Business Environment and the Growth of Foreign Direct Investments in the Information and Communication Technology Sector in Rwanda in 2012 – 2013

Abstract

This research work was carried out to examine the extent to which improved business environment contributed to the growth of Foreign Direct Investments in the Information and Communication Technology sector in Rwanda in 2012-2013. Rwanda continues to undertake reforms towards making the country a favorable place for investment. On the 2014 World Bank “Doing Business” report, the country was ranked as the 2nd most improved in the world and the second easiest place to do business in Africa. In 2012, Foreign Private Capital inflows to Rwanda increased by 14.8 percent to $ 409.3 million compared to $356.6 million recorded in 2011. The capital inflows were dominated by Foreign Direct Investments, amounting to $ 255.0 million, and accounting for 62.3 percent of total inflows. The Information and Communication Technology sector attracted the highest flows (41.2%). The study established that, the improved business environment moderately influenced (Pearson correlation coefficient of 0.537and significance -2 tailed- of 0.35), the attraction of Foreign Direct Investments to the Information and Communication Technology sector in Rwanda in 2012-2013. Regulations which improved the ease of establishing business operations, security, growth and sustainability of investments had the highest influence on foreign investors in choosing Rwanda as their investment destination. These covered the areas of good governance, good macro-environmental factors, investor protection, ease of getting credit, ease of starting a business and enforcement of contracts ranked among the top six influencers, in that order, by over 91% of the foreign investors. Insolvency resolution was found to be of great importance particularly to the large foreign investors (above Rwf 75 million in equity investments and turnover above Rwf 50 million as per the World Bank 2014 report) who required a clear exit plan. 50% of these investors ranked the indicator in the upper quartile of the most influential variables. Untapped business opportunities attracted three large multi-nationals to the Information and Communication Technology sector and contributed to the impressive growth of Foreign Direct Investments registered in the Information and Communication technology sector. Publicity by the World Bank Doing Business report, of the impressive transformation and commitment to lower the cost of doing business that was demonstrated by Rwanda, was found to have created considerable interest among 40% of the foreign investors selected. The study adopted a cross-sectional survey and descriptive research design and both secondary data and primary data were utilized. Questionnaires were administered accompanied by interviews to obtain accurate information from the selected sample. Statistical Package for Social Sciences (SPSS) was used for correlation analysis while Microsoft Excel was used for the listing, ranking and analysis of variables. The tools of summarization of data were statistical tables, histograms, line charts and bar charts. For the qualitative data, simple listing of suggestions, factors and other itemized variables was adopted. Pearson correlation was used to study the relationship between the business environment and the level of Foreign Direct Investments registered.

Keywords: Business Environment, FDI, ICT, Rwanda

Article Review Status: Published

Pages: 52-64 (Download PDF)

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