Incentives to Enter Rwandan Special Economic Zone - Case Study Example

ssеssеmеnt Таsk 2 - Quаntitаtivе Litеrасy Саsе Study Sесtiоn Name: Course Name: Unit Name: Submission Deadline: Introduction Personal computer industry in Rwanda has experience a rapid growth in recent years, and has played an important role in the national economy. As a result of good business environment, an Alpha Response Technology solution (ARTS) is planning to enter the Rwanda computer industry (Mwanza, 2016). The aim of this report is to analyze the strategic situation and business environment of computer industry in Rwanda (Asaba, 2015). The motivation of an in-depth analysis of personal computer industry in Rwanda stem from the fact that personal computer industry has played an important role in national economy of Rwanda, and has an important role on the educational sector (Beaumont, 2010). The report will carry PEST Analysis to analyze the business environment of the personal computer industry, and 5 Forces Analysis will be used to analyses the competitive nature of Personal computer industry in Rwanda. Background PESTEL Analysis PESTEL Analysis Political Factors Stable country regardless of the 1994 genocide. The legal system supports participative governance whereby citizens contribute to the government decision. The tax regulations are favorable for foreign direct investment. Economic Factors Inflation rate. Import laws Exchange rates, and Interest rates. The economy is based on farming. Social Factors Minimize the environmental impact Educated populace. Technological Factors Trying to find the new technologies to better serve the people. Use of Bio degradable material for recycling. Environmental Factors Fuel-efficient equipment. Use of biodegradable material that can be easily be recycled. Legal Factors Health and safety consideration Importance of consumer law Fluctuation in trade laws Great requirement of the firms for the recycling Licensing permission permits. Five Force Analyses Five Force Analysis Competitive rivalry High capital requirement Product differentiation Switching cost Supply-side economies Bargaining power of suppliers Supplier competition Supplier switching cost relative to firm switching costs Impact of inputs on cost or differentiation Strength of distribution channel Supplier concentration to firm concentration ration Presence of substitute inputs Bargaining power of customers Buyer price sensitivity Buyer volume Ability to backward integrate Buyer information availability Buyer switching costs relative to firm switching costs Availability of existing substitute products Differential advantage of industry products Threat of new entrants There is also need for high capital requirement Product differentiation Moderate customer switching costs Access to distribution channels Threat of substitute products or services Buyer switching costs Buyer propensity to substitute Relative price performance of substitute. Number of substitute products available in the market. Quality depreciation Substandard product Current Foreign Investment The Rwandese government understands that private sector development is important if the country is to achieve middle income status by 2030, and reduce the country over reliance on direct foreign aid. Since 2000, Rwandese government has undertaken pro-investiment policy reforms that have expanded trade in products and services, improved investment climate, and increase levels of FDI (Beaumont, 2010). Currently, the country enjoys strong economic growth, high rankings in the World Bank’s Ease of Doing Business Index,” and a reputation for low corruption (Mwanza, 2016). The country has presented many opportunities for companies, including information and communications, renewable energy, infrastructure, and so forth. Rwanda Development Board (RDB) offers one of the fastest business registration processes in East and Central Africa: A new business can register online and receive approval to operate in the country in less than 24 hours, and RDB helps foreign companies to secure required certificates, approvals and work permits (Beaumont, 2010). In addition, the country’s investment law provides permanent residence and access to land to new investors who invest a minimum of 500,000 dollars. There are neither statutory limits on foreign control or ownership, nor any official economic that discriminates against foreign investors. Incentives to enter Rwandan Special Economic Zone The Special Economic Zones (SEZ) program have been designed to provide foreign companies with commercial and industrial land, transport linkages, improving on availability of electricity, availability of skills, market access, and Increased tax revenue through expanded tax base hence reducing the budget deficit Environment protection (Manson, 2015). Provide designated serviced land for foreign companies, as well as quality, reliable infrastructure, competitive fiscal regulations and streamlined administration procedures (Manson, 2015). SEZs program gives cluster anchor companies with suppliers and other services providers, thereby encouraging knowledge transfer and creating jobs in skilled industries (Manson, 2015). ARTS motivation to Enter Rwandan Market The Rwandese government has simplified how foreign companies can register their companies, obtain permits and apply for work visas (Mwanza, 2016). The Rwandese government have strengthened and modernized their banking infrastructure and financial sector: financial institutions are not interlinked so transfer of currency can be carried out without conversion to U.S. dollars. This has reduced the time taken for a company to transfer their capital from an average of 4 days and a loss of five per cent, to one day (Beaumont, 2010). In addition, over the years, Kigali has been rated as one of the safest cities in the world, with very low incidences of government corruption and petty crimes, which has made it easier for ART to attract skilled employees to work in the country. Rwanda as country is a member of EAC, this means PC’s can be sold in any other member states without being subjected to different tariffs, and will have fewer non-tariff barriers to undergo (Gahigi, 2014). In addition, Rwanda is a member of COMESA, which is a major market in Africa and has free trade areas. The Rwanda Education Board has established 500 smart classrooms across the nation and they will be fully connected to the internet by August 2017, essentially paving the way for scaling up the program to other schools across the country (Gahigi, 2014). This simply means business for ART as a country. Lastly, Rwanda has manpower that can help ART expand to other countries in Africa. Quantitative Analysis Product Line ART Personal computers Software applications. Positivo Manufactures microcomputers Runs education portals Manufactures mobile phones, including smartphones. Provides teacher training and educational and technical support for Grupo Positivo partner schools Develops education software Likely return for producing and releasing Product Line ART Expensive product Targeting high end consumers Positivo Different range of product line Affordable products Goodwill from the government Targeting low end consumers. Summary of Findings Opportunities a. Economy In 2014/2015 fiscal year, ICT industry in Rwanda has fuel the country’s gross domestic product with a contribution of up to 3 per cent. Recently other countries such as Nigeria and South Africa have experienced economic slowdown (Gahigi, 2014). For example, Nigeria has been hit by the decline in oil prices, while South Africa economy has shrunk due to fear of a recession. Rwanda in the meantime has been identified by the World Bank as one of the world’s fastest growing economies alongside DRC, Ivory Coast and Ethiopia. In addition, the country has continued to march forward economically and is seen to grow at around 8 per cent annually. b. Governance According to transparency International Index 2015, Rwanda is least corrupt country in East Africa at number 1, 3rd in Africa and 44th least corrupt in the world ((Asaba, 2015). c. Investor friendly climate ‘B’ country credit rating by Fitch ratings in 2016. This rating has been supported by a track record of structural reforms, solid economic policies, low government debt and macro stability. It takes a foreign investor 6 hours to register a business. d. Access to markets The local market has over 12 million people with a rapidly growing middle class (Asaba, 2015). Rwanda that is centrally bordering 3 countries in East Africa, the country is part of region common market and custom union with market potential of over 130 million citizens (Beaumont, 2010). Rwanda may be small in market size, but demand in certain industries far outweighs local supply, and that has forced the Rwandese government to seek investors to fill the gap. Huge demand and great opportunities currently exists in ICT, telecommunications and business services. Threats Low productivity and skills and no certified quality High cost of communication due to lack of ICT professionals and high prices for electric power Knowledge inadequate and innovative production management and a lack of supportive ICT applications. Availability of land is limiting factor. Conclusion ICT is an important engine that drives Rwanda’s transformation to a knowledge based economy, a fact the Rwandese government has acknowledge by allocating funds to ICT that is at par with OECD nations. Rwanda has continued to be one of the fastest growing economies in ICT sector and there are many avenues for growth for the ICT industry- from e-services and e commerce, mobile technologies development and applications and automation to becoming a regional center for research and training of top quality ICT professionals. A robust ICT industry has created jobs, wealth and entrepreneurs (Gahigi, 2014). The use of ICT in Rwanda has become an important component of global economy and Rwandese government want to be the leading country in the continent in this area. The Rwandese government has already outlined several policies that can be used to accomplish this by 2030. The Rwandese government has developed the master plan keeping in mind the economic and history state of the nation. Because of this insightful and cautious approach they have been relatively successful early on in their endeavor (Asaba, 2015). The government, private, non-profit, and education sectors have been collaborating and are helping each other achieve the common Vision 2020 goals. The outlook for Rwanda is now more positive than it has ever been in its modern history. References Manson, K (April 24, 2015). “Businesses relocate to Rwanda’s new Special Economic Zone”. Financial Times. Retrieved from https://www.ft.com/content/4fd23ff8-ded6-11e4-b9ec- 00144feab7de Mwanza K (July 20, 2016). South American Firm To Develop First ‘Made In Rwanda’ Laptop. AFK Insider. Retrieved from http://afkinsider.com/129954/129954/ Beaumont P (March 28, 2010). Rwanda's laptop revolution retrieved from https://www.theguardian.com/technology/2010/mar/28/rwanda-laptop-revolution Gahigi, M (November 29, 2014). Firm gets licence to make laptops in Kigali. The East African. Retrived from http://www.theeastafrican.co.ke/Rwanda/Business/Firm-gets-licence-to- make-laptops-in-Kigali-/1433224-2539226-ppwrc3z/index.html Asaba S. (September 9, 2015). Rwanda: Positivo BGH to Kick-off Laptop Production. The New Times. Retrieved from http://allafrica.com/stories/201509090157.html Read More