Rwanda: New policy to boost entrepreneurship
By Julius Bizimungu
Entrepreneurs operating in Rwanda currently face multiple challenges that range from lack of alternative capital, to skilled labour, and other business tools needed to thrive.
Dioscore Shikama, a young Rwandan agriculture entrepreneur says there is currently no access to long term and alternative financing for entrepreneurial ventures.
"There's no established investment network besides banks, which doesn't afford to invest in new innovation with 5 to 10 years ROI [return on investment] plan," he says.
And the few people who hardly make investment, Shikama adds, want return in less than one year period.
Similar insights are shared by Patrick Bucyana, the chief executive officer at AC Group, a local startup behind the popular Tap&Go transport system.
Bucyana estimates that 80 per cent to 90 per cent of the financing needed to kick-start investments in Rwanda always have to come from financial institutions such as banks.
"That is very costly. For a business or startup that has a viable idea and wants to try it, it becomes almost impossible for them to get a financial facility," he notes.
Banks have high collateral requirements and are therefore often inaccessible for start-ups and MSMEs. The collateral requirement in Rwanda is 120 per cent of the loan amount.
In an environment that addresses such challenges, entrepreneurs believe they can thrive to be profitable, create job opportunities, and contribute to promoting economic growth.
It is perhaps what drove the government to put in place a new policy aimed at promoting entrepreneurship development in the country.
Launched Monday, November 30, the 'Entrepreneurship Development Policy' was approved by the cabinet in April this year, and is seen as a step in the right direction to spark entrepreneurship.
According to Sam Kamugisha, the Director General, Department of Industry Promotion and Entrepreneurship Development at the Ministry of Trade and Industry, the policy was set up after several consultations.
"After consultations, we thought there were a number of issues that needed to be addressed and (we thought) a new policy would address challenges faced by entrepreneurs," he noted.
The policy replaces a 2010 SME Development Policy, responding to issues such as human capital management, business support, financing, as well as markets and value chains.
Entrepreneurs like Bucyana think getting the right human capital that is less expensive for startups in the country is complicated, and the hope is that policy actions may change that.
"It is hard because when you want good people. It's going to be expensive for you to start a business," he argues. "If you can have wide and diverse skilled human capital available, then it can help."
The policy
The previous policy only focused on SMEs, yet there has been dramatic changes within the entrepreneurship system with entrepreneurs investing in new avenues such as e-commerce and financial technology.
According to the Ministry of Trade and Industry which led the establishment of the policy, the objective is to ensure that all pillars of the entrepreneurship ecosystem function properly.
This would allow Rwandan startups, micro, small and medium-sized business (MSMEs), and large enterprises to achieve sustainable growth as well as be profitable.
For instance, Kamugisha indicated that under the new policy, they are looking at enhancing entrepreneurial skills, advisory services, creating a more conducive environment, and facilitating entrepreneurs to access markets.
Policy actions have been directed towards making sure that issues within the entrepreneurship ecosystem are addressed.
Currently, most companies in Rwanda are young and micro.
90 per cent of operating firms were still young in 2014, having been established after 2006. In 2011, 73 per cent of all firms were micro-enterprises, and in 2014 the number decreased to 65 per cent.
While the share of micro-enterprises is still high, the decline reflects a growth in the number of SMEs compared to micro businesses.
Moreover, between 2011 and 2017, the number of large firms with more than 100 employees more than quadrupled from 106 to 426, representing the maturing of the Rwandan market.
Still, Rwandan companies are concentrated in the non-tradable sector.
According to the 2017 Establishment Census, wholesale and retail trade, and accommodation and food services accounted for 77.8 per cent of all firms in the country.
Generally, the policy seeks to support entrepreneurs and provide the dynamism, innovation, and risk taking required for a modern, sophisticated, and rapidly growing economy.
The policy highlights three cases of Singapore, Israel, and Chile as countries that have managed to foster an entrepreneurship ecosystem. Rwanda seeks to emulate lessons in those countries.
This article was originally published by The New Times. [Photo: The New Times]