The Political Economy of Finance in Africa

All European governments intervened in national financial sectors to mobilise capital for structural transformation. However, they all used different financial mechanisms. Gerschenkron (1962) showed how Britain and late developers – Germany and Russia – addressed resource constraints in creative and varied ways. Britain used the stock market to fund large industrial projects. Germany adopted a ‘functional substitute’ by using investment banks because its financial sector was not as developed. Russia used a state development bank to fund industrial projects, since it had a large peasant economy.

In all successful experiences of late development, governments have innovated to find ways to mobilise domestic savings and other forms of finance to fund their development strategies. Under contemporary globalisation, most of the Global South is integrated into the global financial architecture on subordinate terms. Yet late developers innovate not only to address the underdevelopment of their domestic financial systems but also in response to constraints imposed by IFIs. Even when governments may not be forced to implement ‘best practice’ market-led reforms suggested by IFIs, there are incentives to do so (Jones Reference Jones2020). Governments fear that if they don’t implement regulations considered to be ‘best practice’ by IFIs, their credit ratings may be detrimentally affected. This may inhibit their capacity to secure loans at favourable rates. This chapter describes how Rwanda has innovated to finance its development trajectory, with emphasis on how its choice of financial mechanisms is shaped by the goals of maintaining elite cohesion amid a broader environment of elite vulnerability and the need to meet expectations of global financial markets and IFIs. Thus, Rwanda faces multi-level pressures in its attempts to finance its services-first development trajectory.

During the colonial era, there was significant diversity in the structure of financial sectors across African countries. However, colonial administrations tended to use banking systems (including central banks where they existed) to fund the extraction of resources from colonies and for day-to-day administration. After independence, most African countries chose to either nationalise and restructure foreign banks or establish new commercial banks (Mkandawire Reference Mkandawire and Soludo1999). In some cases, foreign banks retained a presence. In the 1950s–1970s, some African governments reformed their financial sectors in line with the broader consensus of economic thinking at the time, which envisioned the banking sector as supporting the goal of promoting structural transformation. Globally, there was consensus around the important role that the state should play within the financial sector because of the disastrous influence of private finance in the economic depression of the 1930s. Between 1950 and 1970, some African governments also established national development banks.

In the 1970s, the ‘paradigm shift’ within development thinking, which laid the foundation for the Washington Consensus, attacked the state’s role not only in the economy but also in the financial sector. Later, the World Bank urged countries to liberalise their financial sectors and reduce capital controls. IFIs pressured African governments to reform their financial systems away from traditional ‘developmentalist’ models, effectively calling for reducing the role of the state in financial sectors (Karwowski & Stockhammer Reference Karwowski and Stockhammer2017). In the 2000s, African countries were encouraged to invite foreign investment into those sectors, supposedly as a tool to guard against financial crises (Stein Reference Stein2010).Footnote ¹ Central banks in developing countries have been encouraged to retain low inflation rates, central bank independence and mirror financial best practices in the West (including adopting Basel financial standards). Across Africa, there is some variation in the degree to which governments have embraced financial liberalisation and adopted ‘best practice’ models pushed by IFIs (Boone Reference Boone2005; Jones Reference Jones2020). Broadly, however, there is convergence in line with market-led models. This could be interpreted as African central bankers learning from what is portrayed to be ‘best practice’ in the most developed financial markets and adopting conventional wisdom. However, Mkandawire (Reference Mkandawire and Soludo1999, p. 336) argues that ‘such a Pauline change of heart’ among bankers who once advocated state intervention in finance to promote structural transformation ignores ‘the hegemonic positions of Bretton Woods Institutions (BWIs) in the economy’. In many African countries, BWIs influenced the appointment of chairpersons of central banks (Harrison Reference Harrison2010).

Mainstream market-led understandings of the role of finance collectively argue for the restriction of the role of the state in financial sectors and encourage central bank independence (CBI) and narrow mandates focused on inflation targeting. In comparison, the heterodox and Marxian financialisation literature ignores the possibility that Global South countries may use financial sectors in productive ways. These polarised opinions within dominant segments of the literature on finance and development have contributed to marginalising analysis of the role of the state in financial sectors, especially in developing countries. African countries also often hide their ‘developmentalist’ strategies within the financial sector, occasionally using development banks, publicly owned commercial banks or pension funds to steer investments into priority sectors. In Rwanda, these instruments range from the Rwanda Social Security Board (RSSB) to party- and military-owned investment groups to the majority state-owned bank, Bank of Kigali (BK), and the Development Bank of Rwanda (BRD).

This chapter contends that nearly all African countries deal with elements of three kinds of financial sector reforms: (1) developmentalist, (2) the market-led consensus and (3) the influence of offshore growth, which includes the reduction of capital controls. Many African countries retained some developmentalist inclinations in using their financial sectors to make strategic investments. With the adoption of structural adjustment in the 1980s and 1990s, the new market-led consensus contributed to IFIs encouraging financial liberalisation, reductions in capital and exchange controls, and CBI and narrow mandates for central banks focused on inflation targeting. However, some countries (including Rwanda) embraced elements of the market-led consensus while also aiming to transform their financial sectors into regional financial centres as a route to attracting foreign investment. Rwanda has adopted the strategy of signing double taxation treaties with the goal of mimicking low-tax jurisdictions like Mauritius, Singapore and Dubai to become a financial hub. Though some adherence to the IFI model is necessary to become a global financial hub, IFIs have rarely supported offshore strategies, including in the case of Mauritius (Behuria Reference Behuria2023). Rwanda has double tax avoidance agreements (DTAAs) with Barbados, Belgium, Jersey, Mauritius, Morocco, Singapore and South Africa. Low-tax jurisdictions or offshore centres rely on DTAAs to encourage investors to base their investment in low-tax jurisdictions rather than directly investing from their home countries into their destinations of choice. These ‘tax avoidance’ strategies are used by low-tax jurisdictions to attract funds as they build up their financial centres. In 2019, the Kigali International Finance Centre (KIFC) was established to explicitly mimic offshore centres like Mauritius and Singapore. Rama Sithanen – former finance minister of Mauritius and one among the key individuals behind the development of Mauritius’ tax haven – is a key advisor to Rwanda. Sithanen has been a member of Kagame’s Presidential Advisory Council for over a decade.

Rwanda aims to become a financial hub for Africa. Economically, financial integration is perceived as a route to access foreign exchange and foreign capital as well as to achieve self-reliance. Domestically, elite vulnerability has shaped Rwanda’s increased reliance on government-directed financing mechanisms rather than empowering individual Rwandan capitalists (as the RPF tried to do immediately post-genocide but then fell out with those individuals). Becoming a hub to access foreign capital contributes to the increased external dependence of the development strategy but partially solves geographical disadvantages associated with its landlocked geographical location.

This chapter begins by describing how the RPF government’s banking sector has characteristics of being ‘Janus-faced’. As a response to its subordinate integration into global financial sectors, the RPF has chosen to present itself as abiding by IFI suggestions. In 2015, the IMF (2015) highlighted that Rwanda already complied with more than 80 per cent of Basel core principles, making it among the most compliant countries in Africa. Many of its banking sector reforms have contributed to positive ratings from credit rating agencies, leading to Rwanda benefiting from accessing loans at favourable interest rates on international markets. This has contributed to short-term policy space but also impedes the Rwandan government’s capacity to use domestic finances for strategic investments. The next section shows how the political economy of the domestic banking sector has evolved, with one state-owned bank retaining some developmentalist characteristics within a broader trend of financial sector liberalisation (a choice that was partly motivated to address elite vulnerability). The following section describes the functional substitutes used in Rwanda, highlighting how elite vulnerability, as well as the need to avoid IFI censure, contributed to using a variety of instruments. Employing these instruments has enabled the government to have more autonomy over where it invests. However, relying on a variety of instruments – rather than relying on a single instrument – has impeded the strategic use of domestic finance for structural transformation.

The Janus Face of Rwanda’s Financial Sector

After the 1994 genocide, the new RPF government was faced with the task of rebuilding an economy with the goal of ensuring that the 1980s economic crisis would not be repeated. However, the first task for RPF officials like Donald Kaberuka, who was Rwanda’s Minister of Finance and Economic Planning from 1997 to 2005, was to rebuild the economy and its existing export sectors. To make matters worse, in the 1990s, IFIs continued to exert pressure on the Rwandan government to pay the debts that had accumulated, including what had been incurred by previous governments (Chemouni Reference Chemouni and Hickey2023). IFIs also made aid conditional on adopting market-led reforms, including privatisation and trade liberalisation.

The government’s VISION 2020 document (GoR 2000, p. 11) highlighted the extent of its economic vulnerabilities:

The Rwandan government prioritised accessing debt relief as debt stocks continued to rise. In 2003, Rwanda received marginal debt cancellations from the AfDB, the Arab Bank for Economic Development in Africa, the Organization of the Petroleum Exporting Countries, Paris Club creditors and the European Community. However, it still owed 88 per cent to other multilateral creditors, with the International Development Association (IDA), holding 58 per cent of the total outstanding debt (World Bank 2010). By 2005/2006, Rwanda received debt relief from both the Heavily Indebted Poor Countries (HIPC) and the Multilateral Debt Relief Initiative (MDRI) programmes. Rwanda’s net present value of debt-to-export ratio reduced from over 150 per cent in the 1990s to 56 per cent in 2006 (World Bank 2010). Rwandan government efforts and adherence to IFI requirements were crucial in ensuring it was one of only nineteen countries to qualify for additional debt cancellation through the MDRI (IMF 2007). However, the World Bank (2010, p. 255) noted:

The 2005/2006 debt relief represented a significant shift in public finance management policies within Rwanda. As one senior official of the Ministry of Finance and Economic Planning (MINECOFIN) said:

To finance its services-first strategy, the government has made strategic investments, which have resulted in the debt rising further. ‘In nominal terms, total public debt more than tripled between 2006 and 2014, from less than $750 million to nearly $2.4 billion in 2014’ (Cassimon et al. Reference Cassimon, Essers, Verbeke, Reyntjens, Vandeginste and Verpoorten2016a, p. 303). The IDA and the AfDB remained the two biggest holders of Rwandan debt. However, bilateral debt was more diversified. Chinese and Indian Export-Import banks, as well as Kuwaiti and Saudi Arabian funds, were the most significant holders of bilateral debt. No Paris Club creditors had any claims on the Rwandan government, as compared to pre-2005, when 40 per cent of bilateral debt was held by them (Cassimon et al. Reference Cassimon, Essers, Verbeke, Reyntjens, Vandeginste and Verpoorten2016a). This shows that the RPF government successfully diversified the holders of its debt.

At the same time, Rwanda has met many of the expectations IFIs set on them in terms of public finance management and financial sector regulation. As part of committing to market-led reforms, the Rwandan government removed direct credit controls in 1992, and interest rates were fully liberalised in 1996. The exchange rate system was initially reformed through the 1990 structural adjustment programme, with residents authorised to hold accounts in foreign currencies in commercial banks. In 1995, the flexible exchange rate system was introduced (Irankunda Reference Irankunda2014). The capital account was fully liberalised in 2009 (Kigabo Reference Kigabo2018). The banking sector has also been substantially liberalised, with foreign banks – including African banks (from Kenya, Morocco and West Africa) – entering the sector.

To some degree, market-led reforms were adopted for performative reasons, which have partially contributed to the government receiving favourable interest rates on international markets. The government has raised funds through international financial markets to increase its short-term autonomy and fund strategic investments. The government’s desire to issue international bonds was at least partially motivated to reduce the interference of international donors in domestic policy (Cassimon et al. Reference Cassimon, Essers and Verbeke2016b). Rwanda’s ten-year $400 million Eurobond, signed in 2013, was celebrated with much acclaim and won Euromoney’s ‘African Deal of the Year 2013’ award (Cassimon et al. Reference Cassimon, Essers and Verbeke2016b). A second $620 million ten-year Eurobond was issued in 2021. In 2023, Rwanda repaid its first Eurobond, which provided funding to support the hub-based strategy, including building the Kigali Convention Centre, recapitalising RwandAir and a hydropower project. The repayment of the Eurobond has been hailed as a monumental achievement, especially since the economy suffered from increasing trade deficits and retains very high debt levels. However, this also required some degree of adoption of best-practice reforms to send the right signals to financial markets to ensure rating agencies provide favourable ratings.

At the same time, though Rwanda has diversified its economy, trade deficits have sometimes reached extremely high levels (e.g. during commodity price fluctuations in the early 2010s and also during the Covid-19 pandemic). In these cases, the government sought financial respite from the IMF. The IMF imposed conditions to adopt further market-led reforms when it granted loans. In 2016, Rwanda received a $204 million Stand-by Credit Facility (SCF) from the IMF because of an increasing trade deficit amidst global commodity price fluctuations. Rwanda also received further support during the Covid-19 pandemic. Throughout this period, the World Bank and IMF, as well as rating agencies including Standard & Poor’s (S&P) and Fitch, have generally rated Rwanda’s economy as ‘low risk of debt distress’ or rarely worse than ‘B’ in terms of their debt and overall health of the economy.

Despite what may seem like broad adherence to IFI demands, Rwanda retains hidden ‘developmentalist’ instruments within the banking sector. The BRD, RSSB and BK, which is the largest bank in Rwanda and is majority-owned by publicly owned institutions, are collectively responsible for most public expenditure domestically.

The RPF government’s domestic financial sector policies and its engagement with international financial markets highlight several contradictions. Rwanda is incorporated in a subordinate position into global financial markets. However, the RPF government still exerts significant agency. What appears as contradictory policymaking – adherence to adopting ‘best practice’ financial standards while also using state intervention to finance economic development – can be explained in two ways. First, the government’s failure to diversify its economy has meant it remains vulnerable to global commodity price fluctuations. The government perceives meeting ‘best practice’ financial standards as a route to accessing external finance to fund key infrastructure projects, central to its vision of becoming a continental hub for economic activity. Key investments have funded a conference centre, an airport and an airline. This is a double-edged sword. It creates some access to revenues in the short term but also impedes the usage of conventional financial instruments to invest in strategic sectors. Second, the government strives to keep the role of many of its financial institutions hidden. For example, it rarely publicises RSSB’s extensive role in the economy. In doing so, these hidden ‘functional substitutes’ become the primary routes through which its strategic investments are made to support its hub-based strategy.

The Political Economy of Rwanda’s Banking Sector

The monetary history of Rwanda is strongly linked to its geographical location in the Great Lakes region. Historically, the Belgian colonial administration developed banking sectors in the region with the goal of extracting maximum profits, primarily out of the Belgian Congo and, to a lesser extent, Rwanda and Burundi. The Bank of the Belgian Congo was established in 1909. In 1927, the currency-issuing authority of the Bank of the Belgian Congo was extended to Ruanda-Urundi. In 1944, the National Bank of Belgium took over the regulation of exchange rate control in the region. During this period, other banks had begun operations in the Congo, and the Bank of the Belgian Congo no longer ‘played the role of the bank of banks’ (BNR 2014, p. 2). In 1952, the Central Bank of Belgian Congo and Ruanda-Urundi was established and took over the responsibilities of the Bank of Belgian Congo. In 1960, the Congo became independent and Banque d’Emission du Rwanda et du Burundi established operations as an issuing bank in Rwanda and Burundi.

BNR was established in 1964 with the mission ‘to maintain monetary stability, implement credit and exchange rate policies conducive to harmonious economic development, issue national currency and play the role of the Government treasurer’ (BNR 2014, p. 4). In the 1960s, BNR was responsible for monitoring three financial institutions. Caisse Sociale du Rwanda was established in 1962. The Rwanda Savings Fund (Caisse d’Epargne du Rwanda) and the Banque Commerciale du Rwanda (BCR) – Rwanda’s first commercial bank – were established in 1963. BK began operations as a commercial bank in 1966, followed by Banque Continentale Africaine du Rwanda (BACAR) in 1983. In 1975, Union des Banques Populaires du Rwanda, which later became a microfinance cooperative (Banque Populaire du Rwanda (BPR)), was created.

Prior to 1994, the government retained significant control over the domestic commercial banking sector, with the government retaining shares in all three commercial banks: BCR, BACAR and BK. Though the government agreed to reduce its control of the financial sector as part of the structural adjustment programme agreed in 1990, no policies were put in place. The government shared ownership of BCR with Banque Bruxelles Lambert. The government owned 51 per cent of BCR’s share capital, although other reports claim that the government retained 42 per cent of BCR’s share capital (Goldmark Reference Goldmark1987). BK was established as a joint venture with Belgolaise SA. Later, Banque Nationale de Paris and Dresdner Bank also invested in the bank. The government retained 50 per cent of BK’s share capital. Banque Continentale du Luxembourg owned most shares in BACAR, with independent Rwandan investors also owning some shares and the government retaining 4 per cent of shares. In 1985, over 83 per cent of all loans provided by banks were short-term loans. The only long-term loans that commercial banks were allowed to make were for staff housing construction (Goldmark Reference Goldmark1987). In the 1980s, BCR was the largest bank, while BK was the second largest. BACAR was comparatively smaller.

Prior to 1994, Rwanda’s financial sector was not effectively used as a source of developmentalist banking. BRD, which was established in 1967, provided some long-term financing, primarily for the agriculture sector. However, there was very little evidence of the state using domestic finance to diversify the economy. After the genocide, the RPF government was under pressure from IFIs to liberalise the financial sector and license new banks. In line with the RPF’s political settlement in the 1990s and early 2000s, as part of a strategy to empower businesspeople, the government licensed two new commercial banks – Bank of Commerce, Development and Industry (BCDI) and Banque à la Confiance d’Or (BANCOR). Domestic businesspeople – closely tied to the RPF – were lead investors in these banks. BACAR’s ownership changed in 1995. Banque Continentale du Luxembourg sold its shares to a group of Rwandan investors, with Valens Kajeguhakwa, a central figure behind the takeover. In 1999, more than forty Rwandan investors and state-owned institutions (which owned a minority share) established Cogebanque. Alfred Kalisa was among the investors who led BCDI. In 2000, Tribert Rujugiro bought BANCOR. Financial liberalisation was under way, which appeased donors and rewarded domestic businesspeople.

In the mid-2000s, elite frictions within the RPF were publicly visible (Chapter 4). As the RPF began to centralise control over political decision-making and rent distribution, the government clamped down on domestic businesspeople. During this phase, key shareholders in two domestic banks – Kajeguhakwa and Kalisa – were accused of embezzling funds from their banks in the mid-2000s. Kajeguhakwa funded the RPA invasion. He was a prominent domestic businessperson, former MP and senator. He even acted as a mediator for an accord signed with the FDLR in 2002 (Reyntjens Reference Reyntjens2004). He fled the country and was declared a fugitive. Kalisa was jailed for several years but later returned to public office as High Commissioner in Egypt. Through their control over financial institutions, these capitalists had developed significant holding power and had the capacity to finance the activities of rival coalitions, which had begun to emerge as a threat to Kagame’s rule (Chapter 4).

In 2002, as the economy faced a rising trade deficit because of fluctuations in global commodity prices, François Kanimba was appointed BNR governor. Kanimba, a Hutu, served in Habyarimana’s government and negotiated Rwanda’s first structural adjustment programme. Kanimba’s appointment was a positive signal to IFIs. The IFI pressure to liberalise the financial sector had been increasing, and its influence was significant given that the trade deficit was rising. Some mentioned that Kanimba’s position as an outsider (Hutu) helped the RPF present him as a technician, enacting liberalisation policies that donors encouraged.Footnote ⁴ Togo-based Ecobank took over Kalisa’s BCDI, which was ‘known for insider lending’, and Kanimba (a Hutu) was responsible for managing the sales of banks owned by RPF insiders.Footnote ⁵ Under the public veneer of financial sector liberalisation, RPF leadership diverted control of domestic finance away from possible rival factions within the RPF.

Across the economy, the RPF government began refocusing on relying on its own government-affiliated investment groups rather than relying on individual capitalists. In the financial sector, it leaned heavily on attracting foreign investors as IFIs encouraged increased financial sector liberalisation. Many commercial banks were also on the verge of bankruptcy, which threatened the overall health of the economy.Footnote ⁶ RPF government officials defended the choices of selling domestically owned banks to foreign banks by arguing that attracting foreign investment was central to managing the domestic financial sector efficiently.Footnote ⁷ They stressed that it was not just to signal adherence to ‘best practice’ market-led principles. They argued that increased competition would secure the sector’s growth.Footnote ⁸ However, at the same time, the continued existence of state-owned banks (BK), which were directly under the influence of the ruling coalition, signalled a desire to still use the domestic financial sector to steer investments into strategic sectors.

As of 2025, there were ten commercial banks operating in Rwanda. BK was the largest bank. Though the financial sector liberalised rapidly in the late 2000s, BK’s share of the market (by assets) increased from 23 per cent in 2008 to 30 per cent in 2021. As of 2021, BK retained over 30 per cent of market share in several indicators, including assets, net loans, customer deposits and equity. In 2006, the Rwandan government bought Belgolaise SA’s stake in BK, attaining full control of the bank. Since 1994, IFIs have often pressured the government to sell its stake in BK. Government officials have also considered selling shares to international banks or strategic investors.Footnote ⁹ BK has floated its shares on the Rwanda Stock Exchange, raising capital in the process, but the government retains majority ownership. Through the RSSB and the Agaciro Development Fund, the government owns 56 per cent of the bank. BK is often the bank used for strategic investments, providing long-term capital for strategic investments. However, it also has among the highest interest rates for short-term loans across the sector. BK has consistently been Rwanda’s most profitable bank.

All other banks except BK are regional banks, with some having investors from Europe.Footnote ¹⁰ Cogebanque, which is one of Rwanda’s mid-range commercial banks, is the only other commercial bank in which Rwandans own a majority share (outside BK). In 1999, forty-two Rwandan investors pooled funds to establish Cogebanque. In 2008, three international investors (ShoreCap International, the Belgian Investment Company for Developing Countries and AfricaInvest) paid $6 million for 40 per cent of the shares. Though Cogebanque never invested in long-term strategic projects with the government or even alongside BK, several investors were also investors in Rwanda Investment Group (RIG), a fund comprising investments of RPF-allied businesspeople. Like RIG, Cogebanque’s fortunes have suffered, as increased elite vulnerability has meant that private domestic capitalists have either fled the country, become dissidents, become less prominent or have limited funds to invest in nationally determined strategic investments. In 2024, Equity Bank bought Cogebanque, leaving BK as the only Rwandan-owned commercial bank in the sector.

Though BK is very large within Rwanda, it is minuscule when compared to the size of the parent companies of local Rwandan subsidiaries. BNR works alongside BK (a state-owned bank), RSSB (a key financial institution) and the BRD (a development bank) to steer strategic investments to shape the economic structure of the country. However, BK, like other commercial banks, must meet Basel global banking standard requirements, which impedes its capacity to provide long-term loans, which may lead to high losses on its balance sheet in the short term. Additionally, BK’s interest rates for short-term loans are very high. However, BK remains at the heart of steering Rwanda’s economic development trajectory. To ascertain how Rwanda’s ‘developmentalist’ finance operates and identify how Rwanda funds its development strategy by identifying ‘functional substitutes’ (Gerschenkron Reference Gerschenkron1962), the next section extends analysis beyond the commercial banking sector.

Rwanda’s Functional Substitutes

Though rarely recognised within academic literature and in policy discussions, the RSSB is the most significant institutional investor in Rwanda, with investments worth over 1.4 trillion RwF ($999 million approx.), as of 2023. This includes equity investment in over thirty companies in Rwanda and the region and more than fifteen real estate projects domestically. A literature has developed, mostly in Anglo-European countries, on ‘pension fund capitalism’ (Clark Reference Clark2000). This literature has examined the role such funds have played in increased financialisation of the global economy and their investment strategies in dealing with the financial burdens associated with large retirement-aged populations (Dixon Reference Dixon2008; Drucker Reference Drucker1976). Singapore’s Central Provident Fund (CPF), a compulsory savings and pension plan for Singaporeans, has been highlighted as ‘an ingenious way to utilize one huge source of people’s saving and capital as a national scheme which served socio-political and individual ends simultaneously’ (Low Reference Low2001, p. 424). Along with Temasek, which funds Singapore’s government-linked companies and the Government Investment Corporation (GIC), CPF has been a key component of the government’s strategic investments in its transition to becoming a leading global economy (Low Reference Low1998). Literature on Latin America has also discussed the ‘developmentalist’ role of pension funds (Datz Reference Datz2014). Pension funds also hold large amounts of institutional capital in some African countries (Sy Reference Sy2017). In some countries like Namibia (Gabor & Sylla Reference Gabor and Sylla2023), pension funds are being used to invest in green growth sectors. However, there is still very little analysis of where domestic African pension funds are investing and whether these investments are being directed to structural transformation.

In 2010, the RSSB was established as a merger of the Social Security Fund of Rwanda and Rwandaise d’Assurance Maladie. Since 2010, the RSSB has also begun managing the community-based Health Insurance Scheme, Maternity Leave Benefit Scheme, Occupational Hazards Scheme and EjoHeza. RSSB is now responsible for nearly all insurance and pension schemes in the country, with one major exception being Military Medical Insurance (MMI). The RSSB (2020) claims yields on its investments are 6 per cent. As a result, it claims to be highly profitable in its investments. However, the RSSB acts as ‘the lender of last resort’ and often saves failed investments made by other domestic institutional investors.Footnote ¹¹ In recent years, the RSSB has often been considered to hold ‘over 60% of liquidity in the country’ and has become the key initiator of strategic investments in Rwanda.Footnote ¹² The RSSB is a key node within what is referred to as the ‘Economic Cluster’ or Strategic Investment Group within the RPF, comprising the government institutions tasked with financing Rwanda’s development. As one senior RSSB official said:

As part of its strategic plan (RSSB 2020), the RSSB will eventually be converted from a government organisation to a state-owned enterprise. In government documents, the RSSB is highlighted as central to achieving the Rwandan government’s VISION 2050 and its National Strategy for Transformation 1 (GoR 2017; MINECOFIN 2020). Yet it is surprising it has received such little attention from scholars or journalists. In line with the government’s strategy to become a services hub, most of its investments have been used to transform Kigali. Most RSSB investments have been directed to the real estate sector, with investments ranging from the Kigali Conference Centre, residential areas, office buildings, malls and hotels across the country.

The RSSB has also been a major institutional investor in the Rwanda Stock Exchange and in Rwanda’s leading bank, BK. The RSSB also owns shares in other commercial banks. The RSSB also has equity, sometimes alongside party- and military-owned or affiliated conglomerates like Crystal Ventures Ltd. or Horizon Group, in several firms. Over the last decade, the RSSB’s investments have also included equity and joint ventures with firms operating in construction materials, manufacturing, agro-processing, hotels and ICT sectors. The RSSB also invests in firms in other countries, which may be considered long-term profitable investments (Kenya’s Safaricom), with profits later re-invested in the Rwandan economy. In line with supporting regional trade as part of Rwanda’s goals for being a hub and symbolically investing in regional and continent-wide integration, the RSSB is an investor in the Eastern and Southern African Trade and Development Bank. Strategically, the RSSB is driven by investments to:

For over twenty years, the RSSB has been one of the Rwandan government’s most significant instruments in directing strategic investments across the economy. The RSSB has also been of significant political importance. Since RSSB is largely focused on strategic investments, and many investments often fail and generally have a long gestation period (as is the case with all industrial policy), its investments have often been criticised as being wasteful.Footnote ¹⁶ Exiled opponent Himbara (Reference Himbara2023a) has also criticised RSSB’s investments and Kagame’s control of the organisation through key allies like Chairman Ephraim Turahirwa (who also previously led Crystal Ventures Ltd.). Many former RSSB officials have been accused of embezzlement and have later left the country in exile.Footnote ¹⁷ Some RSSB officials have been re-integrated into key government portfolios. Like in many other cases, the opposition has argued that corruption charges were false and politically motivated.Footnote ¹⁸

The RPF government has also developed its own sovereign wealth fund, the AgDF, which is a member of the International Forum of Sovereign Wealth Funds (IFSWFs). There are over 100 SWFs worldwide holding over $8 trillion in assets, with 19 SWFs in Africa holding roughly 1 per cent of those assets at $72.9 billion (Addison & Lebdioui Reference Addison and Lebdioui2022). Oil-producing countries, particularly in the Middle East, have a long history of creating SWFs, which hold large amounts of foreign resources and channel investments into strategic sectors at home and abroad (Griffith-Jones & Ocampo Reference Griffith-Jones and Ocampo2009). Asian countries have also begun to follow suit in establishing SWFs. Most African countries, especially those without significant oil or commodities and running trade deficits, do not clearly fit into the broader story of the proliferation of SWFs globally. Rwanda, as a country with a large trade deficit, few resources and often facing a shortage of foreign reserves, would not usually be a likely candidate to create an SWF. Addison & Lebdioui (Reference Addison and Lebdioui2022, p. 2) are particularly critical of this trend, instead advocating the use of only ‘one truly effective institution’ like a development bank rather than several weaker ones.

The AgDF was established during a period of significant turmoil and economic difficulty for the Rwandan government. During the 2011 National Dialogue, Agaciro (a Kinyarwanda word, meaning dignity, self-reliance and self-worth) was mobilised as a home-grown concept in line with broader African (and Rwandan) perspectives on dignity (Mwambari Reference Mwambari2021; Rutazibwa Reference Rutazibwa2014). In 2012, donors – including the United States of America, the United Kingdom, Germany and the Netherlands – delayed or withdrew the aid they promised to the Rwandan government because Rwanda was accused of supporting rebel groups in the DRC. Kagame personally rallied support, evoking Agaciro in his speeches to highlight the salience of collective memories, with the international community depicted as deserting Rwanda as they did during the genocide. Cabinet members, civil servants and the wider population donated money in the immediate aftermath of aid withdrawals. As of 2013, ‘government officials contributed over 60% of funds, approximately 15% had been contributed by corporate businesses and private individuals had contributed about 11%’ (Behuria Reference Behuria2016a, p. 11). The growth of investments within AgDF has fluctuated after an initial surge in deposits. Civil servants were forced to make a 1 per cent contribution of their salary to the AgDF, amounting to a total of about $3 million, until 2020 (Kagire Reference Kagire2020). With investments from other Rwandans, including politicians and businesspeople, as well as foreign investors based in Rwanda, total investments in the fund amounted to about $200 million, as of 2020.Footnote ¹⁹ The AgDF is also a shareholder in BK, alongside the RSSB. Like the RSSB, though at a much smaller level, the AgDF also invests in government securities, as well as equity and real estate investments.

In the 1950s and 1960s, National Development Banks (NDBs) were widely employed across Asia, Africa and Latin America to direct investment to promote structural transformation. However, they were criticised for being sites of corruption and political predation (La Porta et al. Reference La Porta, Lopez-de-Silanes and Shleifer2002). Although many NDBs have receded in importance since structural adjustment was imposed, NDBs remain active across the continent as regional development banks (Humphrey Reference Humphrey2019). Yet the fortune of most NDBs in specific countries remains under-investigated, except for some recent literature (Quist Reference Quist2022). Historically, the BRD has been the key institutional actor charged with dispersing long-term loans at below-market rates to strategic sectors. The BRD was established in 1968. Until 1974, most of its investments were concentrated in vehicles and grinding mills. Between 1974 and 1987, it financed over 500 investments worth over 6 billion RwF across the domestic economy, also owning equity in twenty-three firms (Behuria Reference Behuria2018b). Most investments were in agro-processing and manufacturing industries. When the RPF assumed power, 50 per cent of BRD loans were non-performing. Until 2000, the RPF government used the BRD to invest in the rehabilitation of old investments, and after 2000, investments were concentrated in export-oriented agriculture (like building coffee washing stations, tea factories and dairy-processing centres). Since then, the BRD has also invested in the tourism sector, construction and in the Kigali Special Economic Zone (SEZ).

However, since 2019, the BRD has been increasingly prioritised.Footnote ²⁰ Kampeta Sayinzoga, President Kagame’s niece-in-law who previously worked at MINECOFIN, has led BRD since 2019. BRD is presented as having been central to Rwanda’s economic recovery after the Covid-19 pandemic and has shown increasing profits and loan disbursement (BRD 2021, 2022). BRD’s position as a key developmental institution providing loans to strategic sectors has also contributed to it being heavily criticised within and outside Rwanda. Since BRD’s loans are usually provided to trusted capitalists or party-owned enterprises and effectively represent a ‘rent’, the decision of who to give loans to is naturally politically contentious. As with all industrial policy, the provision of those rents does not lead to productive outcomes. This can be because of corruption, but other times, this is simply because industrial policy failed. Many investments often fail or have a long gestation period. Rents are often given to businesspeople who fluctuate between being perceived as allies and threats. At least five former BRD executives have been imprisoned or left Rwanda in exile (Himbara Reference Himbara2018). Some have left the country or remain in jail, while others like Alex Kanyankole have been re-integrated into the bureaucracy.

Over time, BRD has increased its investments in the manufacturing, agro-processing, housing and infrastructure sectors. In 2021, these four sectors accounted for over 70 per cent of loans disbursed (BRD 2021). Initiatives such as the Export Growth Fund, jointly funded by the Rwandan government and the German Development Bank, have been undertaken, which provide low-interest-rate loans to small and medium enterprises aimed at export. BRD has also made a strategic shift to positioning Rwanda as a hub for green investments in Africa. Thus, just as RSSB has focused on investing in the construction of Kigali as a major African urban centre, BRD is now charged with contributing to positioning Rwanda as an environmental leader on the continent. Both goals are firmly aligned with the goal of becoming a regional services hub. At the 2022 United Nations Climate Change Conference (COP27), BRD mobilised $104 million for International Review of Mechanical Engineering (IREME) invest, a one-stop hub for green and sustainable investments. The European Investment Bank, Agence Française de Développement and Swedish International Development Cooperation Agency were key funders. Rwanda’s credentials as a green hub are further enhanced by the Rwanda Green Fund, which was established in 2012, and has raised over $200 million to reduce greenhouse gas emissions by 38 per cent by 2030 (Nkurunziza Reference Nkurunziza2023). The BRD and the Rwanda Green Fund were responsible for providing over 22,000 households from low-income groups with solar lighting systems.

The military and government departments have also developed financial institutions and investment funds, with varied success. MMI and Zigama Credit and Savings Society (Zigama CSS) provide banking and insurance facilities to military officers and police officers. Zigama CSS has often boasted the highest interest rates for deposits and the lowest interest rates for loans (Behuria Reference Behuria2018b). These military institutions invest in real estate and other projects, which are in line with national development goals. Similarly, the RDB and MINECOFIN have established small funds to contribute to strategic investments in the country. Though funds within government departments rarely contribute significant investments, officials within them like Daniel Ufitikirezi (who has also worked at RSSB) are part of a significant investment arm that works across government departments and organisations. As Ufitikirezi suggested, the RPF’s investment strategy was consistent across different organisations:

Rwanda’s most famous (or infamous) ‘developmental’ instruments are the RPF’s party- and military-owned enterprises, as well as other closely affiliated firms. The practices of Crystal Ventures Ltd. (CVL), an RPF-owned conglomerate, and Horizon Group, an RDF-owned conglomerate, have been debated in the literature (Booth & Golooba-Mutebi Reference Booth and Golooba-Mutebi2012; Gokgur Reference Gokgur2012). Those who take a ‘developmental patrimonialism’ (Booth & Golooba-Mutebi Reference Booth and Golooba-Mutebi2012) stance argue that RPF ruling elites have committed to ‘long-horizon rent centralisation’. They highlight that these firms invest in strategic sectors, investing where others are unwilling to and contributing to structural transformation. Those critical of these enterprises (Gokgur Reference Gokgur2012) take a more neoclassical line, arguing that the close state–business relationships are evidence of collusion and corruption, which suggests that such investments are unproductive and block competition. Case study research (Behuria Reference Behuria2015b, Reference Behuria2018a), however, has revealed that there is evidence of failure in many cases and even corruption (as would be expected in most cases of industrial policy). However, in many cases, the investments of these conglomerates have also been productive and successful. In some cases, long-horizon orientation and rent centralisation has ensured that the RPF leadership disciplines these businesses (at least, in some important cases) to achieve structural transformation and act as a catalyst for other investments in certain sectors.

CVL’s history dates to the Rwandan Civil War (1990–1994) and has its origins in the RPA Production Unit. The Production Unit was a treasury for political contributions to the RPF’s ‘liberation efforts’ in the early 1990s. The Production Unit received funding from refugee communities in neighbouring countries as well as from businesspeople within Rwanda. In 1995, the Production Unit was formally established as a conglomerate, named Tri-Star Investments. Initial investments were made in line with national priorities, for example, rehabilitating factories, the provision of social services, rebuilding roads and transport links.

Tri-Star was involved in a range of sectors, including metals trading, mobile telephony, road construction, housing and food processing. Tri-Star was renamed Crystal Ventures Ltd. in 2009. CVL, like its earlier incarnation, was a ‘first mover’ in several sectors, including telephony, construction and property management. Currently, its main subsidiaries are in private security, engineering, construction materials, fast-moving consumer goods and agro-processing. Jack Kayonga, the CEO of CVL, was also the previous CEO of BRD and the AgDF, showing some consistency in leadership across the RPF’s investment arms. Not all firms of CVL are profitable, though, with many of them enduring heavy losses and even having to be ‘saved’ by additional RSSB investments (Behuria Reference Behuria2018a). While some of these firms have invested in agro-processing and construction projects, it is striking that there have been very few ventures in traditional industrial sectors (outside construction materials).

In 2007, the RDF established its own independent investment company, Horizon Group. The government ‘adopted a relatively activist stance’ to push the army to create an investment group (Booth & Golooba-Mutebi Reference Booth and Golooba-Mutebi2011, p. 12). RPF leadership was also keen for the army to find sources of funding for its own responsibilities, as well as funding pensions and increased salaries of military officers. This was also a motivation for Rwanda’s growing involvement in international peacekeeping, making Rwanda among the top ten highest contributors of uniformed personnel in UN peace operations in the 2010s (Jowell Reference Jowell2014). Horizon invested in strategic sectors. Horizon has three main subsidiaries: Horizon Construction, Horizon SOPYRWA (a pyrethrum processing plant) and Horizon Logistics, which support the RDF’s peacekeeping operations abroad. It has also invested in the energy sector. For example, in 2012, Horizon formed a partnership with Rwanda Mountain Tea to build a 4-MW hydropower plant.

Horizon originally had military CEOs. For example, Retd. Colonel Eugene Haguma was the CEO from 2010 to 2018. Rebecca Ruzibuka, the board chairperson, has been in her position for over a decade. However, the only serving board member from the army is the CEO of Zigama CSS, Corneille Nkundimana. The company represents the army and remains informally accountable to the Ministry of Defence. By retaining such control, ruling elites in Rwanda retain the capacity to discipline the management of Horizon. However, like with CVL and other ‘functional substitutes’, certain officials have been charged with corruption. Those who are charged are often accused of having placed personal interests above collective RPF goals (or just being corrupt). Such charges are also often announced when there is an increased perception of threat within the RPF. For example, in 2010, military officers John Zigira and Paul Semana were ousted from their positions after they were charged with embezzling funds. Some argue that this was because their loyalty was in question after Nyamwasa went into exile.Footnote ²³ Such incidents show that the RPF’s ruling coalition struggles to maintain elite cohesion. The need to adhere to RPF ideology (backed by the threat of violence) surfaces when action is taken to shore up elite support and individuals are sanctioned. Incidents like this suggest that the RPF ruling coalition uses a variety of ‘centralised’ investment groups to avoid the possibility that rival groups with access to funds mobilise against the ruling coalition or support other powerful dissidents.

As with CVL, Horizon Group has aligned its investments with Rwanda’s strategic priorities, focusing on logistics, agro-processing and construction. Horizon firms both compete and collaborate with CVL firms in the construction sector. However, Horizon’s activities have not diversified significantly over the last decade. Other military firms have been established instead. Agro Processing Trust Corporation (APTC) earlier operated as Agro-Processing Industries (API) and Horizon Agro-based coffee. MMI and Zigama CSS assumed control of API (now APTC) in 2011. APTC is run by 200 permanent staff who are military, reservists and civilians. APTC operates solely in the agricultural sector, with a stated goal of investing directly in line with the government’s NST 1. It has three business units: Rugari Meat Processing Industries (which owns two of the largest abattoirs in Rwanda), API (focusing on maize, beans and soya beans) and Nyanza Milk. For many of the crops it produces (like coffee), APTC is not a ‘first mover’. The RDF often owned the land under APTC control, works with independent farmers while also employing wageworkers on RDF-owned land. APTC has also occasionally been focused on investments in ‘strategic’ crops (including cassava and silk) with mixed results (Behuria Reference Behuria2016b).

Originally registered as Digitech Solutions, Ngali Holdings is another investment group that was formerly owned by the military. Initially, MMI and Zigama CSS shared ownership of Ngali. Andrew Nyamvumba, who was a serving military officer and brother of former Chief of Defence Staff Patrick Nyamvumba, was the first CEO.Footnote ²⁴ Ngali initially had interests in ICT, transport and logistics, energy, health care, pharmaceuticals, the East Africa Commodity Exchange and agro-processing. A few years later, the Rwandan government formally assumed ownership of Ngali holdings. Ngali also took a leading role in mining activities (including exploration, trading, processing and mining).

There are also some smaller investment groups that are fully or partially owned by the government. PRIME Holdings, which was partially owned by the government, invested in several hotels. For a few years, it remained relatively inactive. Recently, PRIME Holdings has been active again in real estate investments (including the SEZ). There are also some smaller private investment groups, which are closely affiliated with the RPF. Among these groups was RIG, which was created in 2006. RIG’s creation was part of a national drive, led by President Kagame, which encouraged private businesspeople to contribute to investment funds for national strategic priorities. RIG’s original shareholders were the National Social Security Fund (now the RSSB), Hatari Sekoko and Tribert Rujugiro. RIG’s shareholdings have transformed over time, especially with Rujugiro’s exile from Rwanda. Its investments have now narrowed, focusing only on energy (including methane exploration in Lake Kivu), cement and construction.

As Golooba-Mutebi and Booth (Reference Golooba-Mutebi and Booth2018) highlight, the government’s preference initially was to encourage wealthy Rwandans to collectively invest in strategic developmental projects. That was the case with RIG. However, as has been often cited within the literature on African countries (Boone Reference Boone1992; Mkandawire & Soludo Reference Mkandawire and Soludo1999), the RPF government is one of many governments that fear supporting local capitalists who could later become rivals to the government’s authority (Chapter 4). A significant number of manufacturing companies have also fallen out of favour with the Rwandan government, with many of the owners of these firms highlighting that their past association with pre-1994 governments has hampered their relationships with the RPF government. Some companies continue to be owned by Rwandans (Rwanda Foam and Manumetal). Most of them were owned by Africans of Asian descent (Sulfo, UTEXRWA, Tolirwa and Kabuye Sugar Works). These companies enjoyed protection in the pre-1994 years, and some government officials perceive them (particularly those owned by Asian-Africans) to have had close links to the Habyarimana government that operated from 1973 to 1994. There are very few examples of emerging domestic capitalists in agro-processing (e.g. Felix Mutalikenwa, the owner of ProDev Holdings, an agro-processing firm that he co-owns with the government). The RPF government – because of the threat perceived from domestic capitalists – has instead chosen to rely on government, party- or military-owned firms or foreign investors as leading actors in most sectors.

Conclusion: Functional Substitutes amid Domestic Political Constraints

Late-developing economies today are increasingly integrated within financial markets in positions of ‘subordinate financialisation’ (Kvangraven et al. Reference Kvangraven, Koddenbrock and Sylla2021; Lapavitsas Reference Lapavitsas2013). Governments are forced to meet the requirements of IFIs (especially when they receive loans) and face many incentives to comply with ‘best-practice’ market-led principles. Governments do this partially to appease IFIs, especially the IMF, when agreeing to loans because of mounting debt and trade deficits. They also adopt market-led reforms to signal adherence to ‘best practice’ principles for better credit ratings in global financial markets. To some extent, some reforms are also adopted because African central bankers believe in market-led reforms just as much as IFIs do (Mkandawire Reference Mkandawire and Soludo1999).

However, there are optimistic signs that states still innovate despite these constraints, developing new financial institutions to fund strategic investments. This chapter has shown that the Rwandan government has both presented itself as adopting most measures proposed by IFIs but also having some ‘hidden’ developmentalist impulses. While most investments are not geared to manufacturing, these financial institutions have focused on investing in Rwanda’s hub-based development strategy. The RSSB, Rwanda’s pension fund, is the central functional substitute in Rwanda. But at the same time, the Rwandan government has developed many smaller funding mechanisms to diversify its risk, fearing that larger organisations may become a threat to the RPF’s centralised control over rent distribution.

Innovations to create these functional substitutes have been driven by constraints imposed externally through IFIs but also by domestic elite vulnerability. The chapter provides evidence of frequent corruption charges for individuals working within the RPF’s investment arms, both in institutional investment firms (like RSSB and BRD) and in key party- or military-owned firms (like CVL and Horizon). While some of these individuals have been re-integrated, others often become part of opposition movements or have been jailed within Rwanda. Given that the distribution of rents in industrial policy is naturally associated with some failure and some degree of corruption, the distribution of these rents outside centralised control can be perceived as a threat if funding is used in ways that are not controlled by the ruling coalition. At the same time, consolidating control over decision-making over who gets rents from these institutions also creates antipathy among elites and places the ruling coalition in positions of vulnerability.

Most literature on Rwanda assumes that domestic government, military- or party-affiliated companies dominate Rwanda’s economy. While in many sectors, these firms are prominent, the government is reliant on foreign investors in other sectors. Significantly, CVL and military-owned enterprises like Horizon, which have received global attention and criticism, have not diversified and expanded their activities substantially over the last decade. While some of their subsidiaries have grown, it is striking that rather than encouraging these companies to expand further, RPF leadership has chosen to develop new financial instruments. Part of the reason is that these companies have attracted criticism from donors and the international press, with some arguing that this is evidence of corruption within the RPF (aligned with neoclassical understandings of rents, assuming that any market distortion may be wasteful). The RPF may have reacted by just using different entities as strategic firms. However, another significant factor is the continued vulnerability RPF leadership faces and its fear of any funding institution that may operate outside its centralised control.

As increased elite vulnerability has begun to characterise RPF rule, new investment funds have consistently emerged. This suggests that RPF strategy has been to increase the number of economic instruments available to reduce its exposure to threat, thereby ensuring marginalised elites cannot use finances from such institutions to fund rivals. However, the strategy to consistently create new investment groups reduces the government’s capacity to pool investments strategically in specific sectors, thereby impeding structural transformation.