Big houses, hotels and increasingly expensive gorillas!

The vision of a service-sector led ‘developmental state’ drives the government of Rwanda, but is proving hard to sustain

Pritish Behuria and Tom GoodfellowAmid stories of ‘Africa Rising’, the idea of the developmental state is receiving attention again.  The concept was coined by Chalmers Johnson in his study of Japanese industrial policy.  It was later applied to a range of East Asian countries, each of which followed different state-driven paths to development.  These states were not strictly benevolent; indeed, they were often violent, corrupt and vicious towards labour unions.  However, they successfully embraced structural transformation, facilitating capital accumulation and yet ensuring that capitalists did not bend policies too far towards their narrow self-interests. In short, coercion and ideology played critical roles in pushing elites to commit to economic development.

No country in Sub-Saharan Africa has been able to imitate the success of the East Asian countries in ‘catching up’, although – as Thandika Mkandawire has argued – there is no intrinsic reason why they should not.  In fact, a handful of states in Africa today are increasingly being discussed as emerging or even full-blown developmental states.  For example, scholars have begun to analyse whether such states as South Africa, Botswana, Ethiopia and Mauritius can be considered in these terms.

Rwanda is another example that has caught the attention of many.  The country has achieved sustained economic growth since 1994, with annual GDP growth exceeding five per cent every year except 2003.  Rwanda’s VISION 2020 strategy is focused on becoming a knowledge-based economy, driven by high-value services sectors such as ICT and tourism, as well as superior health and education services.  These priorities reflect Rwanda’s lack of extensive natural resources and the fact that achieving competitiveness in manufacturing remains challenging for late developers in the current international context.

Much of this vision centres on Kigali as a regional hub for business, tourism, real estate and other services.  The Kigali Master Plan, which has attracted considerable interest and controversy, lies at the centre of Rwanda’s aspiration to reposition itself regionally and globally as a sophisticated services economy.  With its ‘model city’ sitting amid the natural allure of the ‘land of a thousand hills’, Rwanda aims to be the ‘Singapore-cum-Switzerland’ of the African continent.

The government’s focus on services comes amid much talk of global de-industrialisation. Certain service sectors can provide much-needed foreign exchange to address the trade deficit, and they can even provide access to wage employment.  If, however, services are prioritised before workers can procure the necessary skills, it can result in ‘a dangerous imbalance between an economy’s productive structure and its workforce’, as Dani Rodrik argues. In the long term, it can also skew power relations against labour.

Two sectors linked to Rwanda’s high-value services vision – tourism and construction – have been central to the successful growth Rwanda has experienced.  In April 2013, Rwanda launched a US$400 million, 10-year Eurobond.  Proceeds were used to fund the Kigali Convention Centre (which affects both the construction and tourism sectors), Rwandair (directly linked to growth in the tourism sector) and a 28MW hydropower station (important for meeting Rwanda’s energy needs).

Construction is often considered part of industry rather than services, but much of the building taking place in Rwanda relates to a real estate sector linked to the government’s high-value services vision.  While there have also been some substantial investments in infrastructure construction, there has been little by way of housing that is affordable to the poorer segments of society or even middle classes.  The fact that such a large component of Rwanda’s growth is driven by construction aimed at the high end of society – a market that is arguably saturated now in any case, and also remains largely untaxed – is highly problematic.  It also raises the question of how sustainable this growth is in the long term.

Similarly, Rwanda’s drive to develop tourism is aimed at ‘going big’ and hitting the high end of the market.  The tourism sector has been transformed in recent years.  In 1996, it generated US$12 million; by 2012 revenues had increased to US$282 million.  More than 108,000 visitors came to Rwanda in 2012, compared to just 5,000 in 2000.  The government aims to change the perception of Rwanda from an ‘add-on’ destination to a ‘stand-alone’ destination’. As well as attempting to restock Akagera National Park by importing lions from Kenya and investing in business tourism through the US$300 million Kigali Convention Centre, the government raised prices for gorilla trekking from US$250 to US$750 in the space of three years.  Officials claim this has not dented demand.

The government has been at the centre of reviving tourism.  Against the wishes of donors, it took the lead in constructing Rwanda’s first 5-star hotel, the Serena, before passing it over to the Aga Khan Foundation.  Subsequently, two new 5-star international hotels – the Marriott and Radisson Blu – will be open for business in the coming years.  Many smaller hotels have also been established.  These and other developments within the tourism sector have provided some opportunities for workers, but most Rwandans lacked the skills and training required.  As a result, many jobs went to workers from neighbouring countries.  The government has responded to this, working with the Rwanda Tourism University College and Akilah Institute for Women to provide Rwandans with access to the necessary skills for the tourism workforce.

Even to the extent that jobs are created in construction and tourism, labour is relatively dispersed in these sectors, undermining its capacity to pressure capital to redistribute profits and reduce inequality.  Moreover, the ultimate success of these ambitious plans depends on Rwanda being perceived as a success story.  Attracting the kinds of international elites and businesses at which these high-value services are aimed hinges on a sanitised image of Rwanda as a gleaming beacon of post-conflict harmony and rising prosperity.  This image is becoming increasingly difficult to sustain.