Post-Conflict Turnaround: The Sale of a Country on a Thousand Hills.
How a government was able to successfully apply a business turnaround strategy to a governance challenge.
Context
In the last twenty years, Rwanda, a small East African country of 11 million people, has risen like an eagle from the ashes. GDP growth rates are averaging 7%, private sector investment is at 13.5% of GDP, and exports have doubled in value over the past five years.[i] Its history is marred by a genocide in which one million people died in a period of three months, a tragic event that shaped how the country is governed today. This post discusses how the alignment of the business and operating model of one institution within a bigger ecosystem contributes to these particular growth indicators. Since its re-birth in 1994, under leadership that was focused on sewing back the country’s torn social fabric, and creating tangible outcomes for its citizens, Rwanda boasts of soaring to the most efficiently governed country in Africa,[ii] and the third best place to do business.[iii]
Business Model
Under a unanimous overarching economic development vision of becoming a middle-income country by 2020, the Rwanda Development Board (RDB) was formed in 2008 as a quasi-government institution responsible for selling Rwanda as an attractive and viable investment destination. This is a particularly difficult job for a post-conflict state with no mineral wealth. With a lot at stake, it was imperative that RDB embody a private sector model within its public eco-system. Modeled after similar institutions in Singapore and Costa Rica,[iv] the business model of RDB is to grow export-driven private sector investments as a way to accelerate economic development.
Operating Model
In order to align its operations to this vision, RDB has primarily focused on intangible investments in three key areas: 1) processes: standardizing business registration and aftercare procedures post merger of eight institutions, 2) human capital: recruiting and investing in the best talent, and 3) user experience: giving the “red-carpet” treatment to investors by adopting a private sector deal mentality.
The courtship begins
The investment process at RDB starts by leveraging the government’s political capital to actively pursue investors. It involves courting investors from before they arrive in country to after they leave, a rare experience with competing African peers. Depending on the size of the deal being pursued, RDB puts together a team covering the following functions: communication with the investor, travel logistics both to and within Rwanda, detailed agenda and meeting planning with key government and private sector decision makers and much more.
Sealing the deal
Following initial engagement with an investor, the account is assigned a manager who is responsible for following up. This process may involve gathering and sending additional data or connecting the investor with other individuals or service providers. In a private-public partnership, once the investor decides to move forward, a negotiation team covering legal and financial aspects of the deal takes over the account. In addition, senior management and other government institutions heavily support this deal team. If needed, the team is able to seek external professional counsel.
After-care
Once the deal closes, the account is handed over to an after-care manager who is responsible for helping the new partner execute smoothly. One of the services RDB provides is a “one-stop-center” with business registration, environmental impact assessment, legal, tax and banking services, all in the same office. This makes compliance for a new business seamless. Registration takes a maximum of 5 days, compared to an average of 27 days across sub-Saharan Africa.[v] The key account manager continues to track the investor’s progress, facilitating her interactions with other government institutions to move the investment from registration to implementation, and finally converting into measurable economic impact.
A taste of the fruits
The process for a purely private investment is similar to the one described above, with the exception of the negotiation step. To create alignment with its employees, RDB has an incentive bonus structure tied to institutional and individual metrics including: FDI and export growth, and response rates of account managers. For a country that was mostly known for its tragedy, the alignment of its broader business and operating model, as exemplified by this example, has been critical to changing its narrative and creating true economic value. Today, Rwanda has a “high-powered Western fan club consisting of, among others, Howard Schultz, Bill Gates, and Tony Blair.”[vi] It has become a center for scholarly inquisition within the region, with professors like Michael Porter comparing it to “running a business well” and writing about the country’s ability to “get things done,” by pursuing a private-sector driven economy as a means to self-sufficiency.[vii] That being said, even though the view atop the hills ascended so far is promising, the journey continues: there is still hundreds-more steep hills to climb.
[i] Rwanda Ministry of Finance and Economic Planning: http://www.minecofin.gov.rw/fileadmin/user_upload/Rwanda_Presentation_for_Investors_March_2015.pptx.
[ii] WEF Global Competitiveness Report 2014-2015
[iii] World Bank Doing Business report: http://www.doingbusiness.org
[iv] Rwanda Development Board website: http://www.rdb.rw/about-rdb/history.html
[v] Rwanda Doing Business Rankings: http://www.doingbusiness.org/data/exploreeconomies/rwanda/#starting-a-business
[vi]Harvard Business Review: https://hbr.org/2013/04/why-president-kagame-runs-rwanda/
[vii] Harvard Business Review: https://hbr.org/2013/04/why-president-kagame-runs-rwanda/
Such an inspiring turn around story! Incredibly strategic for the Rwanda government to take such an approach to rebuilding the nation – I am taking notes for how to repair some communities here in the US. Having the video link really allowed me to understand all that Rwanda has to offer – such a wonderful narrative of an African country, one that I would love to see and hear more of. The RDB has clearly established a very clear business model and the investments in their operating model support the system very well. I see a great future for Rwanda and I hope to visit and even invest in the country someday. My hope is that as the RDB takes on different investors and partners, they are careful to preserve the rich history and culture in Rwanda. While taking on more Western advancements and investments is necessary for economic advancement and global competition, I believe that the people of Rwanda maintaining their land, natural resources, and pride to build their own generational wealth is critical. I’d love to hear more about how the Rwanda government is also investing in the human capital, experience, and public services process for their citizens – creating true economic value in their citizens’ quality of life. I loved reading this and am excited about your passion and commitment to the betterment of your country – it’s beautiful. Very well written!
I cannot echo enough LaToya’s comment, this is really inspiring.
Rather than a comment I have a question. The alignment you describe is perfect but I was wondering how the RDB fits within the overall country’s “business model” and it the operating model of RDB not only fits RDB itself, but the overall Rwandan ecosystem. Especially, I was wondering how the RDB attracts investors, of what kind, for which purposes and to do what. I was also wondering what are the boundaries, the contracts they can sing and so on and so forth.
The risk in many countries, mine included, is to court investors “too much” to the detriment of their own people. I would love to know more about RDB manages this operating and “business” tension.
Luca, your question is spot on. This is a tension that is constantly being evaluated. And RDB is the primary driver for investments, so within the overall economy, it has a very strategic role. A similar business / operating model is generally embraced by the entire government. On one hand, as a country that was playing “catch up”, it often does feel that maybe its even bending backwards too much. But the question often is – what is the alternative? The options were limited given the targets it set. So far the push somewhat seems to be in the direction of establishing a certain baseline, for Rwanda, middle-income status, and then at that point, with some economic power, it has a higher bargaining power. However, that being said, some of the ways it tries to manage this tension is through the sectors it targets / prioritizes and where the investment tax benefits / waivers are given: infrastructure, services, agro-processing, IT, and other key areas that have been identified as critical to economic turnaround / growth acceleration…so not just any investment is treated the same. This encourages investors to focus on sectors that the country has identified as critical for its people. There are also requirements in place for number of jobs created, how the local economy taps into the FDI benefits. Very much a work in progress, i’d say, as the country learns from its own mistakes, as well as those in the region.
Sheila, I really enjoyed reading this! Thanks for sharing. I had the opportunity to visit Rwanda last year and it is truly a remarkable (and beautiful) place. One of the most impressive success stories in Africa.
I have a couple questions about Rwanda’s model that I would be curious to hear your thoughts on. First, as you mention, the approach to economic growth that the country has adopted is export-driven, relying on attracting a lot of FDI. Longer-term, to ensure that the entire country shares in the prosperity, it may be important for them to shift to a growth model based more on domestic consumption, involving a robust middle class that has significant disposable income (a transition that, for instance, we are seeing China go through currently). Do you think that this is a transition that the country and the RDB are well-positioned to make, and will the same approaches that they have used to this point continue to be effective? Next, many point to the political leadership of President Paul Kagame as a key driver of the astounding economic success that the country has experienced over the past years. Some, however, argue that the order and stability that makes foreign investors willing to invest in Rwanda is made possible only through a certain level of political repression and deprivation of personal liberties, with Kagame running the country as a de facto one-party state and, according to some critics, engaging in human rights violations. Do you see these criticisms as valid and/or as concerns for the country longer-term?
Thanks Rob. This is a very pertinent question that is often debated. The current view is through private sector growth, people’s skills and wages will grow and this is one way to grow their purchasing power. Ultimately, you do want high domestic consumption, as you rightly pointed out. I think there is still work to be done on the skills development to allow citizens take advantage of the higher skills jobs being created through the investments for sure. The approach will have to change to some extent as the country grows, and it has seen some changes already actually. Kagame’s leadership is definitely a big part of the story, and happy to chat about it more.
This is such a fascinating and inspiring read!
I’m curious to learn more about the human capital aspect – in Singapore, creating a rigorous education system was an early priority which created homegrown capital. The government has also been very active in sponsoring Singaporeans to study in American / British universities – but brain drain is a constant worry, so they have created strong incentives for those students to come back to work in Singapore. How is Rwanda managing the transition from creating world-class talent at home to retaining them in-country instead of seeking opportunities abroad?
Again with the Singaporean parallel, as the country has created incentives to attract outside investors and talent, there have been some locals-vs-expats tensions. Are there similar issues in Rwanda – especially as it may throw a spotlight on broader income inequality in the region as well as any human rights concerns within the Kagame administration?