Rwanda’s growth miracle may be a mirage

Think again.
Think again.
Image: Reuters/James Akena
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Over the past decade, Rwanda has been hailed as one of the economic stars of Africa. 

According to official government statistics, between 2005 to 2016 Rwandan GDP per capita grew at an annual rate of 5.2%. Across Africa, only Ethiopia grew faster.

This impressive growth has been used as a justification for the increasingly authoritarian tendencies of president Paul Kagame. Kagame, who has led Rwanda since 1994, was recently re-elected for a third term as president, with more than 98% of the vote. (A referendum was held in 2015 on extending presidential term limits, so Kagame is now eligible to serve until 2034.) Opposition parties have a difficult time gaining traction as many citizens fear showing dissent.

Unfortunately, reports of Rwanda’s growth may have been greatly exaggerated.

In a recent article in the Review of African Political Economy, a UK-based political science journal, researchers used household survey data to suggest that the Rwandan economy is growing much slower than the government claims. “If there ever was a Rwandan economic miracle it has probably fizzled out some time ago and is likely to come crashing down very soon,” they write. The researchers chose to publish their analysis anonymously, likely due to fear of retribution from the government.

The study’s provocative assertion is based on a comparison of average household consumption growth to official GDP per capita growth statistics. The household spending estimates were based on analysis of the Integrated Household Living Conditions Survey, a poll of over 10,000 Rwandan households. GDP per capita is based on what economists call national account systems, which attempt to measure GDP by examining national production, income, and financial statistics. Growth in average household consumption and GDP per capita will not always match, for a variety of reasons (for example, if households choose to save more of what they earn), but they should be pretty close.

The researchers show that from 2000 to 2005, growth of average consumption and GDP per capita in Rwanda tracked closely. But from 2005 to 2013, they diverged sharply. Household consumption trends suggest that growth was essentially flat over that period, while the GDP per capita stats show 5.5% annual growth. (The household survey data is publicly available here.)

The authors see this divergence as evidence that “something is amiss in Rwanda’s GDP growth figures.” They point out that national accounts are easier to fudge than household survey data. They point to Greece as a country that recently distorted their economic statistics (paywall).

“While there has been undeniable progress since the war,” the authors write, “much of the improvements we see in Kigali today are cosmetic and driven by the government’s obsession to portray an image of success rather than to lay the foundations of lasting economic growth.”

Regardless of whether past economic growth was as strong as the GDP numbers indicate, the near-term future of the Rwandan economy looks bleak. Official GDP per capita has declined so far in 2017, the debt to GDP ratio is skyrocketing, and investment capital is leaving the country. Something for Kagame to address in his latest term.