The economic geography of Rwanda is characterised by relatively low levels of urbanisation (estimated at about 19% in 2016-2017), a high urbanisation growth rate, high population density and the urban dominance of Kigali City, the capital. Rwanda has urbanised rapidly over the past decade and will continue to experience further urban growth in the near future.

Urbanisation in Rwanda has been driven by two key forces: internal migration from rural areas towards cities and population growth in the vicinity of urban areas, where high population density areas have been gradually integrated into the urban fabric of the country. Urbanisation in Rwanda has been dominated by Kigali City, the capital and "primary" city of Rwanda. However, other secondary cities around the country - such as Rubavu, Musanze, Muhanga, Nyagatare, Rusizi and Huye - have also experienced a recent transformation. This study, funded by the International Growth Centre, supported by the Ministry of Infrastructure of Rwanda and the Rwanda Revenue Authority, and delivered by Laterite, aims to generate new insights to support spatial and urban planning in Rwanda. It uses some innovative techniques and data sources, including a dataset of all VAT transaction in Rwanda in 2017, combined with data from firm and population censuses and other national surveys.

We summarise some of the key messages from the analysis and articulate policy implications below:

Population growth in secondary cities: An opportunity and a challenge that needs careful planning

This study confirms that Rwanda is urbanising quickly, with high population growth rates in both Kigali and secondary cities. Evidence reveals that people are moving to cities in order to gain employment or to seek further education. It seems to be "pull factors" that are attracting internal migrants away from rural areas and towards cities. The immediate surroundings of secondary cities are also densely populated, suggesting that they will gradually be integrated into the city ecosystem, generating greater scale and opportunities for growth. It is people in the wealthiest population quintile (as per the Fifth Integrated Household Living Survey (EICV5)) that are currently migrating from rural to urban areas. The poorest migrants are currently re-locating to other rural areas, but this might not always be the case. Push factors, including the loss of land, the loss of employment and the lack of opportunities, is what is driving the migration of the poorest.

Prioritise resources between secondary cities - Rubavu has the highest potential

This study shows that secondary cities are not equivalent in their size or potential for future growth. There is a lot of variation in the demographic and economic footprint of secondary cities. Given limited resources, spatial development policies should take these differences into account in the allocation of funding and the selection of priorities for the spatial development of the country. Based on this study, Rubavu - across multiple metrics - appears to be the city with the highest potential for growth.

Manage key spatial imbalances: Invest in connecting Nyamasheke District to the economy

We observe the biggest disconnect between population levels and trade predictions in Nyamasheke District. Despite having comparatively high population levels and being located on a strategic highway along the Kivu Belt, Nyamasheke is disconnected from Rwanda's economy. It is a district with very low urbanisation rates and no major towns. The inner country of Nyamasheke has amongst the lowest road connectivity levels in the country. Providing Nyamasheke with the connectivity it needs can yield high trade benefits and lead to a more accelerated levels of urbanisation in the district.

Think beyond the boundaries of specific cities

Rwanda is urbanising not only in and around cities, but also along broad axes connecting cities. We identify four main urbanisation axes: (i) the area in and around the capital, Kigali City; (ii) the north-western corridor of the country between Rubavu, Rwanda’s second city in terms of population, and Musanze, an area we refer to as the “Virunga belt”; (iii) the Kigali, Muhanga to Huye corridor, along Rwanda’s main highway, which we refer to as the “Southern belt”; and (iv) the “Lake Kivu belt” – from Rubavu, through to Karongi and Rusizi. While the Eastern Province remains comparatively less dense, it is quickly picking up. The Eastern Province has experienced the highest population growth rates since 2002.

Evidence also suggests that cities have an influence over a much larger territory than the immediate city boundaries. The potential of a city is not only determined by the population levels within its boundaries, or right in the city-centre, but also by the population in its surrounding areas. Importantly, growing urban centres can also have a poverty-alleviating effect on the rural population nearby. Deepening the local connectivity of the economies of these cities to this large population pool is strategically important.

Infrastructure matters

Road infrastructure matters and it potentially has a large effect on trade. From a policy prospective, it is important to understand whether improved transport infrastructures would have a “centrifugal” effect i.e. would result in the decentralisation of economic activities away from the Capital, or rather would have a “centripetal” effect i.e. economic activities would further concentrate in Kigali. The centrifugal forces will prevail for activities for which input costs are lower in smaller cities, as improved transportation infrastructure would make it easier to serve the larger final market in Kigali. The centripetal effect would instead dominate for those high value-added activities for which urbanisation externalities and agglomeration benefits are particularly important e.g. advanced services and the knowledge-based economy.

Risks associated with place-based sector specialisation policies

Rwanda's city branding strategy needs to be managed with care and to be combined with other non-sector specific policies. We find that there is overlap between the brand names proposed for Rwanda's secondary cities and the areas in which these cities have a revealed comparative advantage. However, having a revealed comparative advantage in a given activity within the Rwandan context, does not necessarily imply that secondary cities will have the required capabilities to sustain growth in that sector. We have shown, using a smart specialisation model, that promoting a place-based policy targeting greater specialisation in specific economic sectors of activity, can be a high-risk strategy for secondary cities. It would in some cases entail creating sectors from scratch or starting from a low base. This does not mean that a sector-focused approach would fail, but it does mean that a sector-specialisation policy would involve risks, with a high probability of failure, but also high rewards if the policy succeeds. Given the high risks, we recommend that sector-specialisation policies not be the core pillar of any spatial development or city development strategy, but rather one of several pillars.

Another important lesson from the discussion on smart specialisation is that different types of economic development strategies might be required for different types of regions. Secondary cities really have the option between two types of sector strategies: (i) either a high risk approach, with a high risk of failure, but high returns if it succeeds; or (ii) a "slow road" policy, starting with less complex activities that are more achievable and gradually upgrading the firm-level capabilities of the city. This policy would have lower returns in the short-term, but a higher likelihood of success.

Branches play a very important role

The analysis also reveals that branches are playing a very important role in transforming the economic geography and the economic development of Rwanda. Branches are the fastest growing group of firms. Branches introduce products and services to locations that were not available previously. They weigh heavily on local economies, especially in locations close to national borders. We also show that branches are not only important locally, but also for cross-border transactions. There is a high concentration of branches in areas of the country that are close to national borders. The branches of Rwandan banks, supermarkets, and accommodation providers in cities that are close to a border do not only service Rwandan customers, but also individuals and companies located on the opposite side of the border. We recommend that policymakers look into options to facilitate the growth of Rwanda's branch economy.