Rwanda, the East African nation known for a 1994 genocide that killed 800,000 people, made its international bond market debut today. Investors seemed to like what they saw.
As my Bloomberg News colleagues Lyubov Pronina and Chris Kay reported today, the yield demanded by buyers of the $400 million, 10-year Eurobond offering was 6.875 percent. That reflects Rwanda’s junk-grade investment rating, but it’s still pretty remarkable when you consider that yields on Spanish debt were well above 7 percent just last summer.
Even more remarkable are the comments of Charles Robertson, chief economist for Africa at Renaissance Capital in London, who returned from a trip to Rwanda earlier this month calling the country “an African inspiration.” The government wants Rwanda to become “a Singapore of Africa,” he writes in a research note. “In our view, it is succeeding.”
That may be a bit too exuberant. Rwanda’s economy is based on subsistence farming, with coffee and tea the dominant exports. Donors of foreign aid—which in recent years has accounted for about 40 percent of the government’s budget—have recently scaled back or frozen payments after United Nations experts accused President Paul Kagame’s regime of aiding rebel fighters in neighboring eastern Congo. Kagame has denied any involvement.
Still, Rwanda stacks up pretty well against other small sub-Saharan economies that have started moving into international bond markets. Namibia and Zambia have issued their first eurobonds in recent months. Others, including Kenya and Tanzania, are preparing to join them.
Rwanda has the third-best score in Africa, behind Mauritius and South Africa, on the World Bank’s global ranking of the ease of doing business (pdf). Singapore is No. 1 on that list; Rwanda ranks 52nd, ahead of such countries as Poland and Hungary.
Similarly, Rwanda got Africa’s third-best ranking in Transparency International’s annual index of the perception of corruption. It’s No. 50 out of 174 countries, which are ranked from least to most corrupt.
The economy has averaged 8 percent annual growth over the past five years, with a 7.5 percent increase forecast for this year.
In Robertson’s view, the keys to Rwanda’s strong performance are political stability, a tough anticorruption policy, and smart investment in infrastructure and broadband technology under the government headed by Kagame, in office since 2000. Singapore, he says, used much the same recipe, starting in the 1960s, to transform itself from a poor, aid-dependent nation to a regional economic powerhouse.
Rwanda has been privatizing government stakes in some state-owned businesses to raise funds for investment. Proceeds from the $400 million Eurobond issue will help retire debt from construction of a convention center in the capital of Kigali and pay for development of the national airline, RwandAir. “The government intends to turn Rwanda into a service economy and a conference hub,” Robertson says.