Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Mining and Its Contribution to National Development Unearthing theSubsoil August 2014|EditionNo.6 Rwanda Economic Update Unearthing the Subsoil Mining and Its Contribution to National Development TABLE OF CONTENTS Abbreviations and Acronyms ...................................................................................................................... v Foreword ...................................................................................................................................................... vi Overview ....................................................................................................................................................... vii 1. Recent Economic Developments and Prospects ................................................................................... 1 1.1. Recent Economic Developments ....................................................................................................... 2 1.1.1. Continuing Weakening Growth in the Real Sector ...................................................................... 2 1.1.2. The External Sector: Narrower Current Account Deficits, Robust Mineral Exports ................... 7 1.1.3. Inflation, Monetary Policy, Exchange Rate Policy, and Financial Sector Development: Remaining Concerns About Credit Growth ................................................................................ 10 1.1.4. Fiscal Developments: Growing Concerns About Capital Expenditures ...................................... 13 1.1.5. Economic Outlook and Risks ...................................................................................................... 17 1.2. The Drivers of and Constraints to Aggregate Growth ...................................................................... 19 2. Special Focus: Unearthing the Subsoil: Mining and its Contribution to National Development .... 23 2.1. Why Mining Matters for Rwanda’s National Development ............................................................. 24 2.2. Scale and Scope of Rwanda’s Mining Sector ................................................................................... 27 2.3. Macroeconomics of the Mining Sector ............................................................................................. 28 2.3.1. Production and Exports ................................................................................................................ 28 2.3.2. Mining Revenue and Its Redistribution ....................................................................................... 30 2.3.3. Investments in the Sector and Constraints to Future Financing .................................................. 32 2.4. Employment in the Sector and the Miners’ Profile in the Rural Areas .............................................. 33 2.5. Governance ........................................................................................................................................ 38 2.5.1. Institutional and Regulatory Framework ..................................................................................... 38 2.5.2. Transparency and Accountability ................................................................................................ 41 2.6. Conclusions: Maximizing the Potential Development Benefits From Mining .................................. 42 References ..................................................................................................................................................... 44 Annex Notes .................................................................................................................................................. 47 Data Appendix .............................................................................................................................................. 61 Rwanda Economic Update | Edition No. 6 i LIST OF FIGURES Figure 0.1: 2013 Growth Rate Was Lowest Since 2002 .............................................................................. vii Figure 0.2: Domestic Demand Negatively Contributed in 2013 ................................................................. vii Figure 0.3: Sectoral Economic Structure ..................................................................................................... viii Figure 0.4: Contributions to Growth in 2006–13 ......................................................................................... viii Figure 0.5: Economic Structure By Expenditures ....................................................................................... ix Figure 0.6: Credit to the Private Sector Has Remained Low, Although Liquidity Constraints Have Been Eased x Figure 0.7: Mining’s Contribution to GDP Still Remains Low at 2 percent ................................................ xii Figure 0.8: Export Earnings From Mining Have Risen Sharply Within a Decade ...................................... xii Figure 0.9: Mining is the Biggest Foreign Exchange Earner ....................................................................... xii Figure 0.10: Mining’s Contribution to Total Revenue ................................................................................... xiii Figure 1.1: 2013 Growth Rate Was Lowest Since 2002 .............................................................................. 2 Figure 1.2: Domestic Demand Negatively Contributed in 2013 ................................................................. 2 Figure 1.3: Consumption and Investment Remained Weak in 2013 ............................................................ 3 Figure 1.4: Private Investment and Durable Capital Goods Investment Led Weak Investment Growth .... 3 Figure 1.5: Delayed Disbursement of Capital Expenditures and Low Net Lending ................................... 3 Figure 1.6: Improvements in Net Exports .................................................................................................... 3 Figure 1.7: Low Imports Reflect Low Domestic Demand ........................................................................... 4 Figure 1.8: Services Sector Slowed Down ................................................................................................... 4 Figure 1.9: Growth in Services Sectors Slowed .......................................................................................... 4 Figure 1 10: Mining Growth was High in 2013, But its Growth Pattern is Volatile ...................................... 5 Figure 1.11: Mineral Exports of Main Products ............................................................................................ 8 Figure 1.12: Tourism Receipts ....................................................................................................................... 8 Figure 1.13: Sectoral Share in Foreign Direct Investment ............................................................................ 9 Figure 1.14: Export Growth Momentum Has Been Lost in the First Six Months of 2014 ............................ 9 Figure 1.15: Imports Have Gained Momentum in the First Six Months of 2014 .......................................... 9 Figure 1.16: Inflation Brought Down by Moderate Import Prices ................................................................ 10 Figure 1.17: Rwanda Franc Against U.S. Dollar and Real Effective Exchange Rate Depreciated in 2013 .. 11 Figure 1.18: Lending Rate Did Not Respond to Policy Rate Cut .................................................................. 11 Figure 1.19: Credit to the Private Sector has Remained Low, Although Liquidity Constraints Have Been Eased ... 12 Figure 1.20: Credit Decelerated Across All Sectors of the Economy ............................................................ 12 Figure 2.1: World Bank’s Extractive Industries Value Chain ...................................................................... 26 Figure 2.2: Number of Mining Permits Held at Year End ........................................................................... 27 Figure 2.3: Total Mineral Exports ................................................................................................................ 29 Figure 2.4: Production of Rwanda’s Major Export Minerals ....................................................................... 29 Figure 2.5: Exports for Rwanda’s Major Minerals ...................................................................................... 29 Figure 2.6: Minerals Revenues .................................................................................................................... 30 Figure 2.7: Mining Employment and its Concentration in the Northwest ................................................... 35 Figure 2.8: Miners Are Somewhat Better Educated Than Farm Wage Workers But Significantly Worse Than The Overall Labor Force .................................................................................................. 36 Figure 2.9: Average and Median Annual Wage Incomes ............................................................................. 37 Figure 2.10: Institutional Mapping ................................................................................................................ 40 ii Rwanda Economic Update | Edition No. 6 LIST OF TABLES Table 1.1: The First Quarter of 2014 Shows Signs of Economic Recovery ................................................. 6 Table 1.2: Balance of Payments ..................................................................................................................