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Section 2: Labour & Land Resources in Rwanda

Fitch Solutions Labour Market Risk Index

  • Rwanda is placed in first position out of 11 East Africa states and in 111th position out of 201 states globally in the Fitch Solutions Labour Market Risk Index.
  • Rwanda outperforms the East Africa average significantly across all components of the index, namely for availability of labour, labour costs and education levels.
Chart: Labour Market Risk, 2019
Chart: Labour Market Risk, 2019

Labour Market Risk Index: Methodology and Components

  • 100 = Lowest risk; 0 = Highest risk
  • The overall Labour Market Risk score is calculated from the average of the Availability of Labour, Education and Labour Cost sub-component scores.
  • Education: the education sub-component focuses on general and tertiary schooling. Scores are based on enrolment at each level of education and interest in technical subjects, such as science, manufacturing, construction and engineering. This gives an indication of the talent pool available in a country, and emphasises higher value technical skills.
  • Availability of Labour: the availability of labour score takes into account the size of the workforce, the quality, age and health of the labour pool and its composition (both with regards to the nationality of workers, and their occupations).
  • Labour Cost: this sub-component assesses worker flexibility and the cost of hiring in a particular country. It includes factors such as the minimum wage, severance pay and unemployment. The scores are calculated to reward the countries with the lowest cost of hire.

Labour Supply and Skills

Rwanda's relatively small and rural population decreases the size of the labour pool and negatively impacts the country's attractiveness when compared with its larger East African peers. That said, Rwanda's regionally competitive life expectancy, high proportion of the working-age population in employment (83%) and significant female labour force participation boosts its labour availability and diversity, expanding the labour pool and providing lower costs for investors and creating a more competitive labour environment in comparison to regional peers. Furthermore, the ease of accessing labour in Rwanda will increase over the next ten years, as population growth, a positive economic growth trajectory and various infrastructure prospects drive urbanisation rates and the migration of labour into higher value-added sectors within the country.

There are some risks facing potential incoming businesses with regard to Rwanda's education profile, in particular the dearth of even the most basic skills in much of the working-age population. In spite of a high primary school enrolment rate, Rwanda has poor basic skills and low-quality education levels, resulting in limited literacy and numeracy skills among the population. Less than a tenth of the population has been educated to secondary level or above, which poses significant risks to businesses looking for skilled and educated labours. This then necessitates the need to import foreign workers to fill skilled and highly technical roles. That said, the government is taking steps to improve the availability of skilled workers in the country, with the Ministry of Education recently (May 2019) embarking on a campaign to help raise awareness among students regarding the skills needed in the labour force.

Rwanda's barriers to accessing foreign workers are relatively low, but like most countries globally, require permits to be employed in the country. Large companies looking to employ more than three foreign workers need to demonstrate that the occupation they need to fill is in demand in the country. Otherwise firms have to conduct a labour test for the vacancy they need to fill, which will increase the hiring time and cost for such firms.

Chart: Working Age Population, 2018
Chart: Working Age Population, 2018

Labour Costs and Regulations

No minimum wage makes Rwanda an attractive market for many secondary sector firms such as construction and low-level manufacturing. Worker productivity also boosts the country's investment appeal compared to its regional peers. Firms with frequent changes in trend, such as clothing and textile, will face higher profit margins in the low wage, high-productivity environment offered by the country. The low labour tax and social contribution requirements strengthen the appeal of the country's labour environment further.

Table: Minimum Wage
Table: Minimum Wage

Rwanda has a highly flexible labour market. Employers in the country are able to hire and fire workers relatively easily as there are no restrictions on the use of fixed-term contracts. The redundancy notice period is one of the lowest in the region, making staff redundancy a swift and low-cost process, greatly improving the ability of investors to react speedily to changes in market conditions and adjust the size of their workforce accordingly. Bargaining power in wage negotiations leans more towards employers, increasing firms' ability to better manage their labour costs.

The threat of strikes is low in Rwanda owing to the fact that, in practical terms, workers have highly restricted options when it comes to staging a strike. For example, collective labour disputes are referred to an arbitration committee set up by the National Labour Council if an agreement cannot be reached. Strikes are strictly forbidden until such options (which can take over two months) are exhausted; this is a significant deterrent to most employees.

Table: Labour Regulations
Table: Labour Regulations

Land Resources, Construction Permits and Registering Property

Both local and foreign investors can own and establish business enterprises in Rwanda. The 2015 Investment Code stipulates that the government cannot expropriate investors' property unless in the public interest and contingent on compensation. Recent improvements to the land administration system offer investors better protection against legal disputes.

It takes only seven days to register property in the country, the fastest time in Sub-Saharan Africa (SSA). The regional average is 53.9 days, while in the OECD, it takes 20.1 days. Speedy processing of property registration and title transfer enables firms to quickly establish operations and reduces rental and legal fees for new and existing businesses. Costly construction permits (13.2% of warehouse value) significantly increase firms' start-up costs in Rwanda; construction permits are much cheaper in other SSA countries (an average of 8.8% of warehouse value). That said, the Rwanda Development Board announced new reforms in 2019, expected to ease the process of securing construction permits, spurring investment. The number of procedures involved in getting a construction permit will fall from 15 to nine, while the number of days to obtain construction permits will fall from 113 to 57.

Table: Registering Property
Table: Registering Property

Industrial Real Estate

The government has highlighted the six secondary cities (Rusizi, Rubavu, Musanze, Huye, Muhanga, Nyagatare) as major centres for industrial development, including manufacturing.

The Kigali Special Economic Zone in particular will be a hub for industrial real estate, split into two main phases (as outlined in the table). The price per sq. m. is US$62 and the minimum size of land that can be acquired is 1 hectare.

Table: Kigali SEZ – Development Phases
Table: Kigali SEZ – Development Phases

 

Manufacturing in East Africa: Rwanda

Section 1: Industrial Manufacturing Focus
Section 2: Labour & Land Resources
Section 3: Infrastructure
Section 4: Regulations & Tax Incentives
Appendix: Relevant Government Bodies
        
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Content provided by Picture: Fitch Solutions – BMI Research
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