Day 1: Country Session – Rwanda

IGC Rwanda has developed strong thematic focuses in the areas of taxation, trade, public sector performance, and urbanisation. Rwanda’s Growth Week session reflected this, with presentations on washed coffee exports, performance contracts, and electronic billing machines to increase VAT compliance.

1. Rwanda’s Minister for Trade and Commerce, Honorable Francois Kanimba, opened the session, setting the scene for growth and development in Rwanda, praising the extent and quality of the IGC’s research and policy analysis services to his Ministry since 2010, and requesting the researchers present to stretch even further to inform Rwanda’s urgent efforts to multiply export revenues manifold.

2. Dr Rocco Macchiavello and Ameet Morjaria’s presentation built on three years of research into Rwanda’s washed coffee export sector, involving both interviews with farmers and other stakeholders, and analyses of huge amounts of data. They find that Rwanda could increase export earnings by 10-20% by doubling washed coffee exports (even holding quality constant), and suggest that this could be achieved by relieving credit constraints on coffee washing stations, by encouraging farmers to sell cherries on credit, itself achieved by better contract enforcement between farmers and stations.

3. In Rwanda, all civil servants and public sector institutions sign performance contracts, publicly committing to certain tangible deliverables over the course of the following year. These have been somewhat effective, but President Kagame has recently called for a major revision of the system following excessively high scores (ranging from 90-97%) and poor correlation with development outcomes. Professor Andrew Zeitlin’s presentation offered suggestions for a revamped system, in particular recommending: 1) that performance indicators, as far as possible, be results in the control of the contracted individual; 2) that indicators should be inherently effective actions/outputs not subject to gaming (to avoid cases such as that in the USA, where typists were paid per letter, and so spent their lunch breaks typing gibberish); 3) that as far as possible, all these effective actions that the government/line manager wants the employee to perform should be included in the employee’s performance contract, due to incentives to focus on tasks in one’s contract to the detriment of those not included. Professor Zeitlin highlighted that in order to achieve these changes, Ministries, and the Government as a whole, would need to invest in mapping the ‘causal chains’ necessary to bring about their desired development outcomes, down to the level of individual actions.

This presentation was met with helpful critique from Doreen Kagarama of the Office of the President, who argued that performance contracts in Rwanda are effective because of the ‘public commitment’ to targets rather than monetary incentives, and asked how contracts could balance the needs of planning with the need to respond flexibly to opportunities and challenges that arise. Kagarama asked that in the final draft, the IGC include a discussion of how to regulate contracts to ensure that all contractees are equally ‘stretched’ relative to their abilities, and that ambitiousness and realism are properly balanced.

4. Most medium to large retailers in Rwanda must now use Electronic Billing Machines, which send sale information directly to the Rwanda Revenue Authority at each payment. The IGC conducted an impact evaluation of this scheme, and in this session Professor Nada Eissa reported that EBM machines had caused adopting firms to increase their VAT payments by an average of 8%, with even higher effects amongst small firms, construction firms, firms working in computing, and restaurants. A complementary ‘mystery shopper’ study found that firms with active EBM machines only gave receipts 21% of the time, but that this increased to 60% when shoppers were instructed to ask specifically for EBM receipts. Thus, Professor Eissa concluded that EBMs were effective, and could raise VAT payments even more substantially with increased consumer demand for receipts, which might be achieved through a strengthening of the VAT lottery and consumer education campaigns.

Finally, Professor Eissa highlighted that prices rose by approximately 10% when EBM receipts were issued (compared to the 18% VAT rate), and that combined with the large cost of the machiens (£300), this indicates that firms face serious price competition from MSMEs that are exempt from EBM and VAT requirements. Professor Eissa, and the discussant, Deputy Commissioner General of the Rwanda Revenue Authority Richard Dada, thus discussed the costs and benefits of rolling out EBM to all firms regardless of size.

The Deputy CG praised the study and said it would be used to inform the shape of the roll-out of EBM across sectors and firm sizes, and that it had encouraged RRA to seriously improve their receipt lottery and other consumer-centred methods to increase compliance.

By Sally Murray, Country Economist, IGC Rwanda