How does a landlocked, oil and diamond-poor country in Africa become a role model for impoverished countries around the world? The answer is that government and private sector leaders have focused on examining their own values and attitudes, and are determined to make their own strategy. Many other places have noticed. The coordinator of the Haiti Competitiveness Group, Gladys Coupet says, “The Rwanda model has captured our hearts and imagination.”

The World Economic Forum’s recently released Global Competitiveness Report ranked Rwanda as the 6th most competitive market in sub-Saharan Africa, and among the world’s best on indicators such as female participation in the labour force, staff training, and legal rights. Last month Fitch Ratings upgraded Rwanda to a “B,” citing Rwanda’s “uninterrupted” period of economic growth and significant improvement of its business environment. This year, Rwanda was the first African country to become “the world’s top reformer,” according to the World Bank.

Since 2004, Rwanda’s economic performance has been impressive, with an average annual growth rate of 8 percent.  In addition, Rwanda has seen strong performance in trade, tourism, and in foreign direct investment (FDI), with more than US$1 billion allocated since 2001.  All this data is interesting proof that the model is working.  But what is the model?

How did Rwanda shift from a desperate country after the 1994 genocide to a role model nation for the developing world?  The answer is that Rwanda’s leaders changed the way they think.  They realised they could not compete economically by just leveraging basic assets of cheap labor, sun, soil and natural resources. The 19th century British economist, David Ricardo used a term for relying on the benefits of assets:  comparative advantage.   If a country had an asset in greater abundance than another country, they had the advantage.  Unfortunately, this usually forces down wages.  The result is a strategy of exports based on poverty creation.

In the 1990s, Rwandan exports were basic commodities that included coffee beans, tea, and assorted raw minerals. Large sacks of tea were sold at auction in Mombasa; unwashed green coffee beans were tossed into sacks and shipped to Europe and the UK for roasting and packaging.  Minerals, such as tin and tungsten made their way to developed markets in raw form, where they were purified and processed. The problem was that most of the value for these raw materials was being created outside of Rwanda. In addition, Rwandans had no control over commodity market prices.   Times seemed good when commodity prices were high, but things went horribly wrong when prices dropped. 

Things are changing.  In 2000, Rwandans made a bold claim that they intended to create a knowledge-based economy. This meant making IT a key driver for productivity improvements.  In Rwanda, the framing of knowledge goes deeper:  How can we get out of the commodity trap?  This requires market knowledge in order to out-smart your competition.  The result is Rwanda is creating competitive advantages in key industries, instead of relying on comparative advantages.

A good example is the change in Rwanda’s tourism industry. Today, it costs US$500 for an hour visit with Rwanda’s mountain gorillas, a 400 percent price increase since 2001.  This price tag is not affordable to many travelers, but this is the effect Rwanda desired:  by setting the price high, Rwanda removed itself from the comparative advantage game in Kenya and Tanzania, attracted high-end groups, and paved the way for its transition to high-end tourism.  And it worked: The gorilla product helped generate US$175 million in 2009 annual tourism revenues, which funds investments in the high-end tourists’ experience.   High-end birding tourists are next.

In the tea industry, Rwanda is in the final stages of a government privatisation program.   Several private tea producers have invested in more expensive diverse teas. One is already producing orthodox, green and organic teas.   An entrepreneur from the U.S. recently approached a private tea producer to sell high-end teas in specialty markets, and several factories have moved from selling at auction to selling directly to international firms. Annual revenues have increased from US$22 million in 2003 to US$56 million last year.

A recent trend in Rwanda was opening coffee washing stations.  Ten years ago, all coffee that left the country was unwashed.  Since that time, more than 170 washing stations have opened, and washed Rwandan coffee is more than 10 percent of exports. Further, you can find Rwandan premium coffees at Starbucks and Sam’s Club in the U.S., and Marks & Spencers in the United Kingdom.  

The mining sector was recently privatised, and had a record setting export year in 2008, generating revenues of more than US$90 million.   A new factory, Bashyamba Processing, just opened to purify metals prior to exporting, and a strategic plan for the industry includes regulatory improvements, investment and training plans, and diversifying into value added products.

The nascent ICT industry is poised for growth, with current domestic demand approaching US$50 million and on its way to US$200 million by 2020.   Cisco and IBM are bidding on government projects, and there is a strong push to develop human capital in the industry by innovative training programs and attracting FDI.

These trends are based on a common vision, innovative strategies, hard work on initiatives, and accountability for failure. Some people say that the reason for Rwanda’s growth is strong leadership, zero tolerance on corruption, and investment in its highest forms of capital – knowledge, skills and abilities, and belief in competition.

While all this is true, it is not the real reason for Rwanda being the newest role model in the world. The real reason is simple:  Rwanda is self-determined.  It creates and follows its own strategy. While many other countries have stagnated and even regressed by listening to aid bureaucrats and foreign experts that would decide what is “best” for a country, Rwandans learned from the analyses, but made their own choices. 

Michael Fairbanks is the editor of “In The River They Swim: Enterprise Solutions to Poverty” and a member of President Kagame’s Advisory Committee; Michael Brennan is an author and heads OTF Group’s Africa practice based in Kigali.

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