Institutional Barriers for FDI in Rwanda´s Power Sector

Abstract

Background Even though only 24.5 percent of the Rwandan households have access to the national power grid, the electricity supply has difficulties to meet the peak demand. Previous research has shown that lack of electricity is a constrainer for economic development and estimations show that Rwanda between year 2013-2025 will need to invest USD 6.9 billion in its power sector. Yet, the Rwandan government will only be able to undertake 44 percent of these investments. The rest, 56 percent, needs to be financed by the private sector and a majority of these investments has to be covered by international investors. However, present institutional barriers may prevent a sufficient amount of investors to enter the Rwandan market and hence, impede further economic development. Purpose This thesis intends to identify the institutional barriers present for Rwanda’s power sector’s foreign direct investors and to examine how the investors perceive these barriers. Literature Review Rwanda has recently been subject to one of the world’s most atrocious genocides, a genocide which still today can explain the country’s lack of electric power. The literature review shows that a poor business environment, such as political instability, corruption, and poor government regulations are examples of institutional barriers hampering foreign investments. Methodology The thesis is based on a qualitative approach where the empirical data has been gathered through semi-structured interviews. This thesis is based on seven interviews, of which five have been included in the empirical data. Result The result shows that Rwanda’s power sector suffers from several institutional barriers, preventing foreign investors from entering the market. Standardized power purchase agreements and standardized concession agreements are frequently requested by the foreign investors. Analysis The barriers previous research identifies as vital for foreign investments is, to a large extent, also perceived as important by the foreign power investors in Rwanda. However, the Rwandan government have managed to reduce the influence of some of the barriers previous research identified as critical. Conclusion The conclusion states that Rwanda reached far in its creation of an efficient and investment friendly business environment. Yet, Rwanda still suffer from several institutional barriers. Rwanda needs to continue to reduce its institutional barriers in order to keep and attract foreign investors.