Rwanda’s government works hard to maintain a balancing act between the complex range of political and economic factors that underpin the country’s recent rapid economic growth
To understand why growth is sustained in some developing countries and not in others, we need to understand the politics of those countries. That much we know. Or at least, there was an ‘almost revolution‘ to bring us to a consensus that politics matters in development. Despite this, we are still far from uncovering why ruling elites in some countries committed to economic development while others did not, or how growth has been maintained in some seemingly committed countries but not others.
In the literature on developmental states, the idea of systemic vulnerability has made some attempt at delving into the black box of political will. To put it simply, Richard Doner and his colleagues argued that ruling coalitions in Northeast Asian developmental states (Korea and Taiwan) committed to economic development because they had to deal with the interactive condition of three related pressures: external threats, broad coalitional pressures and scarce access to revenue sources. However, even these arguments have been criticised, with some doubting their empirical validity.
Another significant strain of the academic literature on the politics of development is Mushtaq Khan’s work on political settlements. Since 1995, Khan has argued against some assumptions associated with New Institutional Economics. He argued that East Asian developmental states actually followed policies that opposed the market-enhancing governance strategies associated with the ‘good governance’ paradigm. Instead, he argued that East Asian developmental states followed what he termed growth-enhancing governance policies. These involved a much heavier state hand in the economy, and the political distribution of economic rents in ways that contrast starkly with dominant Washington policy prescriptions.
Kunal Sen’s work at the Effective States and Inclusive Development research centre (ESID) has taken these ideas further. He argues that growth-enhancing governance may be important for growth accelerations but actual market-led reforms are important for growth maintenance. More recent work by Lant Pritchett and Erik Werker for ESID has expanded this approach through a framework that aims to analyse what they call the ‘deals environment’ in any given economic sector. Central to Pritchett and Werker’s approach is the notion that the foundations of economic growth lie not in the abstract application of ‘better rules’ to developing economies (as the good governance agenda would suggest) but in changes to the way that economic ‘deals’ are made. Most economies start from a point where deals are closed, in the sense of being limited to a number of key players rather than open to all, and relatively disorderly (rather than stable and predictable). They argue that when such deals become more ordered, economic growth can accelerate – even if the deals space remains relatively closed. If this growth is to be maintained over time, however, the deals space needs to gradually open.
We used this framework to examine Rwanda’s growth story. Since the Rwandan Patriotic Front (RPF) assumed power after the 1994 genocide, Rwanda has achieved annual GDP growth rates of over six per cent nearly every year. In the terms used by ESID, this constitutes a period of ‘miracle growth’. The Rwandan government’s achievements in revitalising the country over the past two decades has made it one of the fastest growing countries in Africa. This growth has not been without criticism. Last year, President Paul Kagame announced that he will be running for a third term, and new changes to the constitution mean that he could effectively stay in power till 2034.
But how exactly did the Rwandan government achieve miracle growth? There are several competing explanations. The World Bank and others highlight the importance of market-led reforms and private sector development in explaining this growth. Still others emphasise the importance of progress in terms of achieving the MDGs and health and education outcomes. From a more heterodox position, David Booth and Frederick Golooba-Mutebi have characterised the Rwandan government as practising a form of developmental patrimonialism. They argue that the Rwandan government has pursued strategies that are similar to those embraced by East Asian developmental states, particularly in reference to agriculture and their use of party- and military-owned enterprises.
We believe that there is a degree of truth in many of these stories, but alone each of them is too simplistic – which is revealed upon close examination of specific economic sectors. Additionally, there are important vulnerabilities, which none of these narratives have highlighted. Rwanda’s continued growth success should not be taken for granted given the fragile and contingent nature of the deals environment in individual economic sectors.
Our research uses the deals/rules framework to examine how the evolution of the nature of ‘deals’ operating in four sectors has contributed to economic growth. The four sectors are coffee, mining, construction and finance. The study highlights how the Rwandan government shares many characteristics of East Asian developmental states but it also differs in its attitude towards market-led reforms and their application.
Aligning with the work of developmental state scholars like Ha-Joon Chang, the paper shows that where diversification has occurred, it has succeeded because closed ordered deals were strategically maintained in those sectors (or winners were picked and effective relationships were sustained with capitalist partners). Conversely, where the state chose to liberalise quickly, this may have contributed to some growth but has not helped the export competitiveness that was crucial to East Asian success. It has also created some relative disorder in the deals environment. In other words, rapid liberalisation alongside pockets of closed deals has led to significant inconsistency and unpredictability in some sectors, which threatens the order that the government has been trying to create.
The Rwanda ‘miracle growth’ story thus needs to be understood as intrinsically linked both to developmental patrimonialism and market reforms – but the combination of these approaches even within specific sectors showcases the country’s vulnerabilities. Rwanda’s economy has come a long way in some respects, but this experience does not reflect a linear shift from closed-disordered to open-ordered deals. Rather, it reflects an ongoing balancing act that the government works hard to maintain.
This blog is based on Working Paper 57: ‘The political settlement and ‘deals environment’ in Rwanda: Unpacking two decades of economic growth’. It was first published by ESID and is republished here with permission.