The country’s structural shift from agriculture to a service driven economy is leaving a big segment of the population behind, and contributing to income inequality, despite the government seeking to close the gap.
Agriculture continues to employ the biggest number of people, but most of those employed by the sector earn the least, with many living in perpetual poverty partly because they also lack skills needed to move into better paying sectors.
“The structural challenges people face as the economy transfers from agriculture to services cannot be ignored when looking at what is driving income inequality,” said Alfred Bizoza, an economics professor at the University of Rwanda.
In the National Strategy for Transformation (NST1) set to run until 2024, Rwanda came up with a structural shift oriented towards export of high value goods and services with the aim of growing exports by 17 per cent and an average GDP growth of 9.1 per cent.
The country aims to create 1,500,000 decent and productive jobs (214,000 annually), and it is looking at the services and industrialisation sectors for these jobs.
Despite the services and industrialisation sectors getting priority policy-wise, modernisation of agriculture has also been taken seriously.
Services in high-tech areas such as financial services (Fin-tech, e-payment), business process outsourcing, legal, security services, and other professional services in the hospitality and aviation industries, are being been considered globally to build a competitive knowledge-based economy.
The country’s economy grew by 7.7 per cent in the third quarter of 2018, largely driven by strong performance in the services and industry sectors.
At 48 per cent, the service sector was the leading contributor to GDP, followed by agriculture,which contributes 28 per cent.
However, the services sector has proven to be complex to transition into, as it requires specialised skills and a range of professional ethics.
Many of the people currently employed by the services sector also exhibit capacity gaps, with experts warning that if not fixed will affect gains expected from the sector.
The country has made progress in closing the income inequality gap, which had widened in the past two decades, even as the government continues to invest heavily in infrastructure, education and healthcare.
High cost of living
The EICV5 report showed that on average an adult in Rwanda earns Rwf159,375 per year, which is very low considering the rapidly increasing cost of living. The mean expenditure per adult equivalent in urban areas fell by 6.2 per cent, while that of rural areas fell by 0.6 per cent.
In 2017 an Oxfam report titled Who is Growing showed that Rwanda had the highest income inequality in East Africa.
The report said that in Rwanda, the gross national income of the richest 10 per cent is 3.2 times more than that of the 40 per cent poorest in the country, compared with Kenya’s 2.81, Uganda’s 2.33, Tanzania’s 1.65 and Burundi’s 1.35.
The report however shows that Rwanda’s inequality is decreasing, even as it grows in the other East African countries. The country has worked hard to reverse income inequality in the past few years, by implementing inclusive social protection and pro-poor programmes like Ubudehe, one cow per family and Mutuelle de Sante.
“Reducing income inequality has been a major goal of the government, but individual efforts are needed to maximise benefits from these social protection programmes,” said Prof Bizoza.