Economics

Key unit competence: Learners will be able to analyse the need for economic planning in an economy.

My goals

By the end of this unit, I will be able to:

⦿ Explain the meaning and rationale of economic development planning.

⦿ Analyse the principles, qualities and obstacles to planning.

⦿ Explain the advantages and disadvantages of partial, comprehensive, short term, and perspective plans.

⦿ Explain the pillars, crosscutting issues, objectives and challenges of vision 2020.

⦿ Analyse the strategies, achievements and challenges of the EDPRS.

Activity 1

Case study 1

Two provinces, Kigali and Eastern, carried out their planning following the national plan by the central government. The source of the funds would be from the central government and foreign aid. Kigali planned to develop all sectors that is education, agriculture, industry and infrastructure but this was to be achieved in the long run. Eastern province planned to develop agriculture and infrastructure first then
others would come later and this was to be achieved in the short run. There were various reasons these plans were carried out. During the process, there were many problems faced when implementing the plans. Kigali city failed to accomplish some projects within the stated time while eastern province left some sectors completely under developed and of low standards. This led to the need to revise the plans prepared by the two provinces and to control and source out for finances needed
to cater for their intended objectives. Basing on the case study above and the photos in figure 1 below, discuss
the following questions:

(i) Explain the meaning of the term planning.

(ii) Describe the characteristics of a good plan.

(iii) What conditions should be present for the above provinces’ plans to be successful?

12.1 Meaning of Development Planning

Facts

Development planning refers to the deliberate government action to influence and direct economic resources towards specific desirable political, social, and economic objectives.

Development planning is making major economic decisions in a conscious way by the determinant authority basing on a comprehensive set up of the economy.

Development planning focuses on capital development, manpower development, infrastructural development, and social services improvement like health and education, all these are coordinated towards attainment of specific desirable variables in an economy like reduction in dependency,
fighting the unemployment problem, attainment of a mild rate of inflation, and eradication of illiteracy.

There is a simple distinction between development planning and economic development planning. The former aims at attainment of desired political, social, and economic targets while the latter aims at attainment of only economic objectives.

12.1.1 Characteristics of a good development plan

A good plan is characterised by the following:

1. It should be as comprehensive as possible. It should cover practically all the sectors of the economy. It should cover both the rural and urban areas.

2. It should combine top-down and bottom-up planning approache through an intensive dialogue between the national, sectoral and local development agencies between the various levels of planning
— national, sectoral, district and lower local governments.

3. A development plan should be socially relevant, and it must involve the people in a development effort.

4. A development plan must be economically feasible. The resources to implement the plan must be available.

5. A development plan must be politically and administratively possible. It must be accepted by politicians otherwise it might never be implemented.

12.1.2 Pre-requisites/ conditions necessary for successful planning

The following conditions are necessary for successful planning:

• Planning machinery should be organised and subdivided into small departments dealing with various aspects of the economy like economists, statisticians, engineers, etc. for proper coordination.

• The objectives and goals of the plan should be well spelt out and should be in the interest and of the majority of the society.

• The stated objectives should be consistent and on sectoral basis so as to balance growth in the economy.

• There should be a strong, efficient and incorruptible administration.

• There is need for political stability because instability and insecurity may lead to diversion of all funds which would have been used to finance the plans.

• Public cooperation is also important because the local people also give support when implementing the plan.

• Enough capital should be available for plan formulation and implementation.

12.1.3 The need for planning

Activity 2

Referring to the case study 1 of this unit, discuss reasons the government of Rwanda carries out planning.

Facts

Planning is of importance to the economy because of the following reasons:

• For optimum allocation of resources in the economy so as to eliminate imbalances in resource allocation.

• To help the economy in mobilising funds from international organisations since they give funds according to the plans made.

• To help reduce price instabilities and attain a favourable balance of
payment equilibrium.

• To eradicate the defects of price mechanism; the automatic forces of demand and supply sometimes show weaknesses in efficiently allocating resources in an economy; these weaknesses are ironed out
by development planning.

• Plans are needed to bring up a balance between the private and the public sector, plans show the relative importance of each sector and so appropriate measures are taken to support the more desired sector.

• To attain a higher level of economic growth and development, plans are made to set up the required infrastructure to attain and increase the rate of economic growth and development.

• Plans are a pre-requisite for getting foreign assistance. Developing countries persistently draw deficit budgets, the deficit is to be obtained from donors, and these require well-made plans to release resources.

• To reduce dependence on other nations, plans are drawn for developing countries to move away from dependence to self-sustenance.

• To fight hyper rated inflation; developing nations draw plans to devise means to moderate the rate of inflation and attain economic stability.

• To eradicate the unemployment problem; this is so rampant in developing countries.

12.1.4 Principles of economic development planning

The planning mechanism must adhere to certain principles in order to be
successful, among these include the following:

1. Consistence: A good plan must be consistent and avoid any contradictions in the economy. The techniques and the objectives to be achieved must be followed.

2. Proportionality: A good plan must be proportional whereby it must be on regional level than concentrating on a small area.

3. Compatibility: A good plan should be able to use the available raw materials. Planners should base on the available resources.

4. Sequencing: This principle involves putting in place minor projects to facilitate the major ones.

5. Relevance: A good plan should be in line to achieve the intended goals and objectives because this makes it socially important.

6. Feasibility: A good plan should be politically and administratively feasible so as to make its implementation easy.

7. Optimality: Planners should take into account the resources available and plan to exploit them in the most efficient way.

8. Comprehensiveness: A good plan should cover the whole economy because of the linkages among the sectors. This is because a partial plan may bring about imbalances in the economy that may retard
development.

12.1.5 The planning process

Activity 3

Referring to Case Study 1 of this unit, discuss the following questions:

(i) What do you think the planning process done by both Kigali and eastern provinces should involve?

(ii) Apart from the two sources of funds mentioned in the case study 1, explain other sources of funds used to finance planning in your country.

(iii) Examine the obstacles you think Kigali and the Eastern provinces faced when implementing the plans.

Facts

Figure 2 above shows the stages through which the plans go up
to their implementations

Development planning has got three major phases which are further divided
into other smaller sub phases and these include the following:

1. Plan preparation: this includes the following sub phases.

(a) Data gathering: This involves collecting data on specific guidelines meant to be developed into plans.

(b) Data analysis: This involves sorting and analysing data to ensure that it involves all what is needed to develop the plan.

(c) Goals and objective setting: This involves setting what is to be achieved in the near future when the plan is implemented.

(d) Generation of alternatives: This involves seeking out other alternatives to the plan that may be developed. It may be different objectives, sources of income, plans among others.

(e) Evaluation and selection of preferred alternatives: This involves selecting what alternative or plan that is to be implemented.

(f) Detailing and refinement of preferred strategies: This involves making the plan or the alternative more detailed so as to be understood by the people.

2. Plan adoption: This is when the plan is accepted and taken on so as to be implemented, this includes:

(a) Plan adoption: This involves accepting the plan which is on paper as the one that is going to be implemented.

3. Plan implementation: This includes the following

(a) Plan implementation; this involves putting the plan that has been laid on paper on the ground for action to achieve the intended

objective.
(b) Plan evaluation; this involves checking whether what was planned is what has been implemented on ground.

12.1.6 Ways of financing development plans

Development plans are financed through different ways some of which are seen below:

• Through public borrowing which may be internal from local people or external from countries or organisations like IMF.

• Through deficit financing where planned expenditures are more than estimated earnings with intentions of sourcing out for aid.

• Through taxation to raise revenue. These may be both direct and indirect and also reducing the grace periods given to investors with an aim of increasing tax base.

• Acquiring long term loans from the foreign donors that can have low interest rates.

• Relaying on local savings from government owned enterprises.

• Use of ploughed back profits from government organisations.

• Aid and donations from wealth developed countries.

12.1.7 Obstacles faced in formulation and implementation of development plans

Plan formulation and implementation has faced many challenges in order
to be achieved. Some of these are shown below:

• Over ambitious plans: Most of the plans try to achieve many objectives at once and in the end they fail to accomplish them.

• Insufficient and unreliable data: Data in some countries is difficult to get and sometimes unreliable and this makes planning difficult.

• Unexpected social and economic disturbances: These may be internal such as agricultural hazards like pests or external instabilities all making the planning and implementation difficult.

• Institutional weaknesses: The planning machinery may be separated from day to day decision making inadequate communication about the goals and objectives may hinder implementation.

• Lack of political will: Most people lack commitment and a sense of nationalism which hinders the national planning system of the country.

• Inadequate resources: Plans always remain on paper because of failure to mobilise resources both from within and out side.

• Inadequate qualified manpower: Most developing countries lack qualified man power and most of their plans are made by outsiders who have little knowledge about the economic situations in these countries.

• Political instabilities and constant change of governments: These affect the already made plans because each new government has got its own plan for development. Still, the funds which would be for plan implementation are directed towards buying military hardware.

• Poor sequencing: In LDCs, there is lack of funds to put up micro/ small projects which can lead to bigger plans. This leads to failure of the bigger plans.

• Corruption and embezzlement: Most plans have failed because of high levels of corruption in which most of the funds are directed to peoples’ selfish interest.

• Political opposition: Some plans fail because of opposition from leaders not part of the government.

12.2 Classification of Plans

Activity 4

Visit the library or internet, to study and answer the following:

1. The plan that takes a short period of time is known as

(a) Perspective plan

(b) Medium term plan

(c) Annual plan

(d) None of the above.

2. ………. is the type of plan prepared and implemented by the central government after consulting various organs.

3. Match the following with their correspondences.

Facts

Plans are classified according to the following.

12.2.1 Classification according to time element

(a) Annual/ short term plan: These are plans which cover a short term period of time usually a year.

(b) Medium term plans: These are plans which cover between 3-10 years.

(c) Perspective/ long term plans/ development plans: These are plans which cover more than 25 years and have got long term objectives intended to bring about development in the economy.

12.2.2 Classification by implementation

(a) Indicative plan: This is a plan prepared by the government and it provides information to the private sector without influencing their decisions directly.

(b) Imperative plan: This is a plan prepared and implemented by the central authority in consultation with various organs, offices and agencies.

12.2.3 Classification according to social- economic system

(a) Capitalist plan: This is a type of planning within market economies where the allocation of resources is directed towards the private sector to bring about development. Decisions
taken and policies made are in favour of private investors who influence the economic activities in the nation.

(b) Socialist plan: This is a plan not based on market mechanism but by the government which owns and allocates resources by administrative directives.

12.2.4 Classification according to hierarchy of planning

(a) Project plan: This is a plan undertaken by agencies like parastatals, farmers where by output is produced taking into account the resources available.

(b) Sectoral plan: This is a plan for individual sectors like agriculture, industry and such a plan can be made as part of the national plan by the relevant ministries.

(c) National economic plan: This is a plan for the whole nation which has to be consistent with the national resources.

(d) Regional plan: This is a plan which integrates all activities, programmes and projects within the region aimed at attaining national objectives.

12.2.5 Classification according to coverage

Activity 5

Analyse the statement that, “Rwanda should adopt a partial plan rather than a comprehensive plan for faster economic growth and development”.

Facts

a) Partial plan/fragmentary plan/micro plan.

These are plans drawn to cover only part of the economy. It may be only a
region (regional plan), it may be drawn for just a sector (sectoral plan), or
for just a project making a project plan.

Advantages of partial planning

• It is cheap and easy to administer because it economises the use of skilled man power which is a problem in LDCs.

• It allows planners to concentrate on a few vital sectors which they can develop successfully and achieve economic growth.

• It develops skills of planners which they can use to take more comprehensive plans.

• It is easy for implementation; because its in the financial reach of the country.

• It requires less data which can be got easily since it covers a small sector.

• It is suitable because of the wide difference in the level of development between regions.

• Political instabilities in some regions make it a good idea to develop some areas first and others follow later.

Disadvantages of partial planning

• Partial planning leads to wastage of resources because of many un coordinated plans.

• The economic objectives of the plan may turn out to be divergent with the implementation. I.e. what is planned may not be what is implemented.

• Investments may not be regulated in an economy and this may lead to inflation.

• It leads to regional imbalances since some regions may develop at the expense of others.

• It may lead to underutilisation of resources since some areas are not planned and catered for.

b) Comprehensive plan

This is a plan which covers all sectors of the economy. It is a more advanced form of planning which is aggregate in nature and covers the entire country.

Merits of comprehensive planning

• It provides time long enough for survey into the resources to be made.

• It encourages interdependence since linkages between different sectors are possible.

• It allows looking far into the future which gives good ideas on priority sectors and planners will concentrate more on such sectors.

• It encourages full utilisation of the resources in an economy.

• It reduces regional inequality since all sectors are planned for at the same time.

• It allows economic development to move hand in hand with economic development since plans are for the development of the economy as a whole.

• It caters for the problems that may be going on in the economy at a particular period of time such as unemployment, poverty, and inflation among others.

• It helps to determine the sources of finance that may be needed for the development of the country for a period of time.

Demerits of comprehensive planning

• They are expensive to administer and monitor; it requires adequate amount of funds to scatter in all sectors being developed at the same time, which funds are not readily available in developing countries.

• Developing countries have a limited supply of the skilled personnel that can be everywhere at the same time to monitor the different sectors growing at the same time.

• Comprehensive plans give rise to inflation. This is because much money is set into circulation at the same time to see a comprehensive plan succeed.

• Comprehensive planning may bring distortions in the major national objectives since a single plan covering the whole country may be hard to implement.

• It is hard to give rise to a single plan that answers the needs of different groups and regions of people at different development levels. This makes comprehensive planning hard.

12.3 Planning Under Different Economic Systems

Activity 6

Make use of the library or internet to carry out research and answer the
following questions:

(i) What is centralised planning?

(ii) Explain the advantages and disadvantages of centralised planning.

(iii) Explain the meaning of decentralised planning.

(iv) Analyse the advantages and disadvantages of decentralised planning.

Facts

12.3.1 Centralised planning

This is a form where the whole process is under the central planning authority
(government) which formulates the central plan, sets objectives and goals without
consulting the local people. It can also be known as top to bottom planning.

Merits of centralised planning

• The plans drawn are for high-level development of the nation. It collects all the skilled labour in the nation for its formulation and implementation.

• They are always consistent with national development objectives. They are consciously drawn and cannot divert from national set targets.

• They are flexible; they can be changed according to variations in national goals.

• Different stake holders participate in implementing of the plans and evaluation process especially the donors.

• The government is aware of the source of funds that may be needed in the implementation of the plans.

• The government knows what the general public needs and where it should put what, so long as it is in line with the development goals of the nation.

Demerits of centralised planning

• Poor quality work is likely to arise. This is mainly because there is a supply of poor managers and low skilled personnel in several regions of developing countries.

• When disaster befalls an area, centralised planning is hard, this is true because the people in the locality and the resources will all be affected or even destroyed.

• More information from other already developed areas is needed to make centralised planning successful. This may take some time or even be expensive.

• The local people always suggest what they think is important to them which some times may not be in line with the government objectives

12.3.2 Decentralised planning

This is type of planning which starts from the grass roots where the plan is
formulated by the central authority after consulting different units such as
ministries and local people. It can also be known as bottom to top planning.

Merits of decentralised planning

• It reduces the burden on the top administrators. The plans are drawn and implemented by the local people without giving much burden to the central administrators.

• There is quicker decision making in plan formulation. This is mainly because the local people know their challenges and possibly also the possible solutions.

• Decentralised plans improve upon the motivation and morale of the local people. A sense of belonging arises since they participate in the planning for and development of their society.

• Decentralised plans enhance communication between leaders and their masses. This is mainly because the leaders are within their reach.

• Decentralised plan implementation is easy to implement and monitor. This is because implementers and supervisors are in the same locality.

Demerits of decentralised planning

• Poor quality work is likely to arise. This is mainly because there is a supply of poor managers and low skilled personnel in several regions of developing countries.

• When disaster befalls an area, decentralised planning is hard, this is true because the people in the locality and the resources will all be affected or even destroyed.

• More information from other already developed areas is needed to make decentralised planning successful. This may take some time or even be expensive.

12.4 Current Development Plans in Rwanda

12.4.1 Pillars of Vision 2020

Activity 7

Use the library or internet to conduct research and attempt the following:

(i) Explain the background of vision 2020.

(ii) What are the pillars of vision 2020?

(iii) Explain the crosscutting priorities in the 2020 vision.

Facts

12.4.2 Background

Vision 2020 was a result of a national consultative process that took place in Village Urugwiro between 1998-1999. There was a broad consensus on the necessity for Rwandans to clearly define the future of the country. This process provided the basis upon which this Vision was developed. Since
then, Rwanda has made much progress towards attaining these objectives and even surpassed some of the targets. The original Vision 2020 targets through a consultative process were revised at the 9th Leadership retreat in February 2012. The original Vision 2020 contained 47 indicators and
targets, which have been revised to a total of 48.

The guiding rationale for the revision was based on the following:

1. Aligning targets to level of low middle income countries an analytical comparison has been made of Rwanda and middle income countries and adjustments made where necessary.

2. Harmonising with the more ambitious seven -year government programme (7YGP) targets.

3. Inclusion of indicators and targets for climate change, governance, ICT and regional integration.

4. Some targets already achieved requiring more ambition out of the original 47 indicators in the Vision 2020.

12.4.3 Pillars of vision 2020

The aspirations of vision 2020 will be realised around six “Pillars” and will
be interwoven with three cross-cutting issues. The Pillars include:

1. Good Governance and a Capable State

Rwanda will become a modern, united and prosperous nation founded on the positive values of its culture. The nation will be open to the world, including its own Diaspora. Rwandans will be a people,
sharing the same vision for the future and ready to contribute to social cohesion, equity and equality of opportunity.

The country is committed to being a capable state, characterised by the rule of law that supports and protects all its citizens without discrimination. The state is dedicated to the rights, unity and well

being of its people and will ensure the consolidation of the nation
and its security.

2. Human Resource Development and a Knowledge-based economy

Apart from raising the general welfare of the population, improvements in education and health services can be used to build a productive and efficient workforce. This will be essential for Rwanda to become a
sophisticated knowledge-based economy.

3. Private Sector-led Development

For Rwanda’s development, the emergence of a viable private sector that can take over as the principle growth engine of the economy, is absolutely key. Not only will such a development be conducive for
economic growth, but it will also ensure the emergence of a vibrant middle class of entrepreneurs, which will help develop and embed the principles of democracy.

4. Infrastructure Development

The rehabilitation and development of infrastructure is a crucial aspect in lowering the costs of doing business in Rwanda, which will attract domestic and foreign investment. As Rwanda is characterised
by acute land shortage, a land use plan is needed to ensure its optimal utilisation in urban and rural development.

5. Productive high value and market oriented agriculture

Rwanda’s economic policies since independence are said to have targeted agriculture as the main engine of economic growth. However, the agricultural sector has continued to perform poorly, with
consistently declining productivity. It will be necessary to formulate and implement realistic developmental policies that move beyond past delusions of viable subsistence-based agriculture.
The key policy areas that need urgent attention to bring about this transformation include the following:

• Institutional and legal reforms to ensure security of land ownership.

• Development of a market in land assets.

• Extensive research and extension services.

• Investment in rural infrastructures.

• Use of high yielding varieties and intensive input use, especially fertilisers

• Promotion of agro-based manufacturing.

• Environmental control measures to halt the decline in soil fertility.

• Rural financing schemes and markets.

6. Regional and International Integration

Rwanda considers regional economic integration as one of the crucial elements of achieving Vision 2020. To this end, it will be necessary to pursue an open, liberal trade regime, minimising barriers to
trade as well as implementing policies to encourage foreign direct investment. Economic zones for ICT based production will be crucial for enhancing competitiveness of Rwandan firms.

12.4.4 Crosscutting priorities

There are three cross-cutting areas of gender, natural resources and environment and culture, science and technology. These issues will not only be affected by the economic transformation but will also play an important role in achieving the VISION’s development goals.

1. Gender equality

Women make up 53% of the population and participate in subsistence agriculture more than men. They usually feed and provide care for the children and ensure their fundamental education. But until recently,
girls were the minority in secondary schools, women had little access to the opportunities available to men and they were poorly represented in decision-making positions.

In order to achieve gender equality and equity, Rwanda continuously updates and adapts its laws on gender. It supports education for all, eradicates all forms of discrimination, fights against poverty and
practices a positive discrimination policy in favour of women. Gender is integrated as a cross-cutting issue in all development policies and strategies.

2. Natural resources and the environment

The major problem in the field of environmental protection in Rwanda is the imbalance between the population and the natural resources (land, water, flora and fauna and non-renewable resources, which
have been degrading for decades). This degradation is observed through massive deforestation, the depletion of bio-diversity, erosion and landslides, pollution of waterways and the degradation of fragile
ecosystems, such as swamps and wetlands.

The average population growth of 3% per annum during the 1980’s to 1990’s period was faster than that of agricultural production, estimated at 2.2%. This has led to the occupation of more and more
marginal areas and to the rapid and continuous soil degradation of the fragile ecosystems of the country. In order to ensure sustainable development, Rwanda will implement adequate land and water
management techniques, coupled with a sound biodiversity policy.

3. Science, technology and ICT

Rwandans are rightly proud of their cultural roots and the government will ensure that it takes advantage of this heritage in all facets of the development process. However, for this development process to be a
success, Rwanda must embrace the future and exploit innovations in Science and technology to complement its cultural strengths.

By 2020, Rwanda projects to have adequate, highly skilled scientists and technicians to satisfy the needs of the national economy. In order for Rwanda to achieve this objective, it has developed the
teaching of science and technology at secondary and university levels. It facilitates the creation of high and intermediate technology enterprises and develop access to ICT down to the administrative
sector level, in accordance with the national ICT plan.

12.4.5 Major objectives of vision 2020

Activity 8

Using the library or internet, research on the following:

(i) The objectives to be achieved by vision 2020.

(ii) The major challenges facing vision 2020.

Facts

The vision seeks to fundamentally transform Rwanda into a middle-income country by the year 2020. This will require achieving annual per capita income of US$ 900 (US$ 290 today), a poverty rate of 30% (64% today) and an average life expectancy of 55 years (49 years today).

Taking into account Rwanda’s extremely scarce resources, prioritisation and
sequencing will be crucial and will be tackled in short, medium and long run.

1. Short Term: Promotion of macroeconomic stability and wealth creation to reduce aid dependency.

• Rwanda will put into place macro-economic stabilisation policies that are conducive for private sector development. This, together with expanding the domestic resource base and increasing exports, is the
only way to lessen aid dependence.

• The imbalances highlighted have been a source of macro-economic instability and have led to an unsustainable debt burden and dependency on foreign aid. To reduce this dependency, it will be crucial to develop effective strategies to expand the tax base, attract foreign investors and address the debt situation. Also, diversification and the development of non-traditional exports need to be promoted as well as addressing the anti-export bias in public policies.

• Envisaged policies, some of which are already being formulated and implemented include trade liberalisation, privatisation, tax reforms, competitive exchange rates and market driven interest rates.
Government will desist from providing services that the private sector can deliver more efficiently and competitively. With these policies in place, the economy will be able to take up the challenge of transforming from an agrarian subsistence economy into a sophisticated knowledgebased
society.

2. Medium Term: Transforming from an agrarian to a knowledge-based economy.

• As for services, in the medium to long term, this sector will become the most important engine of Rwanda’s economy. Since Rwanda is landlocked and has limited natural resources, the government should take a lead role in designing policies geared towards encouraging investment in services, to acquire and maintain a competitive edge in the region.

• Even if Rwanda’s agriculture is transformed into a high value/high productivity sector, it will not, on its own, become a satisfactory engine of growth. There has to be an exit strategy from reliance on agriculture into secondary and tertiary sectors. The issue, however, is not simply one of a strategy based on agriculture, industry or services, but rather, identifying Rwanda’s comparative advantage and concentrating strategies towards it. For instance, there is a plentiful supply of cheap
labour, a large multi-lingual population, a strategic location as the gateway between East and Central Africa as well as its small size, making it easy to build infrastructure (resources permitting).

The industries established would need to address basic needs, for which there is a readily available market, as these products can satisfy local demand and even move towards export. It should be noted that the elaboration of such policies will not be sufficient to achieve a knowledge based economy. Major infrastructural investment will be required in the areas of energy, water, telecommunication and
transport to reduce costs, whilst increasing their quality and reliability. Improvements in education and health standards will be crucial for providing an efficient and productive workforce.

3. Long Term: Creating a productive middle class and fostering entrepreneurship.

• The developmental process and capital formation cannot in the long run be achieved by the state or by donor funds alone. While both of these must contribute, the backbone of the process should be a middle
class of Rwandan entrepreneurs. Productive entrepreneurship must be fostered to perform its traditional role of creating wealth, employment and vital innovations through opportunities for profit.

• Stimulating the private sector, particularly with regard to the promotion of exports and competitiveness is not achievable without broadening and deepening the financial sector such as banking, insurance and
the application of information technology. Provision of high quality educational services in sciences and technology will be necessary for consolidating development gains made in the short and medium
term. Rwanda should also aim to find a niche market in the region, for example, becoming a telecommunications hub.

It is envisaged that with these reforms, Rwanda will transform from a
subsistence agricultural economy to a knowledge-based society, with a vibrant class of entrepreneurs.

12.4.6 Major challenges of vision 2020

• Diminishing agricultural productivity and arable land distribution: Agriculture accounts for more than 90% of the labour force, yet remains unproductive and largely on a subsistence level. Distribution
of arable land now stands at one hectare for every 9 Rwandans and is diminishing due to high birth rates. The obvious consequence is that a substantial number of rural families who subsist on agriculture own
less than 1 hectare, which is too small to earn a living.

• Natural barriers to trade: Rwanda is land-locked, with long distances from ocean ports; a factor that raises transportation costs for both exports and imports. The country lacks a link to regional railway
networks, which means most trade is conducted by road. Poor road quality creates high transportation costs leading to inflated prices of domestically manufactured products, as raw materials used for
manufacturing need to be imported.

• Narrow economic base: It is clear that increases in the productivity and exports of coffee and tea alone, will not be sufficient to build the Rwandan economy. Therefore, efforts need to be made to expand
the economic base and especially exports. Although there are small pockets of various high value minerals in Rwanda, there is no single natural resource of sufficient quantity that will kick-start the economy.

• Weak institutional capacity: Governance, including the management of public resources remains insufficient due to lack of sound institutions and competent personnel. Rather than develop sound systems themselves, past governments continued to rely on foreign technical assistance that was both costly, largely indifferent to domestic long term needs and failed to build local capacities. Although great progress has been made on this front, it still represents a significant hindrance to effective governance.

• Low level of human resource development: The severe shortage of professional personnel constitutes an obstacle to the development of all sectors. Lack of adequately trained people in agriculture and animal husbandry hampers modernisation of this sector, whilst a shortage of technicians and competent managers severely constrain the expansion of the secondary and tertiary sectors.

• Public debt: Rwanda’s public debt constitutes a major obstacle to its economic development. Public debt has been accumulating at a rate higher than the country’s capacity to generate wealth to service the
debt. A return to sustainable level of debt, where existing debt can be serviced comfortably without jeopardising the country’s growth prospects, had been reached by 2015.

• Social and economic consequences of the genocide: The 1994 Genocide devastated the Rwandan economy as well as its population. GDP was halved in a single year, eighty percent of the population
was plunged into poverty and vast tracts of land and livestock were destroyed. The genocide also exacerbated a number of development constraints, which existed before 1994. The already poorly developed productive infrastructure was completely destroyed and the nation was robbed of a generation of trained teachers, doctors, public servants and private entrepreneurs.

Thus, the consequences of genocide have devastated Rwanda’s social, political and economic fabric. Without successful reconciliation, political stability and security, private investors will not develop
confidence in the country.

12.5 Economic Development and Poverty Reduction Strategies 1 (EDPRS 1: 2008- 2012)

12.5.1 Background of EDPRS 1

Activity 9

Use the library or internet to research and answer the following questions:

(i) What are the strategies that have been used by EDPRS1to achieve its objectives?

(ii) Discuss the achievements of EDPRS 1. Facts

Facts

In 2007, the government of Rwanda launched the EDPRS as the second generation of the poverty reduction strategy for the period 2008-2012 to ensure that social and economic life is more streamlined and harmonised. It replaced the poverty reduction strategy paper (PRSP) which had been
in operation between 2002 to 2005 with an aim of reducing poverty. The EDPRS provides a medium term framework for achieving the country’s long term development aspirations as embodied in Rwanda’s vision 2020. Both vision 2020 and EDPRS are consistent with the Millennium Development
Goals (MDGs).

The EDPRS 2008-2012 sets the country’s development objectives, priorities and policies for the period through three flagship programmes that aim at reducing inequality and poverty.

Under EDPRS 1, priority was therefore, given to accelerating growth, creating employment and generating exports. These were outlined in three flagship programmes named below:

(a) Growth for jobs and export

(b) Governance

(c) Vision 2020 umurenge

12.5.2 Objectives of EDPRS 1

Lessons from the evaluation of the Poverty Reduction Strategy Paper (PRSP- 2002-2005) suggested that the principal problems in the public sector relate to the implementation of the policy, for example, the fertiliser needs were identified as a priority and even though resources existed, targets were not
met. Employment creation was also acknowledged as a priority but was not sufficiently pursued. Sectors knew what to do but they were less clear as to how to do it and tended to work in isolation from each other. This review of Rwanda’s recent socio-economic performance together with the lessons from the PRSP suggested four priorities/objectives for the EDPRS:

1. Increase economic growth by investing in infrastructure: promoting skills development and the Service Sector; main-streaming Private Sector development and modernising agriculture by introducing
improved land administration, land use management practices and adopting techniques to reduce soil erosion and enhance soil fertility.

2. Slow down population growth through reducing infant mortality: family planning and education outreach programs, while also improving the quality of health care and schooling, particularly for
girls.

3. Tackle extreme poverty through improved food security and targeted schemes of job creation and social protection: It was particularly urgent to create new employment opportunities for young persons
just entering the labour market.

4. Ensure greater efficiency in poverty reduction through better policy implementation which included enhanced coordination among sectors and between levels of government; sharper prioritisation of activities; better targeting of services for the poor; widespread mobilisation of the Private Sector; and the more effective use of monitoring and evaluation mechanisms.

12.5.3 Strategies to achieve the above objectives or priorities

1. Sustainable growth for jobs and exports, was to be driven by an ambitious, high quality public investment programme aimed at systematically reducing operational costs of business, increasing
capacity to innovate, widening and strengthening the financial sector. This meant heavy investment in hard infrastructure by the government to create strong incentives for the private sector to increase its
investment in the subsequent years.

2. The sectoral allocation of public expenditure was to be distributed to maintain momentum in social sectors like education, health, water and sanitation while also targeting agriculture, transport and
information and communication technology, energy, housing and urban development, good governance and rule of law, proper land use management and environmental protection.

3. In agriculture, the main programmes included the intensification of sustainable production systems in crop cultivation and animal husbandry, building the technical and organisational capacity
of farmers, promoting commodity chains and agribusiness, and strengthening the institutional framework of the sector at central and local level.

4. Environmental and land policies involved ecosystems, the rehabilitation of degraded areas and strengthening newly established central and decentralised institutions. Special attention was to be
paid to sustainable land tenure security through the planning and management of land registration and rational land use, soil and water conservation, reforestation, preservation of biological diversity and
adaptation and mitigation against impact climate change.

5. In education and skills development, the emphasis was on increasing the coverage and the quality of the nine-year basic education, strengthening technical and vocational education and training (TVET)
and improving the quality of tertiary education.

6. The concerted effort to build scientific capacity was to be based on the objectives of knowledge acquisition and deepening, knowledge creation through scientific research and knowledge transfer.

7. In infrastructure, the objective was to reduce transport costs within the country and when connecting to the outside world and to ensure

security of energy supplies by increasing domestic energy production from several sources. Efforts were made to promote investment in, and the growth of, the Information and Communications Technology
industry. In meteorology, the aim was to provide a wide range of timely, high quality information to different groups of users.

8. In addition to reducing the costs of doing business, the government was to promote competitiveness and Private Sector development through capacity building initiatives, credit schemes and Business
Development Services (BDS). In manufacturing, the government was to promote value addition in existing product lines in agro-processing, including coffee and tea, handicrafts and mining, and development of
new products including silk, pyrethrum, hides and skins and flowers. The government would also provide incentives for foreign direct investment and create industrial parks and export processing.

9. The Service Sector is fundamental for the transition towards a knowledge-based society. The high population growth was a major challenge facing Rwanda. Slowing down population growth required
innovative measures, including the strengthening of reproductive health services and family planning and ensuring free access to information, education and contraceptive services.

10. The Water and Sanitation Sector aimed at ensuring sustainable and integrated water resources management and development for multipurpose use including increased access to safe water and
sanitation services for all.

12.5.4 Achievements of EPDR1

The achievements under EDPRS 1 have been described as the perfect development “hat trick” of growth, poverty reduction and reduction in inequality which have put Rwanda back on track to achieve the Millennium Development Goals (MDGs). Economic growth averaged 8.2% over the period while poverty reduced from 56.7% to 44.9% allowing more than 1,000,000 Rwandans to be lifted out of poverty in less than five years. Income inequality also reduced to 0.49 in 2011 below the level of 2001.

Ownership of the EDPRS by a wide range of stakeholders at national level has been a key factor of success. The EDPRS 2 has integrated inclusiveness and sustainability as driving factors in elaborating the strategy. Among the achievements are the following:

• Home-grown initiatives turned into success stories in strengthening the delivery of EDPRS 1. These include: Umuganda (community work), Gacaca (truth and reconciliation traditional courts), Abunzi
(mediators), Imihigo (performance contracts), etc. Scale-up of home grown solutions forms an integral part of the EDPRS 2 with particular focus on identifying innovations.

• Community-based solutions: working closely with the population, have made possible fast-track and cost effective implementation and increased demand for accountability, in education with the nine-year
basic education construction of classrooms, the Crop Intensification Programme (CIP) in agriculture, and community based health care programmes. This approach supporting community empowerment
and involvement will be scaled up and supported in the EDPRS 2.

• Use of ICT solutions improved service delivery: Some of the biggest successes in service delivery and investment climate reforms have been centreed on ICT solutions such as online registration of businesses, online filing of tax claims to mention but a few. The EDPRS 2 targets are taking Rwanda to the brink of middle income status requiring even greater performance in service delivery from both public and private sectors. ICT is considered an important aspect in developing the knowledge based economy.

• An adequate institutional and legal framework for implementation, but with flexibility to change or adapt has proven effective (e.g. RDB, REB, EWSA, etc.). In many instances, merging institutions
with closely complementary mandates have reduced duplication and improved coordination. Innovation within the institutional framework has been fully considered and teased out in the EDPRS 2, key areas
identified for reform geared towards increased efficiency of delivery include: The National Employment Programme, the Urbanisation and Rural Settlements Institutional Framework and the Investment process.

12.5.5 Challenges faced by EDPRS 1 addressed in EDPRS 2

Activity 10

Use the library or internet to research about the challenges faced by EDPRS1and thereafter share your views in your class discussion.

Facts

• Some sectors at the end of EDPRS 1 still lacked exhaustive and wellarticulated strategies: the EDPRS 2 has been developed based on a comprehensive elaboration process that included stakeholders from
the district level to the national level. The EDPRS 2 is developed taking into consideration: 30 District Development Strategies, City Development Plan for Kigali City, 16 Sector Strategies at National
level and 4 Thematic Area Strategies.

• Insufficient coordination and communication across sectors as well as between central and local government entities. In general, districts and sectors both expressed need for better sharing of information and improved coordination for implementation among others. The EDPRS
2 introduced four Thematic Areas: i.e. Economic Transformation, Rural Development, Accountable Governance and Productivity and Youth Employment. These thematic areas seek to level planning and
ensure that planning is driven by commonly understood goals and objectives. The focus on joint planning and cross-sectoral action was further emphasised.

• Insufficient involvement of the private sector in some areas affected the quality of policy dialogue and engagement of private sector in implementation. The EDPRS 2 requires that every sector identify
private sector players and engage them in developing their respective strategies. This was achieved and taken forward as a principle for the EDPRS 2 including the refinement of Public Private Dialogue and
the adoption of private sector investment targets for line ministries.

• Mainstreaming cross-cutting issues needed strengthening: While sectors and districts acknowledged progress in integrating crosscutting issues, they also highlighted the need for more tools and
guidance on effectively mainstreaming crosscutting issues into their plans, budgets and Monitoring and Evaluation (M&E). The EDPRS 2 considers guidelines from lead institutions on all seven crosscutting
issues for integration into thematic, sector and district strategies. The development and collection of specific disaggregated indicators will be further developed moving forward.

• Weak Monitoring and Evaluation (M&E) systems: Districts and sectors pointed out the need for an integrated M&E system that links the different sub-systems. By developing a strong linkage betweenM&E outcomes from the thematic, to sector and district levels, the EDPRS 2 provides a platform for increased effectiveness of the M&E system. The planned introduction of an integrated electronic M&E system for district and national levels will further facilitate the M&E process during EDPRS 2.

12.6 Economic Development and Poverty Reduction Strategy II (EDPRS 2: 2013-2018)

Activity 11

Use the library or internet to research and attempt the following:

(i) What are the four thematic areas on which EDPRS 2 is based?

(ii) Explain the five principles that are to be addressed in EDPRS 2

12.6.1 Background of EDPRS 2

Based on the experience of Poverty Reduction Strategy Paper (PRSP), it was evident that the social sectors (particularly health and education) had made significant progress, while the productive sectors including agriculture, infrastructure and industry remained a challenge. Under EDPRS 1, priority
was therefore given to accelerating growth, creating employment and generating exports. These were outlined in three flagship programmes: Growth for Jobs and Exports, the Vision 2020 Umurenge (VUP), and Good Governance.

Phase two of Poverty Reduction Strategy (EDPRS 2) makes a distinction between emerging priorities reflected in thematic areas and ongoing priorities under foundational issues. The combination of these priorities provides the framework for the EDPRS 2 strategy.

There are four thematic areas each designed to address specific objectives in line with the overall goal of EDPRS 2, these include:

1. Economic transformation for accelerated economic restructuring and growth striving for middle income country status.

2. Rural development to address the needs of the vast majority of the population and ensure sustainable poverty reduction and rural livelihoods.

3. Productivity and Youth Employment to ensure that growth and rural development are underpinned by appropriate skills and productive employment, especially for the growing cohort of youth.

4. Accountable Governance, to underpin improved service delivery and citizen participation in the development process. EDPRS 2 and its four thematic areas have been built from five principles
derived from the lessons and experience of EDPRS 1 and the overarching ambitions set for EDPRS 2. These principles are:

1. Innovation: Emphasising new ways of thinking, working and delivering because the status quo will not be adequate to achieve Rwanda’s ambitious targets.

2. Emerging priorities: Identifying thematic strategies which encompass new priorities, including new ways of doing business, to drive the achievement of Vision 2020 targets.

3. Inclusiveness and engagement: Creating ownership of development at all levels and providing learning and feedback mechanisms to improve solutions.

4. District-led development: Creating strong, mutually supporting linkages between district and sectoral strategies, and supporting administrative standardisation and efficiency.

5. Sustainability: Ensuring that programmes and targets achieved from EDPRS 2 are sustained over the long term in their economic, social and environmental dimensions.

12.6.2 Objectives of EDPRS 2

Activity 12

Using the library or internet research about the objectives of EDPRS2 and share your views with the whole class.

The major goal is;

“Accelerating progress to middle income status and better quality of life for all Rwandans through sustained average GDP growth of 11.5% and accelerated reduction of poverty to less than 30% of the population”

Objectives of EDPRS 2

• To ensure economic growth to middle income status

• To continue poverty reduction

• To provide more off farm jobs and continued urbanisation

• To reduce external dependency

• To ensure the private sector as the engine to growth.

12.6.3 Thematic areas to be addressed in EDPRS 2 The four thematic areas are further explained below with the strategies of how they are to be achieved;

1. Economic transformation

This thematic area targets accelerated economic growth (11.5% average) and restructuring of the economy towards more services and industry as we move towards middle income country status. The main targets relate to; strategic infrastructure investment for exports, increased private sector
financing for increased exports coverage of imports, urbanisation and green economy approach for sustainability.

Five priority areas identified to spearhead this thematic strategy:

Priority 1: Increasing the domestic interconnectivity of the Rwandan economy through investments in hard and soft infrastructure by meeting the energy demand of the private sector; increasing access to public goods and resources in priority sectors of the economy; and deepening the integration
of key value chains.

Priority 2: Increasing the external connectivity of Rwanda’s economy and boosting exports by building a new international airport, expanding RwandaAir, and finalising planning for an appropriate railway connection along the Central Transport Corridor to Dar- es-Salaam or to Uganda;
transforming Rwanda’s logistics system and strengthening export promotion.

Priority 3: Transforming the private sector by increasing investment in priority sectors. The investment process will target large foreign investors in priority sectors of the economy; accelerate measures to increase long-term savings, transform the financial sector for increased access to long term international and domestic financing for private sector, strengthen tax and

regulatory reform to spur medium and large enterprise growth and attract
large investors.

Priority 4: Transforming the economic geography of Rwanda by facilitating urbanisation and promoting secondary cities. Six secondary cities will be developed as poles of growth and centres of non-agricultural economic activities. This will require investment in specific hard and soft infrastructure
and strategic economic projects that will trigger growth of these cities and enhance linkages to other towns and rural areas. Affordable housing will also be a key element of increased attractiveness of these cities. Kigali will continue to be developed as a regional hub.

Priority 5: Pursuing a ‘green economy’ approach to economic transformation. The green economy approach favours the development of sustainable cities and villages. Key innovations include: piloting a green city, piloting a model mine and attracting investors in green construction interventions who will
focus on green urbanisation and the promotion of green innovation in industrial and private sectors.

2. Rural development

This thematic area is focused on ensuring that poverty is reduced from 44.9% to below 30% by 2018. This will be achieved through focus on increased productivity of agriculture which engages the vast majority of the population and ensures sustainable poverty reduction.

Enhanced linkages of social protection programmes will also be developed with particular attention to increasing graduation.

Four priority areas identified to spearhead this thematic strategy:
Priority 1: Integrated approach to land use and human settlements. Two functions are strengthened in this priority. The overall land use allocation for development and the decentralised process of land allocation and management. A major consideration is ensuring that rural settlements are
revisited to ensure greater access to economic opportunities and basic services.

Priority 2: Increasing the productivity of agriculture by building on the sector’s comparative advantage. The focus is therefore on irrigation and

land husbandry, proximity advisory services for crops and livestock and
connecting farmers to agribusiness.

Priority 3: Enabling graduation from extreme poverty by monitoring graduation through a database across social protection programmes, supporting financial products, services and literacy for the poorest,
strengthening Umurenge SACCOs, and improving the coverage and targeting of core social protection programmes such as VUP. Graduation will also mean linking the poorest to economic activity through the provision of skills.

Priority 4: Connecting rural communities to economic opportunity through improved infrastructure.

3. Productivity and youth employment

This thematic area is focused on ensuring that growth and rural development
are underpinned by appropriate skills and productive employment, especially
for the growing cohort of youth. The main objective is the creation of at
least 200,000 new jobs annually.

Four priority areas identified to spearhead this thematic strategy:
Priority 1: Developing skills and attitudes by reviewing and reforming national education curricula, establishing Sector Skills Councils, strengthening TVET, promoting adult literacy and short course basic skills training, a tripartite funding system for on-the-job training, and a youth entrepreneurship mentoring programme.

Priority 2: Promoting technology with a focus on accelerating innovation by internet and mobile phone infrastructure and improving ICT skills.

Priority 3: Stimulating entrepreneurship, access to finance and business development by increasing off-farm employment, productivity and new job creation driven by the private sector. The government is consolidating, rationalising and expanding different business support programmes into
an Integrated national employment programme to boost entrepreneurship and job creation.

Priority 4: Labour market Interventions. Government is improving the efficiency of labour markets by assisting job seekers to match with job providers through Employment service and career advisory centres.

4. Accountable governance

The objective of this thematic area is to improve the overall level of service delivery and ensure citizen satisfaction above 80%. It also focuses on increased citizen participation as a way of ensuring ownership and feedback for efficiency and sustainability.

Four priority areas identified to spearhead this thematic strategy: Priority 1: Strengthening citizen participation and demand for accountability by using “home grown initiatives” to promote citizen participation; using ICT and radio to promote participation and development of communication;
strengthening the media and civil society organisations to better fulfil their developmental role and strengthening administrative decentralisation.

Priority 2: Improving service delivery. To revitalise service delivery in the public sector as well as in the private domain, the government is embarking on development of a customer-centred service delivery culture, the design of policies and the establishment of standards of customer services.

The four thematic areas together with their strategies are the principles that can help to solve the problems faced by EDPRS 1 and at the same time help to achieve the objectives of EDPRS 2.

Unit assessment

1. Explain the meaning of development planning and what are the qualities of a good development plan are.

2. Planning can be done on a small scale and large scale. Examine the advantages of planning for the economy comprehensively and what limits its planning.

3. Explain the objectives for the 2020 vision and the challenges being faced so far in its attempt to achieve the objectives.

4. The lessons and experience of EDPRS 1 led to development of four thematic areas and five principles which are the basis of EEDPRS2. Give and explain these thematic areas and principles.

Glossary

ཀྵཀྵ Annual plan: A plan which cover a short term period of time usually a year.

ཀྵཀྵ Bottom to top planning: A type of planning which starts from the grass roots where the plan is formulated by the local authority after consulting different units such as ministries and local
people and then sent to the central authority for approval and financing.

ཀྵཀྵ Capitalist plan: A plan common in market economies which emphasises the private sector as a way to bring development.

ཀྵཀྵ Comprehensive plan: This is one which covers all sectors of the
economy.

ཀྵཀྵ Comprehensiveness: A good plan should cover the whole economy because of the linkages among the sectors.

ཀྵཀྵ Consistence: A plan which has same characteristics without contradictions in the economy.

ཀྵཀྵ Compatibility: A plan that is able to use the available raw materials.

ཀྵཀྵ Development planning: This refers to a deliberate government attempt to influence and direct economic resources and activities towards specific objectives in a specified period of time.

ཀྵཀྵ Economic development planning: This focuses on government attempt to influence and direct resources with an aim of achieving economic objectives.

ཀྵཀྵ Feasibility: A plan which is politically and administratively feasible and can be easily implemented.

ཀྵཀྵ Indicative plan: This is a plan prepared by the government and it provides information to the private sector without influencing their decisions directly.

ཀྵཀྵ Integrated public investment plan: This is where the government estimates the national resources and allocates them among sectors and projects according to order of
priority.

ཀྵཀྵ Imperative plan: A plan prepared and implemented by the central
authority in consultation with various organs, offices and agencies.

ཀྵཀྵ Medium term plan: A plan which covers between 3-10 years.

ཀྵཀྵ Macro level planning: This is planning for the economy as a whole.

ཀྵཀྵ Micro level planning: Is planning for a few sectors in the economy.

ཀྵཀྵ National economic plan: This is a plan for the whole nation which has to be consistent with the national resources.

ཀྵཀྵ Optimality: This is putting to value the resources available to the most efficient way.

ཀྵཀྵ Proportionality: A good plan must correspond to a bigger size of a region than concentrating on a small area.

ཀྵཀྵ Perspective: This is a plan which covers more than 25 years and has got long term objectives intended to bring about development in the economy.

ཀྵཀྵ Project plan: This is a plan undertaken by agencies like parastatals, farmers where by output is produced taking into account the resources available.

ཀྵཀྵ Partial plan: This is a plan prepared on sectoral level such that it may cover one sector or part of the economy. It may also be called fragmentary or micro plan.

ཀྵཀྵ Project by project plan: This is a plan which covers only the public sector and identifies projects which may not be directly related to the national development plan.

ཀྵཀྵ Relevance: A good plan should be in line to achieve the intended goals and objectives because this makes it socially important.

ཀྵཀྵ Regional plan: This is a plan which integrates all activities, programmes and projects within the region aimed at attaining national objectives.

ཀྵཀྵ Socialist plan: This is a plan not based on market mechanism but
by the government which owns and allocates resources by
administrative directives.

ཀྵཀྵ Sequencing: This principle involves putting in place minor projects to facilitate the major ones.

ཀྵཀྵ Sectoral plan: This is a plan for individual sectors like agriculture, industry and such a plan can be made as part of the national plan by the relevant ministries.

ཀྵཀྵ Top to bottom planning: This is a form where the whole process is under the central planning authority which formulates the central plan, sets objectives and goals without consulting the
local people, plans are then forwarded to local authorities for implementation.

Unit summary

• Economic planning

• Meaning

• Rationale for planning

• Principles of economic development planning

• Obstacle to planning

• Classification of plans

• According to time element

• According to implementation

• According to social- economic system

• According to hierarchy of planning

• According to coverage

• Vision 2020

• Back ground

• Pillars and cross-cutting priorities

• Objectives and challenges

• Economic development and poverty reduction strategies

• Back ground

• Objectives and strategies

• Achievements and challenges