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Can the U.S. Learn from Rwanda?

Article by Erica Libby March 9, 2012 //   3 minute read

Rwanda is quickly changing the perception that the economies of East African countries lack real growth potential. Rwandan GDP grew at an average annual rate of 8% from 2004 through 2008, and early estimates show 7% growth for 2011. For a country once ravaged by genocide and civil war, economic growth seems necessary to maintain political stability and encourage nationalism, as President Paul Kagame well understands. The World Bank publishes annually its Ease of Doing Business Rankings, which use a group of key indicators to measure how well countries’ legal frameworks and regulations support business growth and investment. In 2012 Rwanda jumped five spots in the rankings, to 45 out of 183 countries, above Poland, Hungary, Turkey, Italy, and China, and only one spot below Spain. Rwanda is supporting local business growth through simple measures that can have a large impact. For example,  across the hall from the business permit office, business owners can now immediately apply for a loan. Although GDP is growing at a strong rate, Rwanda is still one of the world’s poorest countries. GDP per capita in 2011 was $1,300 per person, ranking 203rd in the world, and 60% of the population lives below the poverty line. The efforts of President Kagame could help to draw foreign investment and establish Rwanda as the “Singapore of central Africa.” They could also help  diminish poverty throughout the world, which declined to 1.29 billion, or 22% of the developing world’s population, from 2005 to 2008, according to the World Bank. Establishing best practices for business and regulations in emerging economies is critical for their growth through domestic innovation as well as for foreign investment. Ironically this is an important area for developed countries as well. Currently it easier to open a business in Rwanda than it is in the United States, and it is extremely difficult to open one in Italy or Greece. This discrepancy may mean an even greater shift away from growth in developed countries to developing countries, even those with problematic histories such as Rwanda.