Risk Assessment of Rwanda as an Economic Zone - Case Study Example

Case Study: Risk Assessment of Rwanda as an Economic Zone Name Number Institution Course Code Instructor Date Executive Summary Rwanda has been rated second in Africa for Ease of Doing Business Report of 2016 and at number 62 out of 189 globally. The prevailing favourable economic environment has continuously favoured foreign investment with projections on increased growth in the foreign direct investments being positive. This analysis evaluates the Rwandan economic state and its ease of foreign investment with a case analysis of Tecno mobile. The assessment is carried out strategically to realise substantive evidence on the impact of a nation’s economic and political states as parameters that favour or impede foreign investment. Rwanda has been on a trajectory of growth in the past two decades. Increased economic growth has been observed with the stabilising political state of the nation after the 1994 genocide. The Rwandan economic environment has been attractive to the foreign investors increasing direct foreign investments in the country. This review evaluates the factors favouring the country to be a favourable destination for foreign investments and the measures put in place by the country’s authorities to promote investment. Using PEST analysis, the report highlights various factors affecting the ease of foreign investment in Rwanda. Scope and Opportunity of the Investment The study covers Rwanda which is a nation in Eastern Africa and among the fastest growing economies in the region. The presence of a special economic zone has increasingly placed Rwanda as a good investment hub for foreigners backed by favourable political and economic factors for effective investment (D’Amour & Feng 2017). The observed stability and projected economic growth are the key aspects for consideration in this analysis with the choice of Tecno Mobile being the increased penetration of mobile technology and the impact to economic growth. The reason for settling for Rwanda is the unique nature of the country; first it is landlocked, lacks sufficient minerals and has a population of around 12 million. Thus, it presents no obvious manufacturing or market attractive parameters. Nevertheless, there has been an increased investment in the country which points out to strategic measures or attractive environment for conducting business that this assessment tries to evaluate. PESTLIED Analysis and Summary Findings The Government of Rwanda has focussed on the private-sector led development in order to achieve its aim of acquiring a middle income status by the year 2020 (Balinda 2016). This projection aims at substantively bringing down the reliance on foreign aid to make the economy more self-reliant. Notably, there has been various policy reforms aimed at improving investment by ensuring a favourable climate for investors, reduce foreign aid increase the level of foreign direct investments and increase trade in products and services (Rwanda Law 2015). The following is a PEST analysis of the Rwandan economy’s foreign investment based on Tecno mobile. Political Analysis: Rwanda has enjoyed over two decades of political stability after the 1994 genocide. The growing national political structures promote effective foreign investment by instilling confidence in the investors of the safety of their finances (Balinda 2016). Political instability in Africa affects most of the foreign investments negative. Economic Analysis: Rwandan economy has been one of the fastest growing in Africa with ease of business being second in the continent. The country has enjoyed a well laid out economic growth trajectory with various international players putting in place infrastructures to improve business operations (Mutandwa 2014). The improving economic state of the nation favours Tecno mobile to acquire a share of the locals’ earnings by having its products sold within. Although Rwanda has attracted substantive foreign investment, inflow into the nation still lags behind in comparison to the other EAC peers at 4% of GDP in 2014 (Department of State 2014). This can be attributed to the various factors involving geographical due to the fact that Rwanda is landlocked resulting in high costs of transport, has a small domestic market, skilled manpower deficit and limited access to affordable financing. Social Analysis: The Rwandese people are mainly agriculturists with the hilly nature of the nation favouring the venture. With a population of 12 million, the country offers a small market share but excellent access to human capital for manufacturing (D’Amour & Feng 2017). Being a landlocked country, the nation is strategically placed to access both the eastern and Central African regions which offer a substantive market for Tecno products. Technology Analysis: The technological landscape in Rwanda is growing at a faster rate. The strategic location of the country to other Eastern nations makes it key in technology and increased penetration of fibre optics cable is changing the technology settings (Mutandwa 2014). Industry Analysis Competition in the Industry arises from established Samsung mobile phones which are common in the region. Further, substandard and cheap smart phones have been prominent in the African market competing increasingly with Tecno mobile creating a challenge to achieving substantive market (Mobisol 2017). However, the diversity of Tecno mobile products, the affordability and improved technology has made the brand a force to reckon with in the region. Thus, Tecno’s competitive advantage is higher based on the need for standard and effective access to mobile technology in the African context (Ekpombang 2011). The Rwandan economic state is strong with the nation enjoying high ranking by the World Bank in respect to Ease of Doing Business Report of 2016 at number 62 out of 189 countries globally (World Bank 2016). This placed Rwanda at position two in Africa after Mauritius. Other competitive factors favouring Rwanda as a perfect destination for foreign investments involves; stabilised political and government settings, effective legislation and tax policies, as well as a reputation for low corruption (Rwanda Law 2015). Subsequently, there are opportunities for access to clean renewable energy, improved infrastructure, efficient and relatively fair workforce, and increasing information and communications technology. The nation provides a perfect manufacturing hub for Tecno mobile products for the Eastern Africa region which is a growing economic block with substantive market. Suggested Mode of Entry and its Appropriateness in the Rwandan Market Through strategic alliance, Tecno mobile has been able to penetrate the Rwandan and other neighbouring markets. Alliance with MTN which is South African company has made it establish a firm investment ground in the region to exploit the increasing market in the continent (Mobisol 2017). The entry favoured with friendly investment environment has promoted working relations among partners involved in availing products and services of connecting the Rwandan masses for ease of communication. Mobile connectivity is impacted by improved communication infrastructure, as well as availing internet availability to promote ease of connection (Balinda 2016). Effective communication infrastructure promotes mobile phones production as more market is opened up creating a new customer base. Foreign workers engaged with Tecno find difficulties in obtaining renewal for work visas with the local authorities insisting on the preference for locals to be hired or employees from EAC nations (D’Amour & Feng 2017). This is a strategic move by the government to enhance skills uptake and job creation for its locals. However, the move affects the investors for having to settle for human manpower which is not of their preference. There is need for increased capacity building and skill enhancement to promote local employees to meet the set demands and requirements for given tasks. Risk Management Considerations In spite of the investment facilitation that has been evidenced in the Rwandan market, key risk management considerations are paramount. There are concerns in respect to slow payment processes for services or goods rendered to governments, changing of conditions and contractual terms, and additional tax assessments with time (Balinda 2016). Inherently, an investor targeting the Rwandan economic special zone should be well versed with the changing dynamics of the economic policies and other memorandum of understandings. However, the Rwandan government have consistently come up with policies and legislations aimed at enhancing business operations and attracting more direct investments from abroad (Ekpombang 2011; Department of State 2014). Inconsistent application in respect to tax incentives has been cited as challenges affecting investors in Rwanda affecting the ease of doing business (Balinda 2016). In context, the Rwandan jurisdiction allows foreign companies to receive similar treatments as locals in respect to taxes, licence acquisition, approvals and procurement. VAT tax rebates are also offered and an investor should receive them in a span of 15 days upon receiving necessary documents from the tax authorities (Rwanda Law 2015). Nevertheless, the reimbursement process has been termed to takes long, involves lengthy audits by the Rwanda Revenue Authority impacting negative on the business processes. Conclusion In conclusion, the Rwandan economic environment offers incredible opportunities for foreign direct investments. Backed by a growing economy, stable political environment and neutral policies for business operations; there is an increased foreign direct investment in the nation. The impact of foreign investors is being felt in the country with projections indicating continued investment from various quarters of the economy to promote the manufacturing and service industries. Analysis of the Tecno mobile has presented facts and risks affecting the business operations. The risks assessed involving tax regimes, procurement processes and contractual terms are not issues that will affect the foreign investment process. Backed by the willingness of the Rwandan government to promote foreign investment, there is high hope that some of the technical and operations issues on business processes will be addressed. Reference List Balinda, SN, 2016. Factors attracting foreign direct investments (FDIs) in Rwanda: The case of selected companies. Saudi Journal of Business and Management Studies, vol. 1, no. 2, pp. 59-67. D’Amour, HJ & Feng, WX., 2017. Motives and determinants of China’s foreign direct investment in Rwanda. International Journal of Economic Behaviour and Organisation, vol. 5, no. 2, pp. 67-72. Department of State, 2014. Investment Climate statement. US: Department of State. Accessed Online . Ekpombang, AA, 2011. The legal framework of foreign investment in Rwanda. ICSID Review, vol. 26, no. 2, pp. 123-168. Mobisol, 2017. Mobisol partners with MTN and Tecno to increase connectivity in rural Rwanda. Accessed Online . Mutandwa, E, 2014. Foreign direct investment and Rwanda’s economic performance (1970-2011). European Journal of business and Management, vol. 6, no. 17, pp. 60-69. Rwanda Law Relating to investment promotion and facilitation 2015. Accessed Online . World Bank, 2016. Doing business 2016 REPORT. Accessed Online . Read More