which makes
them expensive and not accessible to all agri-business people. Investment in
manufacturing irrigation equipment is one of the trending business opportunities
in Rwandan agriculture.

2.1.3 Education

Education is one of the pillars of Rwandan socio-economic development. It is in
that regard that it has a lot of investment opportunities which include but are not
limited to the following;
 i. Technical and Vocational education and Training (TVET):
 – Infrastructure development and construction of TVET schools across the
  country
 – Introducing new programs that are closely connected to the labor market.
 ii. ICT in education
 – Smart classrooms
 – E-learning
 – Digital content development
 – Teacher training in ICT at all levels
iii. Higher education and research:
 – Foreign universities are encouraged to open campuses in Rwanda with
 emphasis on STEM (Science, Technology, Engineering, and Mathematics)
 – There are opportunities in constructing and managing student hostels in
 private and government universities
 – Supplement government effort in scholarship provision of student loan
 schemes.

2.1.4 Health services

 Rwanda plans to expand the provision of better health care and develop medical
 tourism through the attraction of state-of-the-art and specialized medical facilities.
 The following are some of the investment opportunities in this sector;
 i. Manufacturing of health products and equipment:
 – Production of pharmaceutical products and medical equipment
 – Medical supply distribution companies to ensure that medical products are
 accessible
 ii. Provision of advanced health care services:
 – Health facilities such as clinics, super-specialty hospitals, and diagnostic
 centers are highly demanded,
 – To pave the way for medical tourism, three niche sub-sectors have been
 identified for Rwanda to focus on; Oncology, Cardiology, and Nephrology.
 iii. Medical schools to generate skilled staff for the health sector:
 – With just unsatisfied ratio of either physician or nurse per residents,
 Rwanda has opportunities in medical education and training institutes such
 as medical schools, nursing paramedical schools, medical engineering
 schools, and e-learning platforms.

2.1.5 Financial services.

Rwanda aims to become a business and financial center of excellence. The country
has started to attract large-scale investment opportunities in new and upcoming
sectors, including green and sustainable financing and Fin Tech. financial services
investment opportunities include the following:

i. International bank representative office

 International banks can adopt a low-risk familiarization route into the Rwandan
 market by establishing a representative office in Rwanda.
 – An international/global bank represented in Rwanda will be in position to
 support large projects initiated by both government and private sectors. This
 will include financing through syndication or directly and also transaction
 advisory services.
 – The Rwandan economy presents various opportunities for the representative
 bank office to introduce to the wider bank group. These opportunities range
 from trade finance, investment management, corporate structuring, etc.

ii. Agricultural financing

Increased credit in the agriculture sector is key to ensuring the development of the
industry in Rwanda. Several innovations/products (weather-based crop insurance,
warehouse receipt schemes, etc.) can be introduced to improve value chains within
the agriculture sector.

iii. Small & Medium Enterprise financing

Small and Medium Enterprises are the lead drivers of job creation and economic
development in Rwanda. If the business environment for these firms can be
improved, they can become more profitable, increase in size, and tap into regional
and global markets. Financial institutions experienced in SME financing such as
private equity and venture capital funds will help to increase access to finance for
this category of enterprises.

iv. Real estate investment trust

Commercial REITs present a massive opportunity for the Rwandan Market,
especially financing and supply options for affordable housing, shopping malls,
hotels, and offices.

Also, the Rwandan business and financial ecosystem offers access to products
and services that are conducive for activities such as Fund Management; Private
Equity Investments and Global Trading.

As a student in associate nurse program, advise someone who is willing to
invest in Rwanda about:

a) Sectors to invest in.
b) Incentives provided by the government to make Rwandan investment
climate friendly.

2.2 Investment and youth employment

With clear examples, explain the meaning of youth employment.

2.2.1 Meaning of youth employment

There is no legal reference to define the term “youth”. Individuals are either under
aged, entirely dependent or adults and thoroughly responsible for what they do.

According to the criteria on recognized by the United Nations, the youth comprises
of people that are between 15 and 19 years old (adolescents) and those who are
aged between 20 and 24 (young adults).

Youth meaning varies from one society to another and has evolved depending on
political, economic and socio-cultural contexts. In that case, a young person is that
person who is considered as such by the society”. In Rwanda, the youth is made up
of persons aged between 14 and 35.

Youth employment is the situation of young people who are looking for jobs, are
able to find jobs, with the age range being that defined by the United Nations as
15–24 years old.

Note. Given that a third of Rwandans, about 3.7 million individuals are aged 15 to
34, and youth employment is a critical policy issue.

A good entrepreneur who invests in area of agriculture should have in mind that,
Rwanda is in situation that 42 % of the youth aged between 14 and 35 are either
unemployed or only work on seasonal small scale agriculture.

2.2.2 Benefits of youth employment

With youth underemployment rates the highest they have been in 40 years it is more
important now than ever to embrace and explore the benefits that young people
bring.
• New energy and perspective: Young employees can bring fresh perspective
and a different way of thinking to your business. Most young workers are
eager to learn, build their experience and apply their skills in the workforce.
This enthusiasm is great for team building, productivity and workplace moral.
Younger employees will also give you an advantage if you want to target the
millennial market as they understand how to reach and communicate with
their peers.

• Workforce development: Young people are used for learning. If they have just
come out of school or tertiary education, they will still retain a mindset that will
help them absorb training more readily. As they don’t have a huge amount of
previous experience young people are essentially a ‘blank slate.’ This affords/
gives their employer an opportunity to develop a workforce of young people
specifically trained to meet their organization’s needs.

• Affordability: More often than not, wages for a young employee are less
expensive than those for an older more experienced worker. There are also
options for formal trainee and apprenticeships which can be of great benefit to
both employers and young people.

• Technology advancement & early adoption: Millennial have grown up around
technology. Their natural affinity for tech and their ability to apply and understand
different technologies quickly sets them apart from other generations in the workforce.

Hiring young people has a positive and important impact in driving
business forward in the adoption and use of new software and technology 

• Adaptability & agility: When unexpected circumstances arise, younger people
are better equipped to respond to sudden change, this can be of great benefit
in the shifting landscape of the modern-day workplaces where process,
technology and priorities are constantly changing. With economic, social
and political boundaries in a state of flux, adaptability gives young people
an advantage in a work environment that is more agile, changeable and fast
paced than ever before.
 • Youth employment builds young people’s self-esteem and self-confidence;
 • It develops ability of the youth to manage personal and social relationships;
 • Offering worthwhile and challenging new experiences at work and outside
 work place;
 • It provides learning opportunities to enable young people to gain knowledge
 and develop new skills;
 • Building young people’s capacity to consider risks and consequences and
 make informed decisions and take responsibility
 • Helps young people to develop social awareness and a sense of social
 solidarity form their work environments.
 • It gives young people a voice in decision-making which affect their lives;
 • Enhances young people’s role as active citizens and preserving culture.
 • When young people are employed, the crime rate is reduced, idle resources
 are exploited and generally the living standard is improved.

As a student in associate nurse program, you are requested by your village
leader to address citizens in your village about the youth employment.

Describe the benefits of youth employment towards community development
that will be entailed in your speech.

2.3 Some methods of ranking investment proposals

Assume that you have received a government grant. Describe any methods of
ranking investment you would use to select the best project to invest in.

In comparing projects with equal lives, several key methods are used to rank them
and to decide whether or not they should be accepted for inclusion in the capital
budget. In this section, you are going to explore Payback period (PBP) and Return
on Investment (ROI) methods.

2.3.1 Payback period (PBP)

• The payback period, defined as the expected number of years required to
recover the original investment. When net annual cash inflow is even (i.e.,
same cash flow every period), the payback period of the project can be
computed by applying the simple formula given below:

The Delta Company is planning to purchase a machine known as machine X.
Machine X would cost $25,000 and would have a useful life of 10 years with zero
salvage value. The expected annual cash inflow of the machine is $10,000.

Required: Compute payback period of machine X and conclude whether or not
the machine would be purchased if the maximum desired payback period of Delta
Company is 3 years.

Solution:
Payback period = $25,000/$10,000. 

 According to payback period analysis, the purchase of machine X is desirable
 because its payback period is 2.5 years which is shorter than the maximum payback
 period of the company (3 years).

 • In the above examples we have assumed that the projects generate even cash
 inflow but many projects usually generate uneven cash flow. When projects
 generate inconsistent or uneven cash, the formula is stated below:

   • An investment of $200,000 is expected to generate the following cash inflows
   in six years:

  Year 1: $70,000
  Year 2: $60,000
  Year 3: $55,000
  Year 4: $40,000
  Year 5: $30,000
  Year 6: $25,000

Solution:
Unrecovered investment at start of 4th year:

 PBP= Initial cost – Cumulative cash inflow at the end of 3rd year = $200,000 –
 $185,000 = $15,000

   • Payback period = 3 + (15,000*/40,000)
  = 3 + 0.375 = 3.375 Years

• Conclusion:
 • The payback period for this project is 3.375 years which is longer than
the maximum desired payback period of the management (3 years). The
investment in this project is therefore not acceptable.

DECISION CRITERIA:

• The shorter the payback period, the better.
• If the projects are mutually exclusive, the one with a shorter payback period
is preferred.

Evaluating PBP
• Advantages: 
• An investment project with a short payback period promises the quick inflow
of cash. It is therefore, a useful capital budgeting method for cash poor firms. 
• A project with short payback period can improve the liquidity position of the
business quickly. The payback period is important for the firms for which

liquidity is very important.
• An investment with short payback period makes the funds available soon to
invest in another project. 
• A short payback period reduces the risk of loss caused by changing economic
conditions and other unavoidable reasons. 
• Payback period is very easy to compute.

Disadvantages

• The payback method does not take into account the time value of money.
• It does not consider the useful life of the assets and inflow of cash after
payback period.

2.3.2. Return on Investment (ROI)

Return on Investment or ROI shows you the return from your investments. It helps
you to choose the best investment across different investment options. You may
evaluate the investment based on your financial goals and risk tolerance.

The return on investment is usually expressed as a percentage. In simple terms,
the return on investment is a financial ratio that helps you determine the benefit
of your investment against the costs. If you invest your money in mutual funds,
the return on investment shows you the gain from your mutual fund schemes. ROI
may be positive or negative. If the return on investment is negative, you are actually
losing money on the investment. You must pick an investment that may offer you
the maximum return over a period.

Example: Kabatesi invested Rwf 90 into a business venture and spent an additional
Rwf 10 researching the venture. The investor’s total cost would be Rwf 100. If that
venture generated Rwf 300 in revenue but had Rwf 100 in personnel and regulatory
costs, then the net profits would be Rwf 200.

Solution:
Total investment= Rwf 90+Rwf 10= Rwf 100

Let us compare the first example to another example where an investor put Rwf
10,000 into a venture without incurring any fees or associated costs. The company’s
net profits were Rwf 15,000. It is significantly more than the Rwf 200 in net profits
generated in the first example. However, the ROI offers a different view: Rwf 15,000
divided by Rwf 10,000 equals 1.5. Multiplying that by 100 yields an ROI of 150%.

Note: Although the first investment strategy produced fewer dollars, the higher ROI
indicates a more productive investment.

Analyse the following data extracted from the books of KANYARWANDA and
attempt the questions thereafter.

Required:

Evaluate the investment projects presented above using Payback period
method and be precise on decision criteria. 

1. After learning about different agribusiness activities in your community, you
are required to think and come up with different modern methods that can
be applied to improve on productivity of agribusiness products and promote
youth employment.

2. Scan your home environment or elsewhere, and come up with possible
agribusiness activity that you can undertake after school and suggest its
role to your personal & family economic development.

Assume you are an associate nursing program leaver and you have been selected
as a district youth leader. During a campaign about “Youth and investment
opportunities”, you are requested to advise youths on scalable investment
sectors.

Required:

1. Identify any two projects that you can invest in your home locality.
2. Describe the methods that you can use to make them real profitable
businesses than survival and discuss their contribution towards socioeconomic development.