16
227 FEATURE ARTICLE Published online in Wiley Online Library (wileyonlinelibrary.com) © 2014 Wiley Periodicals, Inc. • DOI: 10.1002/tie.21618 Correspondence to: Ronald S. Thomas, International Business and Strategy Group, 313 Hayden Hall, D’Amore-McKim School of Business, Northeastern University, Boston, MA 02115, +1 617-373-5009 (phone), +1 617-373-8628 (fax), [email protected]. development plan enabling it to reconstruct much of its economic and social infrastructure. The plan, termed “Vision 2020,” projects Rwanda as the economic fulcrum of East and Central Africa. The country’s leadership has selected the model of Singapore as the basis for Vision 2020’s aggressive development strategy. Our analysis of Rwanda’s new policy initiatives is struc- tured in six sections. First, the Global Competitiveness Index (GCI) is introduced as the framework for an analysis Introduction I n 1994, Rwanda, a landlocked country slightly smaller than the state of Maryland, suffered a catastrophic genocidal civil war in which an estimated 800,000 people—one-tenth of the nation’s population—mostly of the Tutsi tribe, were massacred by their Hutu neighbors. In recent years, Rwanda has achieved a measure of politi- cal stability and has embarked on an ambitious economic Despite its recent tragic history of genocide and continuing threats to political stability, Rwanda has made significant strides in improving its competitive position compared to its African neighbors and to other countries at an equivalent economic level. The Rwandan business and political leadership have explicitly taken Singapore as a model for rapid economic growth, with the aim of positioning Rwanda as a regional hub for transportation and advanced services. This article, based in part on fieldwork conducted in Rwanda by the lead author, 1 analyzes Rwanda’s development strategy using the World Economic Forum’s Global Competitiveness framework and evaluates its potential for success in emulating Singapore’s development pathway. © 2014 Wiley Periodicals, Inc. By Lena Ulrich Ronald S. Thomas Building National Competitive Advantage: Rwanda’s Lessons from Singapore

Building National Competitive Advantage: Rwanda's Lessons from Singapore

Embed Size (px)

Citation preview

Page 1: Building National Competitive Advantage: Rwanda's Lessons from Singapore

227FEATURE ARTICLE

Published online in Wiley Online Library (wileyonlinelibrary.com)

© 2014 Wiley Periodicals, Inc. • DOI: 10.1002/tie.21618

Correspondence to: Ronald S. Thomas, International Business and Strategy Group, 313 Hayden Hall, D’Amore-McKim School of Business,

Northeastern University, Boston, MA 02115, +1 617-373-5009 (phone), +1 617-373-8628 (fax), [email protected].

development plan enabling it to reconstruct much of its

economic and social infrastructure. The plan, termed

“Vision 2020,” projects Rwanda as the economic fulcrum

of East and Central Africa. The country’s leadership has

selected the model of Singapore as the basis for Vision

2020’s aggressive development strategy.

Our analysis of Rwanda’s new policy initiatives is struc-

tured in six sections. First, the Global Competitiveness

Index (GCI) is introduced as the framework for an analysis

Introduction

In 1994, Rwanda, a landlocked country slightly smaller

than the state of Maryland, suffered a catastrophic

genocidal civil war in which an estimated 800,000

people—one-tenth of the nation’s population—mostly of

the Tutsi tribe, were massacred by their Hutu neighbors.

In recent years, Rwanda has achieved a measure of politi-

cal stability and has embarked on an ambitious economic

Despite its recent tragic history of genocide and continuing threats to political stability, Rwanda has

made signifi cant strides in improving its competitive position compared to its African neighbors and to

other countries at an equivalent economic level. The Rwandan business and political leadership have

explicitly taken Singapore as a model for rapid economic growth, with the aim of positioning Rwanda

as a regional hub for transportation and advanced services. This article, based in part on fi eldwork

conducted in Rwanda by the lead author,1 analyzes Rwanda’s development strategy using the World

Economic Forum’s Global Competitiveness framework and evaluates its potential for success in

emulating Singapore’s development pathway. © 2014 Wiley Periodicals, Inc.

By

Lena Ulrich

Ronald S. Thomas

Building National

Competitive Advantage:

Rwanda’s Lessons

from Singapore

Page 2: Building National Competitive Advantage: Rwanda's Lessons from Singapore

228 FEATURE ARTICLE

Thunderbird International Business Review Vol. 56, No. 3 May/June 2014 DOI: 10.1002/tie

macroeconomic and microeconomic indicators, grouped

into 12 “pillars” of competitiveness. Despite a variety of

criticisms (Berger & Bristow, 2009; Cammack, 2006; Cho

& Moon, 2007; Lal, 2001), the GCI is widely used in the

public and private sector to guide investment and policy

decisions (Schwab, 2010). The GCI enables a comparison

of Rwanda’s strategy to that of Singapore across a wide

range of factors that build national competitiveness.

In the GCI framework, national competitiveness is

defined as “the set of institutions, policies and factors that

determine the level of productivity of a country” (Sala-i-

Martin, Blanke, Drzeniek Hanouz, Geiger, & Mia, 2010).

Higher productivity of a nation’s human, financial, and

natural capital results in higher incomes and higher rates

of return on physical, human, and technological invest-

ments and, consequently, higher rates of growth in the

medium to long term. Thus, the framework can help

explain a nation’s growth potential, using gross domestic

product (GDP) per capita as the dependent variable for

comparing nations’ competitiveness.

The GCI’s 12 pillars of competitiveness, each com-

posed of a number of distinct indicators, are grouped

into three clusters: the Basic Requirements, the Efficiency

Enhancers, and the Innovation and Sophistication Fac-

tors (see Figure 1). The majority of indicators are based

on survey data, while others are based on statistical infor-

mation. For a complete list and technical discussion of all

118 indicators, see Schwab (2010).

of Rwanda’s national competitiveness strategy. The second

section briefly examines the key factors underlying Singa-

pore’s rapid and sustained economic growth from the 1960s

through the early 2000s, and outlines key elements of the

“Singapore model” Rwanda is attempting to implement.

The third section, the country’s development challenge,

discusses Rwanda’s difficult economic and historical starting

point. The fourth section analyzes Rwanda’s competitive-

ness strategy in implementing Vision 2020, which explicitly

aims to imitate Singapore’s route to economic growth. Then

the fifth section analyzes the “pillars” of the GCI framework

as they apply to Rwanda. Finally, the sixth section identifies

implications for policymakers in specific areas to improve

Rwanda’s national competitiveness in each pillar. The

conclusion evaluates Rwanda’s development strategy based

on the Singapore model, and identifies further research

opportunities for studying other countries facing similar

challenges.

The Global Competit iveness Index Framework

The World Economic Forum’s Global Competitiveness

Index (GCI) provides a framework for analyzing Rwanda’s

national competitiveness strategy. Originally based on the

“national diamond” framework introduced by Porter

(1990), the GCI has evolved into a comprehensive

framework that provides a weighted average of over 100

I. Basic RequirementsInstitutions

Infrastructure

Macroeconomic environment

Health and primary education

II. Efficiency EnhancersHigher education and training

Goods market efficiency

Labor market efficiency

Financial market development

Technological readiness

Market size

III. Innovation and SophisticationFactors

Business sophistication

Innovation

Key for Factor-Driven Economies

Compete on factor endowments

Key for Efficiency-Driven Economies

Compete on process efficiency andquality

Key for Innovation-Driven Economies

Compete on unique products and services

FIGURE 1 The 12 Pillars of Competitiveness of the Global Competitiveness Index

Source: Based on Schwab (2010).

Page 3: Building National Competitive Advantage: Rwanda's Lessons from Singapore

Building National Competitive Advantage: Rwanda’s Lessons from Singapore 229

DOI: 10.1002/tie Thunderbird International Business Review Vol. 56, No. 3 May/June 2014

per capita of less than $2,000, the Basic Requirements

pillars account for 60% of a country’s overall Global

Competitiveness Index ranking, while Efficiency Enhanc-

ers account for 35% and Innovation Factors only 5%.

For efficiency-driven economies, the weighting is Basic

Requirements 40%, Efficiency Enhancers 50%, and Inno-

vation Factors 10%. For innovation-driven economies,

Basic Requirements comprise 20%, Efficiency Enhancers

50%, and Innovation Factors 30%.

The Singapore Model

Rwanda’s leadership has explicitly taken the experience

of Singapore as the basis for its aggressive development

strategy. On his first official visit to Singapore in 2008,

President Paul Kagame told the audience at the Lee Kuan

Yew School of Public Policy, “In the case of Rwanda, we

look at countries like Singapore as inspirational develop-

ment models due to the rapid pace at which you success-

fully transformed your country” (New Times Rwanda,

2008). Singapore, originally a small British trading post in

a turbulent region, is one of the world’s wealthiest nations,

having grown from a GDP per capita at current market

prices of $428 in 1960 to $45,954 in 2010 ( Singapore

Department of Statistics, 2014). Today, Singapore has one

of the highest per-capita GDPs in the world, ranked fifth

on a purchasing power parity basis (Central Intelligence

Agency, 2010a), and the country is positioning itself as

the region’s financial and high-tech hub. The World

Bank has ranked the ease of doing business in Singapore

first out of 183 economies (World Bank, 2010). Business-

friendly government policies in combination with its

strategic location have helped the country to become a

major destination of foreign investment and an engine

for economic development in the region.

The GCI is not just a static snapshot of a nation’s

development level; it proposes a dynamic of three stages

of economic growth. In each stage, certain pillars (and

their underlying indicators) are assumed to be particu-

larly important in order to provide the platform for fur-

ther growth in wages, national income, and productivity.

In the first stage, an economy is assumed to be

primarily factor driven, and national competitiveness is

primarily based on exporting basic commodities and

providing mainly unskilled, low-cost labor to domestic

firms. Companies compete primarily on price. Essential

for competing in a factor-driven environment are basic requirements such as well-developed institutions (Pillar 1),

a functioning infrastructure (Pillar 2), a stable macroeco-

nomic environment (Pillar 3), and the availability of a

healthy a workforce with at least basic education (Pillar

4). Factor-driven economies are particularly exposed to

swings in global commodity prices and exchange rate

shifts, unless, like China, they can attract foreign invest-

ment by virtue of a large or attractive internal market.

As wages and incomes rise, new competitive impera-

tives emerge. With a higher level of productivity and thus

economic development, a country enters the second, or

investment-driven, stage with a focus on manufacturing and

the export of outsourced services. Companies primarily

compete by enhancing production efficiencies. Higher

wages, which make the country increasingly uncompeti-

tive in lower-wage labor-intensive industries, are offset by

greater efficiencies in goods, labor, and financial markets

as more advanced technologies are incorporated and

institutional quality improves. These efficiency-driven

economies are less vulnerable to fluctuations in com-

modity prices than are factor-driven economies. The

critical efficiency enhancers for this stage are an increased

importance of higher education and training (Pillar 5),

increased goods and labor market efficiency (Pillars 6 and

7), developed financial markets (Pillar 8), the adoption of

and ability to benefit from existing technology (Pillar 9),

and a sizeable domestic or regional market (Pillar 10).

Eventually, the standard of living of the workforce

rises to the point that wages can be sustained only

if a nation’s firms can compete with innovative and

differentiated products. At this third, or innovation-driven,

stage, competitiveness is predominantly driven by innova-tion and sophistication factors such as complex, highly devel-

oped production processes, company business strategies,

and industrial clusters (Pillar 11) and indigenous innova-

tion (Pillar 12) (Sala-i-Martin et al., 2010).

The GCI’s weighting of the indicators that comprise

each of the 12 pillars shifts as a country’s GDP per capita

increases. In the factor-driven stage, defined as a GDP

Rwanda’s leadership has explicitly taken the experience of Singapore as the basis for its aggressive development strategy.

Page 4: Building National Competitive Advantage: Rwanda's Lessons from Singapore

230 FEATURE ARTICLE

Thunderbird International Business Review Vol. 56, No. 3 May/June 2014 DOI: 10.1002/tie

relatively ineffective in influencing economic policy,

instead focusing their efforts on enhancing the civic and

social responsibilities of citizens (Lee, 2002).

Phase 3: Attracting Foreign Direct Investment (FDI). With a

small domestic market and a lack of natural and human

resources, the strategy for competitiveness was to be

better organized, more stable, and more efficient than

its neighbors, or, in a widely used phrase, “to run the

country like a business” (Vietor & Thompson, 2007).

Founded in 1961 to guide Singapore’s industrialization,

the Economic Development Board (EDB) recognized

early the importance of foreign direct investment and

international trade for Singapore’s economy. Incentives

to attract foreign manufacturing included legal secu-

rity; low tax rates; cheap export credits; an excellent

infrastructure; a fierce anticorruption drive to create

transparent and efficient administration with minimal

bureaucracy; and a docile, English-speaking workforce.

Phase 4: Moving Up the Value Chain. The inherent prob-

lems of becoming an investment-driven state, such as

rising labor costs but decreasing output productivity,

intensifying competition from its low-cost neighbors,

and a limitation in resources, pushed Singapore to qual-

itatively upgrade its economy toward labor, technology,

and capital-intensive industries (Fiels, 1994). In order

How did Singapore get rich so fast? Can Rwanda

learn from Singapore’s experience to develop a strategy

of rapid, sustainable economic growth? First, we need

to understand the sequencing of Singapore’s industrial

development strategies over the past decades in which

five phases can be distinguished (see Figure 2):

Phase 1: Starting Position. After independence in 1965,

the Singaporean government was faced with a rapidly

growing population, high unemployment, and a lack

of both natural and human resources. While lacking

administrative expertise, Singapore enjoyed a strategi-

cally advantageous location with the busiest deep-water

port in the region.

Phase 2: Asserting Government Control. The “benevolent

autocracy” under President Lee Kuan Yew and his suc-

cessors has created an unusually consistent set of policies

over an extended time period. Lee’s People’s Action

Party (PAP) has governed Singapore continuously since

independence. Active government intervention in the

economy has raised the confidence of foreign investors

and provided a stable environment for both domes-

tic and foreign firms. Public sector, government-linked

corporations (GLCs) and multinational corporations have

dominated Singapore’s economy (Vietor & Thompson,

2007). Civil society organizations (CSOs) have been

GovernmentControl

Starting PositionRegionalServices

Hub

Move up theValue Chain

Attract FDI

• Independence in 1965

• No economic

hinterland, small domestic market,

and lack of natural and

human resources• Singapore was

left with high

unemployment, a

rapidly growing

population,

and no

administrational

experience• Strategic

advantageous

location

• Became stepping stone for

investors into the Asian market

• ASEAN membership

• Financial

services, trade,

IT, and logistics

become key

pillars of economy

• Promotion of

industries reliant

on intellectual capital,

biomedical

sciences cluster development

• Strategy for survival was to

be better

organized, more

stable and efficient than neighbors

• Authoritarian government with

high continuity

controlled social,

economic, and physical

environment of

the island

• Goal: maintain delicate racial

harmony and

pass reforms

quickly

• Need to create

competitiveadvantage

against low-cost

neighbors• Second industrial

revolution

• Moved up the

value chain to

make best use of

limited space and

resources• Qualitatively

upgraded

economy towards

labor, technology, and capital

intense industries

• Increased focus

on education and R&D

• Economic Development

Board to guide

industrialization

• Recognized need for foreign

investment to

overcome lack of resources

• Incentives to

attract foreign

manufacturingincluded legal

security, low tax

rates, cheap

export credits,an excellent

infrastructure,

and a transparent

and efficient administration

FIGURE 2 Singapore’s Development Strategy 1965–Present

Source: Authors; Vietor & Thompson (2007).

Page 5: Building National Competitive Advantage: Rwanda's Lessons from Singapore

Building National Competitive Advantage: Rwanda’s Lessons from Singapore 231

DOI: 10.1002/tie Thunderbird International Business Review Vol. 56, No. 3 May/June 2014

Business report ranked it as the world’s top reformer,

the first time for a sub-Saharan economy. The Common-

wealth Business Council recognized Rwanda’s improved

investment climate with the Africa Business Award. The

World Bank has predicted Rwanda will be among the

ten fastest-growing economies in the world over the next

decade (World Bank, 2009).

These developments are especially striking in view of

Rwanda’s recent history. Less than 15 years ago, Rwan-

da’s economic situation appeared bleak. Its economy

was undiversified, based predominantly on subsistence

agriculture, with limited natural resources, a small and

fragmented internal market, antagonistic neighbors such

as the Democratic Republic of the Congo (DRC), and

little interconnectedness among regional markets. The

society was split by deep tensions between the country’s

two main tribal groups, the Hutus and the Tutsis. A core

of approximately 10,000 militants, led by radical Hutus

who deny the genocide, remain in the Congo, intent on

overthrowing the Kagame government.

Social and political stability is essential for Rwanda

to become an attractive investment destination and to

integrate it into the wider regional economy of East and

Central Africa. The civil war alienated and displaced large

groups of the population, destroyed the economy, and

with the large-scale extermination of the educated Tutsi

elite, annihilated a major part of the country’s intellectual

capital. The government established priorities for the most

pressing needs by focusing on the “4Rs”: reconciliation,

reform, reconstruction, and regional stability (African

Development Bank, 2008). Reconciliation, or the govern-

ment’s attempt to create an ethnically tolerant nation, pro-

moted a new sense of national unity and public confidence

to move rapidly beyond the factor-driven stage, the

government deliberately discouraged foreign invest-

ments based on cheap labor, by increasing the aver-

age wage level 20% annually between 1979 and 1981

(Bremer, 2002). Many businesses were rationalized

and automated. Education and technical training was

promoted, along with the creation of high-tech indus-

tries and R&D centers. Leveraging on its strategically

advantageous location, Singapore became an attractive

stepping-stone for investors into the Asian market.

Phase 5: Becoming a Regional Services Hub. Throughout

the 1990s and early 2000s, Singapore further diversified

and modernized its export structure and successfully

accomplished its transformation from a production-

driven to an innovation-driven economy. Today, the

industrial sector plays a secondary role; financials

and insurance, trade, information technology, and

transportation and logistics are the backbone of the

economy. To continue to be more competitive than its

developing neighbors, the government plans to achieve

a leading international position in “sunrise industries”

of sophisticated services, such as biomedical sciences,

environmental technology, information technology,

and digital and interactive media.

Rwanda’s Development Challenge

For Rwanda, Singapore’s prosperity is a vision for the

future, not a reality, as Rwanda still ranks among the

world’s least developed countries. In 2010, the coun-

try recorded a nominal GDP per capita of only $558

(International Monetary Fund [IMF], 2011), and 60% of

Rwandans still live below the poverty line, defined by the

United Nations as an income of less than a dollar a day

(Central Intelligence Agency, 2010b).

With a population of 10.2 million, or 387 people per

square kilometer, Rwanda is the most densely populated

country in Africa. Population growth remains high at

2.8%, and the population is expected to exceed 14 mil-

lion by 2020. Despite ongoing urbanization efforts by the

government, the majority of Rwandans continue to live in

rural areas, putting great pressure on the land.

Rwanda has shared the “poverty traps” of civil wars,

mismanagement of natural resources, lack of access

to seaports for landlocked countries, deficits in good

governance, and weak leadership with a number of

other African countries (Bahadur, Schmidt-Traub, Sachs,

McArthur, & Kruk, 2004; Van der Walle, 2001). However,

Rwanda has in recent years taken important policy initia-

tives in recent years to overcome these handicaps and

improve its competitiveness. The World Bank’s Doing

For Rwanda, Singapore’s prosperity is a vision for the future, not a reality, as Rwanda still ranks among the world’s least developed countries.

Page 6: Building National Competitive Advantage: Rwanda's Lessons from Singapore

232 FEATURE ARTICLE

Thunderbird International Business Review Vol. 56, No. 3 May/June 2014 DOI: 10.1002/tie

focuses private-sector development on five central areas:

(1) increasing the value of existing exports, (2) diversify-

ing exports and developing Rwanda as a regional hub,

(3) promoting standards to facilitate trade integration,

(4) increasing the level and quality of investments in pro-

ductive sectors, and (5) promoting an economic environ-

ment conducive to economic growth (Hategeka, 2010).

According to the Ministry of Finance and Economic

Planning, the major aspiration of Vision 2020 is to “trans-

form Rwanda’s economy into a middle income country

… [which] will not be achieved unless we transform from

a subsistence agriculture economy to a knowledge-based

society, with high levels of savings and private investment”

(Ministry of Finance and Economic Planning, 2000).

Some Vision 2020 goals, such as 100% literacy, an

increase in life expectancy by 6 years to 55 years, and an

investment rate of 30% of GDP primarily from private-

sector investments, may appear unrealistic. Following

the Singapore model of building a business-friendly

environment, Rwanda’s government aims to maintain

macroeconomic stability while providing consistent good

and revived the economy. Community-based “Gacaca”

courts using lay judges have worked on over two million

genocide and war crime cases with the goal of reconcili-

ation through social service as an alternative to imprison-

ment. Economic and political reforms helped to attract

foreign aid and investment, which in turn supported the

reconstruction of the country’s institutional infrastructure.

Under Kagame’s rule, the political situation has

stabilized and peace has returned to the country. A con-

stitution was proclaimed in 2003, and Kagame enjoyed a

landslide reelection in 2010. Nevertheless, there is grow-

ing criticism of his authoritarian and military leadership

style. Kagame’s Rwanda Patriotic Front (RPF) party has

placed limits on press freedom and public dissent; politi-

cal opponents can face prison or exile, and Rwanda still

lacks an independent judicial system.

On top of these impediments, civil society faces inher-

ent obstacles such as a traditional absence of democratic

structures and culture, mutual distrust between the coun-

try’s economically privileged and the mass population,

disparity between national-level associations based in the

capital and CSOs in the rural diaspora, and a decimated

intellectual elite as a consequence of the genocide (US

Agency for International Development, 2001). Similar to

Singapore, the impact of Rwandan CSOs on corporate

and government accountability is minimal. However,

CSOs serve a significant role in promoting the values

of gender equity, poverty reduction, increased transpar-

ency of institutions, decentralization, land reforms, and

environmental protection. The government has acknowl-

edged the importance of women in society, and decen-

tralization policies are providing a legal framework for

greater local participation in decision making (CCOAIB,

2011). Much depends on whether Kagame, whose poli-

cies have produced rapid economic growth and social

progress, is to reduce the country’s dependence on his

personal leadership by introducing more democracy.

Rwanda’s Competit iveness Strategy

The policy and macroeconomic stability created by Presi-

dent Kagame and his government has served as a basis

for the gradual rebuilding of society and repositioning of

the country’s economic activity. The Rwanda Ministry of

Infrastructure’s (MINIFRA) medium-term development

plan, the Economic Development and Poverty Reduc-

tion Strategy (EDPRS), and the “Vision 2020” long-term

strategy provide the policy framework for progressively

improving productivity, competitiveness, and the ease

of doing business in Rwanda while contributing to rais-

ing the standard of living of the population. The EDPRS

Following the Singapore model of building a business-friendly environment, Rwanda’s government aims to maintain macroeconomic stability while providing consistent good governance, especially low corruption in the public sector, and continually upgrading human capital through investments in education.

Page 7: Building National Competitive Advantage: Rwanda's Lessons from Singapore

Building National Competitive Advantage: Rwanda’s Lessons from Singapore 233

DOI: 10.1002/tie Thunderbird International Business Review Vol. 56, No. 3 May/June 2014

privatization program, introducing an incentive regime

to attract foreign investment by reforming the country’s

institutional and regulatory framework. Legal reforms

include the abolition of the death penalty, the introduc-

tion of the writ of habeas corpus and the 2003 Constitu-

tion providing for the independence of the judiciary

(African Development Bank, 2008).

What sets Rwanda further apart from its factor-driven

peers and in particular, its regional peers, is the govern-

ment’s policy of zero tolerance for corruption. Just as

Singapore enforced rigorous anticorruption practices in

its third phase of development in order to attract foreign

investors, Rwanda’s high-profile anticorruption campaign

in the mid-2000s sent a message that fighting corruption

was a key goal on its agenda. Ranking 66th of 189 coun-

tries assessed in the Transparency Index (Transparency

International, 2010), and 34th of 139 countries in terms

of ethical behavior of firms, Rwanda ranks better than

most economies at a comparable development stage.

Given its painful recent history, Rwanda has made

significant progress in institution building. On the GCI’s

ranking of 139 nations, Rwanda ranks 19th in terms of

governance, especially low corruption in the public sec-

tor, and continually upgrading human capital through

investments in education. Interviews with government

agencies and private-sector representatives reveal a per-

vasive awareness of the need for systematic, consistent,

and sustained efforts in improving the indicators of

Rwanda’s basic factors, while laying the groundwork that

could enable the country to move rapidly up the chain

of value-adding activities to become a regional hub for

advanced logistics, financial services, and communica-

tion industries (S. Caley, Finabank managing director,

personal communication, August 2011; N. Musengimana,

Private Sector Federation, Director Business Develop-

ment Centre for the Southern Province (BDS), personal

communication, August 18, 2010).

Rated by the GCI for the first time in its 2010/2011

report, Rwanda ranks 80th in overall national competi-

tiveness, but among the top five sub-Saharan countries

(Sala-i-Martin et.al., 2010). Governance indicators have

improved with the creation of a number of institutions,

including the National Unity and Reconciliation Com-

mission and the Human Rights Commission. The World

Bank’s Worldwide Governance Indicators ranks Rwanda’s

government as more stable than most emerging nations

(Kaufmann, Kraay, & Mastruzzi, 2009).

The next section systematically examines Rwanda’s

competitive strengths and weaknesses on each of the

twelve pillars, and concludes with an assessment of the

nation’s opportunities and risks as it implements its

Vision 2020 for rapid economic growth (Figure 3).

Rwanda’s Pil lars of Competit iveness

Group 1: Basic Requirements

For a factor-driven economy such as Rwanda’s, getting the

Basic Requirements right (the pillars of Institutions, Infra-

structure, Macroeconomic Environment, and Health and

Primary Education) is critical. These account for 60% of a

factor-driven country’s competitiveness ranking.

Pillar 1: Institutions

Similar to Singapore’s government upon independence,

Rwanda’s government post civil war required sufficient

control to push through its ambitious plans for social and

economic transformation. By censoring the media and

restricting opposition protests to forced resettlement,

the highly authoritarian leadership has maintained tight

control. Due to strictly enforced penalties, crime rates in

Rwanda remain extremely low.

With little dissent permitted, the government has

embarked on an extensive economic liberalization and

Strategic Objectives

1. Maintenance of macroeconomic stability

2. Transformation from agrarian to knowledge-based economy

3. Fostering entrepreneurship and creating a productive middle class

4. Wealth creation and reduction of aid dependency

Pillars

1. Good governance and a capable state

2. Human resource development, emphasizing science and technology

3. Private-sector innovation with private-sector-led development

4. Infrastructure development

5. Productive high value and market-oriented agriculture

6. Regional and international integration

Selected Performance Targets

1. Annual growth rate of 8%

2. Population growth of 12%

3. Investment rate of 30% of GDP, primarily from private sector

Key Outcome Targets

1. 100% literacy by 2020

2. Infant mortality rate halved by 2020 (50 per 1000 births)

3. Life expectancy increased by 6 years to 55 by 2020

4. Income inequality reduced by 25% to Gini index 0.35 by 2020

FIGURE 3 Rwanda’s Vision 2020

Source: African Development Bank (2008).

Page 8: Building National Competitive Advantage: Rwanda's Lessons from Singapore

234 FEATURE ARTICLE

Thunderbird International Business Review Vol. 56, No. 3 May/June 2014 DOI: 10.1002/tie

annually over the next few years (Economist Intelligence

Unit, 2010). If achieved, these expected growth rates

would not only outperform most sub-Saharan states but

would make Rwanda one of the fastest-growing developing

nations. However, the high population growth rate (2.8%

in 2009) prevents a comparable increase of GDP per cap-

ita, which remains below sub-Saharan average and presents

a long-term challenge for national competitiveness.

Foreign direct investment (FDI) inflows are below

the regional average, but Rwanda receives more aid per

capita than its peers. In 2005, Rwanda became eligible

for the joint IMF/World Bank/International Develop-

ment Association (IDA) Multilateral Debt Relief Initia-

tive (MDRI). As a direct result, the country’s external

debt declined from 85% of GDP in 2000–2004 to about

15% since 2006 (IDA/IMF, 2010). Despite an analysis

conducted by the IMF and World Bank which found that

the country’s limited export base remains a risk factor for

debt sustainability, the international ratings agency Fitch

upgraded the country’s credit rating from B minus to B

(five grades below investment grade) based on the coun-

try’s growth outlook and continued effort to increase

competitiveness. However, Rwanda faces rising inflation-

ary pressures due to escalating global oil and food prices

(Economist Intelligence Unit, 2010).

Pillar 4: Health and Primary Education

Economic progress is impossible without a healthy society.

Rwanda has only 1 doctor for every 18,000 and 1 nurse

for every 1,700 citizens, and the quality of rural hospitals

is poor. More than half of total health expenditures are

funded through foreign donations. Nevertheless, effective

investments of these funds have resulted in a reduction in

infant mortality from 86 to 62 per 1,000 since 2000. Malaria

morbidity and mortality rates have dropped 60%, and HIV

prevalence is less than 3%. Average life expectancy has

increased from 25 to 55 years (Sezibera, 2010).

strength of institutions, including protection of property

and intellectual property, judicial independence, and

efficiency of legal system in handling disputes. The gov-

ernment’s success in channeling targeted investments is

reflected in Rwanda’s ranking of second in the world for

least wasteful amount of government spending, coupled

with a high ranking for transparency in government

policymaking (substantially surpassing that of France,

the United Kingdom and the United States). The GCI

has identified strong protections for investors, along with

very low levels of organized crime and low costs to busi-

ness of crime, violence or terrorism, as contributing to a

business-friendly environment.

Pillar 2: Infrastructure

Physical infrastructure remains a serious obstacle to eco-

nomic growth. Of the 14,000 km of roads, only 20% are

paved (Rwanda Development Board, 2010a). Rwanda suf-

fers from extremely high transportation costs, at $165 per

ton per kilometer, compared to an average of $95 per ton

per kilometer in the rest of the region (African Develop-

ment Bank, 2008). Transportation costs account for 40%

of the value of imported goods to Rwanda (Majyambere,

2010).

Limited, unreliable, and expensive energy supply

represents another serious bottleneck. Household and

industrial electricity demand is increasing due to an

urbanization trend and the economic upswing of the

country but hasn’t been met by local generation. Conse-

quently, Rwanda heavily depends on electricity imports

from its neighbors. As Rwanda has no upstream oil busi-

ness or refinery industry, crude oil products are imported

over long distances and poor roads from the Indian

Ocean. Electricity costs at $0.21 per kilowatt-hour are

nearly triple that of the rest of the region (African Devel-

opment Bank, 2008). These high-energy costs decrease

the profitability of manufacturing and are one of the

main reasons why the industrial sector remains underde-

veloped.

Pillar 3: Macroeconomic Environment

After experiencing more than a decade of strong growth

averaging 8.3% per year, economic activity slowed sharply

when Rwanda was hit by the global financial crisis in 2009.

The value of exports declined by 28% due to lower prices

for minerals, tea, and coffee on the world market. As a

result, GDP growth dropped from 11.2% in 2008 to 4.1%

in 2009 (African Development Bank, 2008; IMF African

Department, 2010).

Since its 2009 slump, Rwanda’s economy has been

recovering. The IMF forecasts GDP growth to increase 8%

More than half of total health expenditures are funded through foreign donations.

Page 9: Building National Competitive Advantage: Rwanda's Lessons from Singapore

Building National Competitive Advantage: Rwanda’s Lessons from Singapore 235

DOI: 10.1002/tie Thunderbird International Business Review Vol. 56, No. 3 May/June 2014

In addition to the liberalization of the Rwandan

market, the government has implemented a vigorous

privatization program. Since 2001, more than 90 gov-

ernment-owned enterprises have been restructured and

partially or wholly sold off to the private sector (IBRD,

World Bank, 2008).

Net FDI inflows have surged from $7.66 million

(0.39% of GDP) in 2004 to $118.67 million (2.34% of

GDP) in 2009 (World Bank, 2011). As a result of these

efforts and the creation of a special “Doing Business“

department within the Rwanda Development Board,

Rwanda was able to raise its ranking in the World Bank Doing Business Report by 76 positions. According to the

Economist Intelligence Unit, the country’s regulations

are now more favorable to business than many economies

in eastern Europe, Asia, the Middle East, Latin America,

or Africa (Economist Intelligence Unit, 2010).

Pillar 7: Labor Market Efficiency

By the end of 2006, the total labor force was estimated at

about five million, with a majority working in the agricultural

sector. This provides businesses in the primary and second-

ary sectors with abundant and inexpensive labor but repre-

sents an obstacle to the government’s goal of transforming

Rwanda into an innovative, technologically advanced and

efficiency-driven society. Each year, around 100,000 young

Rwandans enter the labor market, but 95% are unable to

find adequate employment (Pro€Invest, 2007).

As Table 1 shows, there is a huge difference in

composition of employment between the capital Kigali

and the rural areas of the country. Nearly two-thirds

of the Kigali workforce (and one-third in other urban

areas), comprising one-fifth of Rwanda’s population,

A major driver of these public health successes has

been a universal health insurance plan that now covers

92% of the population. Foreign assistance has enabled

construction of health centers for the poorest quintile

of the population (McNeil, 2010). Primary education is

compulsory and free. Unfortunately, Rwanda’s educa-

tional system is one of the world’s least developed. The

Human Development Index ranks Rwanda 152 of 169

countries in terms of the level of educational attainment

(UNDP, 2010).

Group 2: Efficiency Enhancers

The next six pillars (Higher Education and Training,

Goods Market Efficiency, Labor Market Efficiency, Finan-

cial Market Development, Technological Readiness, and

Market Size) count for 35% of a factor-driven economy’s

competitiveness ranking.

Pillar 5: Higher Education and Training

Historically, Tutsis had occupied most teaching and

research positions. Hence, the genocide left the country

with a chronic lack of skilled human resources. Schools

and universities remained closed or understaffed during

the years following 1994. According to estimates of the

World Bank, 75% of Rwanda’s labor force is unskilled,

and while the adult illiteracy rate dropped to 30%, only

13% of the working population has received educa-

tion beyond the primary level (African Development

Bank, 2008).

The country is endeavoring to rebuild a modern

educated elite. The number of primary and secondary

schools and universities has increased in the past several

years. The focus of higher education has been shifted

toward promoting science, technology, and information

technologies. The path to a highly educated workforce is

steep: 87% of employees in the private sector have only

primary school education and no formal job training.

Only 2% have completed a university degree (Rwanda

Private Sector Federation, 2010).

Pillar 6: Goods Market Efficiency

Having recognized that the country’s future lies in a

thriving private sector, the government has committed

itself to close cooperation with investors in policy and in

practice. In order to strengthen the private sector, the

EDPRS focuses on “promoting an economic environment

conducive to economic growth” ( Hategeka, 2010). The

labor, goods, and capital markets are open to regional

communities and the foreign trade regime is one of the

most liberal in sub-Saharan Africa (Pro€Invest, 2007).

TABLE 1 Occupational Group by Rural and Urban

(in percent)

Occupational Group Kigali Urban

Other Urban

Rural All

Professionals 7.4 4.4 1.3 2

Senior Officials and Managers 0.9 0.1 0 0.1

Office Clerks 4.2 1.5 0.2 0.6

Commercial and Sales 19.1 11.7 4.1 5.8

Skilled Service Sector 31.3 16.6 2.5 5.7

Agricultural & Fishery Workers 14.7 55.9 87.2 79.5

Semiskilled Operatives 16.8 7.1 3.6 4.8

Drivers and Machine Operators 4 1.2 0.2 0.5

Unskilled Laborers 1.6 1.6 0.9 1

Source: National Institute of Statistics of Rwanda (2005/2006).

Page 10: Building National Competitive Advantage: Rwanda's Lessons from Singapore

236 FEATURE ARTICLE

Thunderbird International Business Review Vol. 56, No. 3 May/June 2014 DOI: 10.1002/tie

access to broadband Internet (Statistisches Bundesamt

Deutschland, 2011). In 2010, Rwanda launched two new

high-speed Internet projects to extend Kigali’s Internet

users’ data connectivity and VoIP services to wireless

broadband and fiber-optic cable. These new services are

expected to bring new network access to nearly four mil-

lion Rwandans and more than 700 administrative institu-

tions, schools, and health care facilities (Fripp, 2009).

Pillar 10: Market Size

Bordering on the DRC in the west, Uganda in the north,

Tanzania in the east, and Burundi in the south, Rwanda

is situated in the center of a region with more than 140

million inhabitants. In 2009, Rwanda and Burundi joined

Kenya, Tanzania, and Uganda in the East African Com-

munity (EAC), whose combined populations are growing

at 3% annually. Considering the small size of its domestic

market, the regionalization of the economy offers enor-

mous growth opportunities for Rwanda. Total intra-EAC

trade amounts to nearly $2.3 billion and is dominated

by Kenya, which accounts for almost half of trade within

the Community. The Rwandan government aims to

bridge the Anglophone states in East Africa and the

are employed in “white-collar” or skilled-service-sector

jobs; nearly 90% of the rural population, or 9.5 million

people, remain in primarily subsistence-level agriculture

or fisheries (National Institute of Statistics of Rwanda,

2005/2006).

Despite these serious challenges, Rwanda’s GCI rank-

ing on this pillar is surprisingly high. All nine of the

indicators place Rwanda higher than 50th. Rwanda is

particularly impressive in the level of female participation

in the labor force, ranking second out of 139 nations, and

tenth overall in terms of flexibility of labor markets. Cou-

pled with excellent cooperation in labor-management

relations, a high level of flexibility in determining wages,

and ease of hiring and firing practices, the overall picture

of labor market efficiency is positive.

Pillar 8: Financial Market Development

Rwanda’s banking sector is comprised of the coun-

try’s Central Bank (Banque Nationale du Rwanda), ten

licensed commercial banks, several microfinance institu-

tions, one development bank, one discount house, and

one mortgage bank. Rwanda lacks investment banks,

and commercial banks account for 76% of the econo-

my’s total financing. Financing costs remain above the

regional average and banks offer a limited range of

commercial products (African Economic Outlook, 2010;

S. Caley, personal communication, August 2011). Finan-

cial market liquidity suffers from an extremely low savings

rate, as low deposit rates and the absence of governmen-

tal retirement and savings plans discourage the already

conservative and risk-averse Rwandans from depositing

their money in bank accounts. Despite an improvement

from 9% in 2005/2006, only 21% of the population held

a bank account in 2010/2011 (National Institute of Statis-

tics of Rwanda, 2012).

Pillar 9: Technological Readiness

The information technology sector in Rwanda is cur-

rently composed of landline telephones, voice-over-

Internet (VoIP), dial-up Internet, Integrated Services

Digital Network (ISDN)-based Internet, broadband Inter-

net, computer software use and development, computer

hardware, assembly, and repair.

According to the Rwanda Development Board, mar-

ket penetration of mobile services is about 32% and even

lower in neighboring Burundi and eastern DRC, which

depend on the import of information and communica-

tion services from Rwanda. This stands in stark contrast

to neighboring Kenya, where mobile phone use is close

to universal. At the end of the decade, only 4.5% of

Rwandans made regular use of the Internet and 0.1% had

Financial market liquidity suffers from an extremely low savings rate, as low deposit rates and the absence of governmental retirement and savings plans discourage the already conservative and risk-averse Rwandans from depositing their money in bank accounts.

Page 11: Building National Competitive Advantage: Rwanda's Lessons from Singapore

Building National Competitive Advantage: Rwanda’s Lessons from Singapore 237

DOI: 10.1002/tie Thunderbird International Business Review Vol. 56, No. 3 May/June 2014

In order for Rwanda to become a regionally signifi-

cant center for business and communications, it needs,

like Singapore, a core of highly skilled professionals, a

broader and deeper financial sector, higher levels of

savings and private investment, and an ability on the

part of both government and private-sector firms to

adopt new technologies. Over time, Singapore built lay-

ers of competitiveness by concentrating on investments

in infrastructure and workforce development to supply

the necessary education and skills demanded by a rap-

idly changing business and technological environment.

But unlike the situation that Singapore faced at its inde-

pendence, Rwanda suffers from an inadequate infra-

structure and a shortage of skills among the workforce.

Advances in productivity must come from invest-

ments in the basic and efficiency-enhancing pillars such

as infrastructure, education, and adoption of core tech-

nologies. Rwanda will have a capacity for innovation only

after its technical and vocational training and applied

engineering and scientific research institutes have been

significantly improved. Although innovation and business

sophistication are essential for the eventual realization

of the country’s Vision 2020, Rwanda must first focus on

building firmer foundations in the basic and efficiency-

enhancing pillars by improving its infrastructure and

electricity supply, enhancing its basic education, promot-

ing higher education and professional training, increas-

ing its market size by further integrating into the East

African Community, and deepening its financial sector.

The next subsections assess the country’s progress in

these areas.

resource-rich Central African States. As a regional gate-

way, Rwanda would increase its export base and attract

foreign investments, enabling it to leverage economies

of scale in creating a more liquid stock market, building

regional infrastructure projects, and enhancing its influ-

ence on the world stage.

Group 3: Innovation and Sophistication Factors

The pillars of Business Sophistication and Innovation

represent only 5% of a factor-driven economy’s GCI

ranking. As nations move to more advanced stages of

development, sophisticated business practices and busi-

ness networks become more significant as wages rise and

prior efficiencies limit opportunities for productivity

improvements.

Pillars 11 and 12: Business Sophistication and Innovation

Rwanda’s business landscape is composed mainly of

micro and small-scale enterprises. Most of Rwanda’s 11.5

million inhabitants still have no access to basic services,

including a reliable supply of electricity.

The government has initiated an aggressive strategy

for telecommunications to connect the national network

to the global network via the east coast of Africa. High-

capacity fiber-optic lines are being laid throughout the

country in order to provide high-speed broadband to

100,000 by early this decade. Broadband capability is

expected to decrease communications costs by 90% com-

pared to satellite technology. The current construction of

an antenna at Kigali will cover the city with state-of-the-art

wireless broadband, providing high-speed connectivity

for 4G mobile devices (Blenford, 2009). But even with

a sophisticated domestic and regional communications

network, Rwanda’s capacity for indigenous innovation,

Rwanda’s capacity for indigenous innovation remains

extremely limited due to the lack of a highly skilled

workforce.

Improving Rwanda’s National Competitiveness: Implications for Policymakers

Despite their different stages of development, Rwanda’s

and Singapore’s competitive profiles have similarities.

Both countries benefit from strong, well-functioning

institutions due to very low levels of corruption, a high

degree of government efficiency, and an excellent secu-

rity environment. Rwanda, like Singapore, has focused on

science and technology to establish a business environ-

ment attractive to foreign investors.

Advances in productivity must come from investments in the basic and efficiency-enhancing pillars such as infrastructure, educa-tion, and adoption of core technologies.

Page 12: Building National Competitive Advantage: Rwanda's Lessons from Singapore

238 FEATURE ARTICLE

Thunderbird International Business Review Vol. 56, No. 3 May/June 2014 DOI: 10.1002/tie

produce value-added, knowledge-intensive goods and

services.

The government recognizes that secondary and col-

lege education must focus on practical skills specific to

essential professional jobs. By emphasizing science and

technology education, Rwanda has now reached a level

of technological readiness comparable to, or better than,

the regional average, according to the African Develop-

ment Bank (2008).

Central to the Vision 2020 initiative is the electronic

government project, which, through its twin policies of

“e-governance” and “e-education,” aims at moderniz-

ing the access to information and government services.

E-education will provide children and adults with relevant

skills demanded on the job market, and e-governance

aims at encouraging Rwandans to participate in decision

making. By building an efficient, state-of-the-art commu-

nications network, the government expects that the effect

on K–12 education, business, government, and society in

general will attract foreign investors to the country. The

government’s information technologies development

agenda supports investments in networking and software

development, broadband fiber-optic infrastructure, call

centers and back-office operations, mobile phone and

computer repair and assembly, and the establishment of

business process outsourcing companies.

Rwanda is aiming to create the kind of entrepreneur-

ial, innovative, and science-focused environment that Sin-

gapore offers investors. Following Singapore’s model that

created international research and development clusters

such as Biopolis in biomedical sciences and Fusionpolis

in communications technology and media, Rwanda plans

to develop its traditional university town, Butare, into

the scientific capital of Central and East Africa over the

next decade. The National University of Rwanda, located

at the heart of Butare, has an excellent reputation in

Eastern Africa. A planned expansion will include public-

sector research facilities, scientific infrastructure, and

corporate laboratories.

Promoting Regional Integration

The return of stability in its political and commercial

relationship to the DRC, Burundi, and Uganda is essen-

tial for regional integration, but more must be done to

strengthen trade. The World Bank ranked Rwanda’s

trading across borders 159th out of the 183 economies

assessed. Even within sub-Saharan Africa, Rwanda’s rank

is low, at 33rd out of 46 (World Bank, 2009). Rwanda’s

landlocked location and relatively high transportation

costs increase the expense and speed of cross-border

trade.

Developing Domestic Infrastructure and International Connectivity

Lacking Singapore’s great natural advantage as the

most developed deep-water port in Southeast Asia, land-

locked Rwanda requires a different strategy to become

the region’s transportation hub, one less dependent on

building export competitiveness. Vision 2020 directs

massive investments to road and rail rehabilitation,

maintenance and development, airport expansion and

management, and electricity generation. Two interna-

tional railway projects are planned to connect Rwanda

to the maritime port of Dar Es Salaam in Tanzania and

to link the region to the South African railway network.

A new international airport in Bugesera is planned, and

construction has begun on a 60-km-long road connection

linking the capital, Kigali, to Burundi. Energy projects

include additional hydropower plants and a methane gas

plant in the volcanic Lake Kivu with an estimated capacity

of 50 to 75 megawatts. If brought to a successful comple-

tion, these infrastructure investments could solve most of

the country’s energy problems.

While the fiber-optic cable project is at an advanced

stage and RwandAir has already acquired two planes for

short-term routes, the international railway lines and the

Bugesera airport project are still in the planning and

fundraising phase, as the government is actively seeking

international investment partners (Rwanda Development

Board, 2010b).

Education as a Prerequisite for Technological Advancement

Education, particularly in the primary and secondary

grades, remains seriously inadequate, due to the destruc-

tion of the educated class in the civil war. Most govern-

ment spending to date has emphasized investment in

physical infrastructure. However, the government’s most

recent strategic plan for the education sector increases

investments in the education of primary and secondary

(K–12) schoolteachers. Through e-learning initiatives

such as “one laptop per child,” the government aims to

promote a culture of information and communications

literacy. With the switch from French to English as the

official language, Rwanda expects to attract more foreign

investment and facilitate becoming a business hub in the

mainly Anglophone East African region.

Higher education has fared better from government

attention. However, Rwanda still lacks qualified college

teachers, as well as educated entrepreneurs, engineers,

technicians and scientists with the technical competence

to adapt new technologies to solve local problems and

Page 13: Building National Competitive Advantage: Rwanda's Lessons from Singapore

Building National Competitive Advantage: Rwanda’s Lessons from Singapore 239

DOI: 10.1002/tie Thunderbird International Business Review Vol. 56, No. 3 May/June 2014

infrastructure in relation to border processing represent

further obstacles (Joseph, 2010).

Only after full integration will EAC countries be able

to participate in their fellow members’ capital markets.

The establishment of a common stock exchange could

attract international investors and alleviate Rwanda’s

liquidity problems. Rwanda’s policymakers anticipate the

eventual merger of the EAC, the Common Market for

Eastern and Southern Africa (COMESA), and the South-

ern Africa Development Community into one market,

comprising 600 million people.

Deepening the Financial Sector

Rwanda’s ambition to become the financial hub of the

Central and East African region requires many changes

in the investment environment. The World Economic

Forum’s Executive Opinion Survey has identified a set of

priority issues: (1) access to financing, (2) the “shallow-

ness“ of the domestic capital market, (3) the low penetra-

tion of insurance services, and (4) undiversified financial

products (Schwab, 2010). A solid regulatory foundation

has been laid in the past few years. Recognizing that

high interest rate spreads and fees, unregulated pension

and insurance systems, and scarcity of long-term project

financing put a major constraint on doing business in

Rwanda, the government introduced major financial

reforms to deepen and broaden the banking sector. New

regulations on bankruptcy, disclosure requirements, and

credit history should stimulate lending to the private

sector.

A key challenge is to overcome the financial illit-

eracy and risk-averse attitude towards capitalism among

Rwanda’s population. In addition, the lack of data such

Its new membership in the East African Community is

key to Rwanda’s overcoming transportation barriers and

meeting its development goals by 2020. Table 2 summa-

rizes the four aspired milestones to integration: forming

a customs union, establishing a common market, creating

a monetary union, and ultimately a political federation

among EAC member states. The EAC customs union,

established in 2004, evolved by 2010 into a common

market. Its slogan, “Produce Local, Trade Regional, Sell

Global,” expresses Rwanda’s aspirations. In 2011, Rwanda

launched the Kigali Free Trade Zone (KFTZ), its first

free economic zone, which provides a duty-free environ-

ment for the import of raw materials, or goods imported

for re-export. Through the KFTZ, the government will

encourage export diversification and promote Rwanda as

a regional trade logistics hub (N. Musengimana, personal

communication, August 18, 2010). Although in princi-

pal there is free movement of goods, services, people,

and capital among the common market members, full

implementation will be gradual. The EAC has set 2015

as the year for adoption of a monetary union similar to

the Eurozone, but this aggressive target is unlikely to be

met, due to continuing internal trade barriers and lack of

political coordination.

The EAC needs to agree on homogeneous incentives

for value-added tax, income tax, excise duty, and the taxa-

tion of services. Just as Singapore aggressively moved to

open up its economy to foreign investment by removing

tariff walls and capital controls, Rwanda must lower exist-

ing tariffs that hinder trade. Presently, EAC members are

still reluctant to fully open their borders, and the slow

pace of the member countries’ bureaucracies, constantly

changing import regulations, and an underdeveloped

TABLE 2 East African Community Integration Milestones

01 02 03 04

Customs Union Common Market Monetary Union Political Federation

Customs Union (agreement of March 2004) Common Market (agreement of July 2010)

→ Formation of a single customs territory with trade at the core of the union

→ Widen and deepen cooperation in the economic and social fi elds

• Elimination of internal tariffs and non-tariff barriers • 4 Freedoms (free movement of goods, labor, services, and capital)

• Harmonization of external tariffs • Promote common understanding

• Common safety measures for imports • Enhance research and technological advancement

• Common trade policies

→ Economies of scale and faster economic development → Co-operation, harmonization, and integration of policies

→ Creation of a single market and investment area → Boost trade and investments and make the region more productive and prosperous

Source: Based on East African Community (2011).

Page 14: Building National Competitive Advantage: Rwanda's Lessons from Singapore

240 FEATURE ARTICLE

Thunderbird International Business Review Vol. 56, No. 3 May/June 2014 DOI: 10.1002/tie

new technologies and building the country’s research

and innovation capabilities. Well-developed transporta-

tion systems and reliable electricity supply are essential

for promoting trade, technological advancement, and

business sophistication.

Rwanda improves its overall ranking in the first stage

with its health insurance plan and localized health cen-

ters (Pillar 4), in the second stage with its e-learning and

e-government initiatives (Pillars 5 and 9), and through

the visionary planning in stage 3 with inspiration from

Singapore’s Biopolis and Fusionpolis.

Following the Singapore example, Rwanda is working

on turning its weaknesses into opportunities. A stable gov-

ernment for the past 18 years led by a “benevolent autocrat,”

low criminal activity, the protection of private property and

a stable and transparent legal system, low corruption, an

effective administration, and low corporate tax rates all aim

at positioning Rwanda as a regional hub, attracting foreign

investment into basic industries and creating export oppor-

tunities for agricultural products. In achieving these first

steps in a comprehensive development strategy, the World

Bank Doing Business Report has identified Rwanda as the

“most improved business reformer” in the world.

The Singapore model demonstrates that rapid

economic transformation is possible when a coherent,

systematically applied strategy for building national com-

petitiveness is implemented. The analysis of Rwanda’s

development strategy using the Global Competitiveness

Index framework may serve as a basis for policymakers

and scholars attempting to analyze the development

strategies of other factor-driven economies. Further

comparative research on Rwanda and its regional neigh-

bors’ development strategies could explore the impact

of sequencing reforms based on the stages of the GCI

framework and the relevance of the Singapore model in

East Africa. Rwanda shows how a country starting from a

nearly hopeless situation can make significant progress

when inspired by the Singapore model of “running the

country like a business.” If Rwanda can sustain long-term

political and institutional stability, it may be able at least

partly to reproduce Singapore’s exemplary development

success and set an example for other “failed states.”

Note

1. In 2010, the senior author conducted field research in Rwanda, including in-depth interviews with senior officials in the Rwandan Ministry of Trade and Industry and Rwandan Development Board and the Private Sector Federation (the independent replacement of the Rwandan Chamber of Commerce); senior executives in the private sector (Finabank, KPMG, Rwanda Electricity Corporation, Heineken International Bralirwa) and foreign development agencies (KfW Devel-opment Bank, German Federal Ministry for Economic Cooperation and Development); and local and foreign entrepreneurs and investors.

as credit histories for individuals and financial state-

ments for companies results in higher risk premiums

and high collateral for loans, making the access to

financing even more expensive and time consuming

for entrepreneurs. Government incentives to foster

a savings environment through the creation of an

education savings plan as well as social security and

mutual funds are first steps (S. Caley, personal com-

munication, August 2011). Further integration into

the EAC and a possible merger of the members’ stock

exchanges will lead Rwanda to increased financial mar-

ket liquidity and efficiency.

Conclusion

Like Singapore in the first years after its independence,

post-civil war Rwanda faces significant competitiveness

challenges. Rwanda shares with Singapore a small market

size and delicate racial relationships in a region prone to

ethnic conflict. It must also contend with a landlocked

position with poor access to seaports, poor quality of its

infrastructure, and minor level of education.

Given these handicaps, why does Rwanda neverthe-

less lead the World Bank’s ranking for ease of doing busi-

ness among sub-Saharan African countries? Applying the

GCI’s 12 pillars enables a systematic analysis of the coun-

try’s competitive strengths and weaknesses and suggests a

sequence of policy measures that will increase a nation’s

competitiveness over time.

Without improved regional economic integration,

Rwanda’s geographic conditions limit the development

of higher value-added sectors of the economy. Invest-

ments in the educational system are critical for adopting

Rwanda’s ambition to become the financial hub of the Central and East African region requires many changes in the investment environment.

Page 15: Building National Competitive Advantage: Rwanda's Lessons from Singapore

Building National Competitive Advantage: Rwanda’s Lessons from Singapore 241

DOI: 10.1002/tie Thunderbird International Business Review Vol. 56, No. 3 May/June 2014

http://www.itnewsafrica.com/2009/12/rwanda-speeds-up-internet- connectivity-in-kigali/

Hategeka, E. (2010). Private sector development—joint sector review summary report 2009/2010. Kigali: Rwanda Ministry of Trade and Industry.

IBRD, World Bank. (2008, August 3). Rwanda joint governance assess-ment report. Retrieved March 3, 2011, from http://www.afdb.org/fileadmin/uploads/afdb/Documents/Project-and-Operations/ADF-BD-IF-2008-220-EN-RWANDA-JOINT-GOVERNANCE-ASSESSMENT-JGA.PDF

International Development Association and International Monetary Fund (IDA/IMF). (2010, May 28). RWANDA - Joint World Bank/IMF Debt Sustainability Analysis. Retrieved March 17, 2014 from http://www.imf.org/external/pubs/ft/dsa/pdf/dsacr10200.pdf

International Monetary Fund African Department. (2010). Rwanda: Request for a three-year policy support instrument. Washington, DC: International Monetary Fund.

International Monetary Fund. (2011, September). World economic outlook reports. Retrieved October 14, 2011, from http://www.imf.org/external/ns/cs.aspx?id=29

Joseph, T. (2010, July 2). East Africa: Enough talk, it is time to walk the walk. Retrieved December 19, 2010, from http:// allafrica.com/stories/201007070945.html

Kaufmann, D., Kraay, A., & Mastruzzi, M. (2009). Worldwide gov-ernance indicators. Retrieved February 18, 2011, from http://info. worldbank.org/governance/wgi/index.aspx#home

Lal, S. (2001). Comparing national competitive performance: An eco-nomic analysis of the World Economic Forum’s Competitiveness Index (Working Paper No. 62). Oxford, England: Queen Elizabeth House.

Lee, T. (2002, March). The politics of civil society in Singapore. Asian Studies Review, 26(1). Melbourne: Blackwell Publishing Limited.

Majyambere, G. (2010, May 21). Rwanda: RwF 1. 6 billion for trade facil-itation. The new times. Retrieved March 8, 2011, from http:// allafrica.com/stories/201005210240.html

McNeil, D. G. (2010, June 14). A poor nation, with a health plan. New York Times. Retrieved from http://www.nytimes.com/2010/06/15/health/policy/15rwanda.html?_r=0

Ministry of Finance and Economic Planning. (2000, July). Rwanda Vision 2020. Retrieved October 17, 2011, from http://www.gesci.org/assets/files/Rwanda_Vision_2020.pdf

National Institute of Statistics of Rwanda. (2005/2006). Development in employment sector. Retrieved June 10, 2011, from http://www.statistics.gov.rw/index.php?option=com_content&task=view&id=279&Itemid=313

References

African Development Bank. (2008). Rwanda 2008–2011; country strat-egy paper. African Development Fund.

African Economic Outlook. (2010). Rwanda. Retrieved from http://www.africaneconomicoutlook.org/en/countries/east-africa/rwanda/

Bahadur, C., Schmidt-Traub, G., Sachs, J., McArthur, J. W., & Kruk, M. (2004). Ending Africa’s poverty trap. Brookings Papers on Economic Activity, 35(1), 117–240.

Berger, T., & Bristow, G. (2009). Competitiveness and the benchmark-ing of nations: A critical reflection. International Advances in Economic Research, 15, 378–392.

Blenford, A. (2009, September 21). Bold Rwanda takes broadband leap. BBC News. Retrieved from http://news.bbc.co.uk/2/hi/8266290.stm

Bremer, T. (2002). Der wirtschaftliche aufstieg suedostasiatischer laender: Geographische grundlagen und wirtschaftliche strategien. Universitaet Hamburg.

Cammack, P. (2006). The politics of global competitiveness. Papers in the politics of global competitiveness. Manchester Metropolitan Univer-sity, Institute for Global Studies.

Central Intelligence Agency. (2010a). The world factbook. Retrieved January 12, 2011, from https://www.cia.gov/library/publications/the-world-factbook/rankorder/2004rank.html

Central Intelligence Agency. (2010b). The world factbook. Retrieved January 11, 2011 from https://www.cia.gov/library/publications/the-world-factbook/fields/2046.html

Cho, D.-S., & Moon, H.-C. (2007). A strengthened tool for analyzing national competitiveness. The IPS National Competitiveness Research 2007 report (pp. 41–61).

Conseil de Concertation des Organisations d”Appui aux Initiatives de Base (CCOAIB). (2011, March). CIVICUS Civil Society Index Analytical Country Report for Rwanda. Kigali, Rwanda: CCOAIB.

East African Community. (2011). Towards a Common Market. Retrieved March 17, 2011, from http://www.commonmarket.eac.int/

Economist Intelligence Unit. (2010). Country report—Rwanda. Lon-don, England: Economist Intelligence Unit.

Fiels, G. S. (1994). Changing labor market conditions and economic development in Hong Kong, the Republic of Korea, Singapore, Taiwan and China. World Bank Economic Review, 8(3), 395–414.

Fripp, C. (2009, December 14). Rwanda speeds up Internet con-nectivity in Kigali. IT News Africa. Retrieved October 10, 2012, from

Lena Ulrich is a research associate at J.P. Morgan Asset Management in New York, conducting fundamental

research in the Biotech and Pharma sectors. Previously she has worked at Credit Suisse HOLT, an equity valuation

team that delivers macroeconomic insights to institutional investors. She holds a dual degree from ESB Business

School, Germany, and Northeastern University, Boston. In 2010, she spent two months in East Africa researching

local economic conditions and conducting interviews with government officials, private-sector representatives, and

investors.

Ronald S. Thomas is senior lecturer in global management in the International Business and Strategy Group,

D’Amore-McKim School of Business, Northeastern University. He received his doctoral degree in psychological

anthropology from Harvard University. He has also held appointments at the Fletcher School of Law and Diplomacy

at Tufts University and at Hult International Business School. He has received several awards for teaching excel-

lence. His research interests center on national competitive strategies, comparative management, and the impact

of culture on international management.

Page 16: Building National Competitive Advantage: Rwanda's Lessons from Singapore

242 FEATURE ARTICLE

Thunderbird International Business Review Vol. 56, No. 3 May/June 2014 DOI: 10.1002/tie

Singapore Department of Statistics. (2014, March 17). Time Series on Per Capita GDP at Current Market Prices. Retrieved March 17, 2014, from http://www.singstat.gov.sg/statistics/browse_by_theme/economy/time_series/gdp.xls

Statistisches Bundesamt Deutschland. (2011). Ruanda. Retrieved June 10, 2011, from Informationen aus internationalen Datenquellen: http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/DE/Content/Statistiken/Internationales/InternationaleStatistik/Land/Afrika/Ruanda,templateId=renderPrint.psml

Transparency International. (2010). Corruption perceptions index 2010 results. Retrieved December 11, 2010, from http://www.transparency.org/policy_research/surveys_indices/cpi/2010/results

United Nations Development Programme (UNDP). (2010). Human development report 2010. New York, NY: Palgrave Macmillan.

US Agency for International Development. (2001). Civil society in Rwanda: Assessment and options. Washington, DC: Author.

Van der Walle, N. (2001). African economies and the politics of per-manent crisis, 1979–1999. Cambridge, England: Cambridge University Press.

Vietor, R., & Thompson, E. (2007). Singapore Inc. Boston, MA: Harvard Business Publishing.

World Bank. (2009). Doing business 2010. Reforming through difficult times. Washington, DC: World Bank, IFC, and Palgrave Macmillan.

World Bank. (2010). Doing business—measuring business regulation. Retrieved December 6, 2010, from Economy rankings: http://www.doingbusiness.org/

World Bank. (2011). World dataBank. Retrieved March 1, 2011, from World Development Indicators (WDI) & Global Development Finance (GDF): http://databank.worldbank.org/ddp/home.do

National Institute of Statistics of Rwanda. (2012). Tremendous growth in savings culture in Rwanda. Retrieved March 17, 2014 from http://www.statistics.gov.rw/publications/article/tremendous-growth- savings-culture-rwanda

New Times Rwanda. (2008, May 24). Forget about Africa’s “lost decades,” we’re marching on, Kagame tells Asians. Retrieved January 3, 2011, from http://www.newtimes.co.rw/news/index.php?a=6598&i=13540

Porter, M. (1990). Competitive advantage of nations. New York, NY: Free Press.

Pro€Invest. (2007, June 27–29). Regional investment conference tourism: East Africa and the Indian Ocean: Country profile: Rwanda. Retrieved January 31, 2011, from http://www.bk-conseil.com/ espaceinformation/documentation/ tourism/Rwanda_Country_Profile.pdf

Rwanda Development Board. (2010a). Investing in Rwanda—an over-view. Kigali, Rwanda: Author.

Rwanda Development Board (2010b). Interview with senior official. Kigali, Rwanda: Author.

Rwanda Private Sector Federation. (2010). PSF 10th anniversary book. Kigali: Private Sector Federation Rwanda.

Sala-i-Martin, X., Blanke, J., Drzeniek Hanouz, M., Geiger, T., & Mia, I. (2010). The global competitiveness index 2010–2011: Looking beyond the global economic crisis. In K. Schwab (Ed.), The global competitiveness report 2010–2011. Geneva, Switzerland: World Economic Forum.

Schwab, K. (2010). The global competitiveness report 2010–2011. Geneva, Switzerland: World Economic Forum.

Sezibera, R. (2010, October 19). The success story of Rwanda’s health sector. Retrieved June 8, 2011, from Afroline—The voice of Africa: http://www.afronline.org/?p=9624