Variable 3. Precio
5.5 Modelo de creación de valor basado en la relación con el Cliente
Investment groups are the symbolic representations of Economic
Nationalism. ‘Getting capitalism started’ – the mandate of these investment groups – refers to going into new sectors, building the sector through a subsidiary company and leaving once the subsidiary company has broken even.369 Investment groups receive these rents ahead of powerful individual elites. In Rwanda, two examples are often cited as examples of ‘getting capitalism started.’370 Those critical of these investment groups focus on companies like Inyange Industries, which obtained a large share of the market in dairy products. However, it is argued that the process of
‘getting capitalism started’ is still in progress in the case of these companies.
368 See Crisafulli and Redmond (2012). Kantola and Seeck (2010, 37) use the example of Finland to show that mimicking Porter’s management style was “mainly a legitimating device rather than an actually effective way to raise the productivity of a nation.”
369 Interview, John Mirenge, May 2012.
370 Serena Hotel was built by an investment group despite many donors advising against it. Once Serena Hotel was built, other domestic and foreign investors came in to the sector. The Serena Hotel is currently owned by the Aga Khan Fund for Economic Development. CVL originally owned shares in MTN – Rwanda’s first mobile telephony company. The telecom sector is now liberalised, with Tigo and Airtel occupying substantial shares of the market.
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Political parties and militaries have established businesses in several
countries. Agebaz (2013) compares experiences in Malaysia, Taiwan, Ethiopia and Rwanda.371 Malaysia’s ruling party businesses provided evidence of cronyism but also created employment opportunities and empowered the Malay middle class (ibid). Taiwan’s Kuomintang used party businesses to develop new sectors.
Competitive clientelism slowly emerged through empowering party conglomerates and this provided “a soft landing towards multi-partyism” (Agebaz 2013, 1478). In Ethiopia, party owned businesses included The Endowment Fund for the
Rehabilitation of Tigray (EFFORT). EFFORT invested in strategic sectors. In Ethiopia, some of these companies retained monopoly control over sectors while some companies operated in liberalised environments.372
Investment groups have been the subject of disagreement between Rwanda scholars. This disagreement mirrors the larger academic debate on rent seeking.
Gokgur (2011, 2012) follows the neoliberal logic of Anne Krueger (1974) who emphasises that such rents encourage state agents to waste resources on unproductive activities. Gokgur fails to differentiate between these investment groups and the government. She simplistically assumes that their ‘close’ relationship must be a way to ensure benefits are retained by a small group of elites. Booth and Golooba-Mutebi (2011, 2012a) take a heterodox line, emphasising the importance of ‘close’
relationships between the private sector and the state in the early stages of
industrialisation. They emphasise that investment groups work strictly in line with national priorities.
“There is a very thick line between us and the government. We keep close relationships. We lose a lot of deals and we win some. It is through the work that we have done that we have built a
reputation. Rwanda is the only country I know that you can sit on a computer in China and win a tender.”373
Investment groups were created as a response to the political vulnerability faced by the dominant coalition. These groups have proliferated because the dominant coalition has faced difficulties in finding ‘private’ investors who have enough funds and patience to stay loyal to Economic Nationalism. Rather than being
371 Agebaz (2013) has not analysed power relations within the elite bargain in the countries studied.
372 For a detailed study on EFFORT, see Vaughan and Gebremichael (2011).
373 Interview, Kayonga, January 2015.
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an avenue for elites to maximise their rents, investment groups are symbolic tools used by the RPF to reduce the capacity of individuals to keep rents for themselves.
Investment groups are divided into ‘formal’ and ‘informal’ investment groups.374 Formal investment groups are those companies with formal connections to the military (RDF) or the party (RPF). ‘Informal’ investment groups comprise those groups where ‘private’ investors have pooled their own money to create investment groups. Kagame has directed the formation of informal investment groups and different regional investment groups (even investing his own money).375 The RSSB and the RDB’s Assets and Business Management Department also provide funds for strategic investments.376
Tri-Star Investments emerged out of the RPF Production Unit. The
Production Unit had functioned as a treasury for political contributions to the RPF’s
‘liberation effort’ in the early 1990s. The initial funders included sympathetic diaspora and Banyarwanda refugees from Uganda and other neighbouring countries – some of whom are named in Chapter 4. After the genocide, Tri-Star continued to function as a Production Unit. Initial investments were made in line with national priorities e.g. the provision of social services, rebuilding roads and transport links.
“Some things must be contextualised within our history –
especially where Rwandan has come from since 1994. We had to find ways to provide basic services to people. The previous government had stolen most of the money from the treasury. Tri-Star invested in things the people needed. People saw there was potential and then Tri-Star left. This was a way the government motivated people to invest. In a way, it was to help privatisation and to entice new investors to come here.”377
Tri-Star was involved in a variety of sectors including metals trading, mobile telephony, road construction, housing and food processing. One of its subsidiaries – Rwanda Metals (RM) – was involved in the trading of minerals from the Congo. RM
374 Gokgur (2012) identified these groups collectively as ‘partystatals’. However, this term is confusing because the party does not have control over all these groups.
375 Interviews, Faustin Mbundu (PSF and RIG investor) and Jean Philippe Kayobotsi (formerly at the Office of the President), March 2012.
376 “If we want to facilitate privatisation, the government has to go where investments are not attractive and show that profits can be made. Then we can sell our company to private investors or open up the sector or retain shares. When you talk about setting up a company in Rwanda, the payback period is seven years. It is up to us to lead the way in taking losses and working for our future” (Interview, Ufitikirezi, then-RDB, May 2012).
377 Interview, Francis Gatare, then-Private Secretary to the President of Rwanda, Now, CEO – RDB, May 2012.
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was sold to a Botswana-based firm in 2002 amidst initial outcry over allegations that the firm traded ‘conflict minerals’ (Booth and Golooba-Mutebi 2012a). There is disagreement about the extent of profits made by companies like RM.378 Such companies were unlikely to have become avenues for individual profit although individuals involved in companies derived power from their positions.379 Tri-Star did not enter the traditional export sectors after these sectors were liberalised.
Tri-Star was renamed Crystal Ventures Ltd. (CVL) in 2009. The company, like its earlier incarnation, was a ‘first-mover’ in several sectors including telephony, civil works and property management (Box 5.1). In 2014, CVL had a 50 per cent stake or more in 12 companies operating in Rwanda. CVL’s subsidiaries were the largest players in the sectors in which they operated. CVL had joint ventures with several foreign and domestic companies, including other investment groups. In 2013, CVL employed between 70,000 and 100,000 Rwandans and values itself at 500 million USD (Mazimpaka 2013).380
Booth and Golooba-Mutebi (2011, 2012a) argued that CVL was an attractive partner for foreign investors, enticing investors to come to Rwanda. Gokgur (2012) disagreed with such claims. She suggested that the presence of investment groups inhibited domestic entrepreneurship and foreign investors. Gokgur claimed that domestic entrepreneurs and investors were reluctant to compete in environments where such companies held majority controls over operations. There was a perception among most ‘private’ respondents that investment groups received benefits that were not available to ‘private’ companies.381 Despite such claims, the presence of investment groups has not stopped increasing number of companies being registered across the country.382 Micro, small and medium enterprises accounted for 98 per cent of total businesses and accounted for 41 per cent of total
378 Reyntjens (2013, 165) implies RM made large profits, writing that these companies could not be developmental “if they underdeveloped its neighbours.” Booth and Golooba-Mutebi (2012a) agree that the company did make some profits but these profits were was not as large as in MTN, the telephony company CVL had shares in. Mwenda (2013) claimed RM was an “unmitigated disaster.”
379 Many trusted officers such as Dan Munyuza performed roles at RM. Munyuza served in the RPA during the liberation effort and he was a junior officer during the Congo Wars. In 2010, Munyuza was appointed Head of Military Intelligence. In 2011, he was transferred as Head of Foreign Intelligence.
In 2013, Munyuza was named Deputy Inspector General of the Police.
380 Considering Rwanda’s GDP is about $6.5 million, CVL’s value is more than 1/13th the value of the entire economy.
381 Interviews, domestic private sector representatives, April and May 2012.
382 Interview, Hannington Namara, CEO – PSF, April 2012.
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private sector employment. Most of these companies did not survive beyond three years (MINICOM 2010). Complaints usually included difficulties in accessing finance, high costs of doing business and heavy taxes. In fact, many of these investment groups are now being encouraged to develop supply chains through backward linkages with Small and Medium Enterprises (SMEs).383 Thus, there is no evidence that foreign investment or the growth of domestic companies is hampered by benefits received by investment groups.384
While working as a consultant in Rwanda, Gokgur (2011) identified the presence of investment groups as an impediment to attracting foreign investment.
Donors approached the government and questioned them about their use of these investment groups.385 Gradually, negative press regarding these companies gathered pace. The RNC and other critics highlighted the obstructive presence of these
companies and accused the government of giving these groups benefits that were not accorded to other individuals in the private sector (Nyamwasa et al. 2010,
Rudasingwa 2013). The government defended CVL’s failures and attributed them to mismanagement rather than corruption.
“Donors criticised us about these companies. But do they know how China developed? It is easy to criticise but they don’t care to understand the functions of these companies.”386
RPF members including Rujugiro, Alfred Kalisa,387 Faustin Mbundu,388 James Gatera389 and John Mirenge have previously led Tri-Star and CVL.390 In 2012, after criticism of CVL’s performance, there was a change in management (showing the government’s sensitivity to perceptions around these companies). Jack Kayonga, the
383 As part of EDPRS 2, the government encourages investment groups to become ‘vertically integrated’ to find new suppliers, rather than produce their own inputs (MINECOFIN 2013).
384 “Sure, it isn’t easy to enter the market. But these companies are not the problem. I have an advantage because my partners and I are young and we have international experience and prior expertise. These groups are not efficient enough. It is easy to blame them but there are other reasons why companies don’t survive.” – Interview, Jean-Philippe Kayobotsi, Ujenge group, May 2013.
385 Interviews, Dutch and British Embassy officials, Kigali, October and November 2011.
386 Interview, Emmanuel Hategeka, MINICOM, January 2015.
387 Alfred Kalisa was the CEO and Board Chairman of the former Bank of Commerce, Development and Industry (BCDI), which acted as an investment bank. In 2007, he was accused of illegally advancing loans to himself and his family members, totalling up to 800 million RwF, as well as inflating the cost of constructing the BCDI headquarters. He was pardoned in 2010 (Ssuuna 2010).
388 Mbundu, Gatera and Mirenge were officially listed as CVL shareholders (Booth and Golooba-Mutebi 2012a). Mbundu is from a Ugandan business family, which had also contributed towards the Production Unit. He owned several businesses. He was also PSF Chairman between 2011 and 2013, before leaving the post to devote more time “to his personal business” (Tabaro 2013b).
389 Gatera has been the MD of the Bank of Kigali since 2007.
390 Since 2010, Mirenge has been CEO of Rwandair.
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former CEO of BRD, was named the new Chairman. He replaced Nshuti Manasseh.
Elias Baingana, who had served as DG of the National Budget in MINECOFIN, was brought in as Chief Operating Officer of CVL.
“Crystal Ventures is about changing the lives of our people.
Criticisms have been unfair. For example, in construction, we have been criticised for taking deals. But we have about 5 per cent. The Chinese have 90 per cent. Many of our companies began as start-ups. Since they have all grown tremendously. If you look at import substitution, we have invested in Granite. There has also been significant contribution to employment and to GDP. We are also transferring skills. When we started, 60 per cent of engineers were foreigners. Now, about 80 per cent are Rwandese.”391
Formal investment groups also included RDF-owned companies.
“It works as a ‘demonstration effect’ and the military companies are at the centre of it. The thinking is that the military is disciplined and successful. Let’s use these resources and get them to do public works, logistics etc. The military will push themselves better than others because they are trained in the ideology.”392
The creation of Horizon Group (in 2007) led to a distinction between the party and the military in the economic sphere. Ownership is not held by the MoD directly. Instead, Horizon has two shareholders – Military Medical Insurance (MMI)393 and Credit Savings Society Zigama (CSS Zigama).394 The military was previously involved in undertaking socio-economic projects in line with national priorities. For instance, the military built the first coffee washing stations (CWS).
Horizon’s first venture was a construction company, which was established after an initial gift of equipment from the government and military engineers were seconded from the army (Booth and Golooba-Mutebi 2012a). Horizon built irrigation dykes and later began constructing roads. In constructing the first asphalt concrete road in Rwanda, Horizon cut the cost of such investments in half.395 Earlier, German-owned STRABAG and Chinese construction companies had collaborated to fix artificially higher prices. Such investments also created jobs for Rwandans (since some
391 Interview, Kayonga, January 2015.
392 Interview, former OTF consultant, February 2012.
393 MMI operates directly under the Ministry of Defence. It guarantees high quality healthcare to its employees, in accordance with the norms of the Rwandan healthcare system. It receives money directly from salaries of military personnel.
394 CSS Zigama was founded in 1997 and inaugurated in 1999 as a microfinance bank for military officers. As of 2011, it counted 60,000 members and 122 employees, operating 14 branches. It had also begun to operate as an investment bank for military companies.
395 Interview, Eugene Haguma – CEO Horizon, May 2013.
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international companies including Chinese construction companies and Indian hydropower projects continued to employ labour from their own countries). Horizon Logistics is another subsidiary and is involved in supporting the activities of the peacekeeping forces. Horizon SOPYRWA is the third subsidiary and is engaged in pyrethrum processing. Horizon’s board does not include any military officers, apart from its CEO. Officially, Horizon and other military companies operate
autonomously. In reality, hiring-and-firing decisions and other forms of pressure are exerted directly from the Ministry of Defence (or higher up).396
API formerly operated under the banner of Horizon as Horizon Agro-based Production. Like Horizon, the company’s shares are split between MMI and CSS Zigama. Unlike Horizon, its senior management (in 2011) almost entirely comprised senior military officers. API’s operations were geared to make the most out of RDF-owned land and to address food security.
“The problems we are addressing are both internal and external.
Prioritising the economy is important for us if we are to address the security of the country. You can never divorce the RDF from food security. Our enemy is hunger. API has shown that massive production of one crop (cassava) can address the problems of our people. Now, we are doing so well that farmers are looking at cassava as a cash crop. If a shop in Rwanda is not selling Kinigi flour then I would say it is not functioning for Rwandans.”397
API directly employed farmers in the production of coffee, cassava and other strategic crops, providing a source of wage labour.398 API employed soldiers in cassava production across 1,300 hectares of land. As of 2011, the company operated ten CWS, had harvested 800 ha worth of maize and planted 400 ha of soyabean in Eastern Province.399 Some of API’s operations are located in Gako where the military academy is based. Out of 1000 ha of land in Gako, 700 ha was allocated to cassava production and 90 ha to soyabean production. API also owned the Nyanza dairy, which is one of the oldest dairies in Rwanda, and invested $800,000 in the upgrading of the facility (Gathani and Stoelinga 2013). While the other investment groups are
396 CEOs of API and Ngali both mentioned that they were directly answerable to Kabarebe or Jack Nziza. Haguma also mentioned that he maintained contact with MoD and is answerable to them.
397 Interview, Nzabamwita, January 2015.
398 It only produces and exports 100 per cent fully washed coffee in line with national priorities.
399 Interview, Emmanuel Nzamurambaho, API, April 2012.
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engaged in sectors other than agriculture, this firm is focused on intensifying agriculture production (as well as value-addition in coffee).
Ngali Holdings (previously known as Digitech) was established in 2010.
Ngali had a similar structure to Horizon. There were few serving military officers comprising Ngali’s management or Board of Directors. The CEO is Major Andrew Nyamvumba who is on a secondment from the army.400 Similar to Horizon,
disciplinary power over hiring-and-firing resides in the Ministry of Defence (or higher up).401 Ngali was originally set up as an engineering firm. It has broadened its mandate to include infrastructure, Information and Communications Technology (ICT), energy, healthcare, pharmaceuticals and ecology (Box 5.1). The company was created to assist in meeting Rwanda’s structural deficits, particularly in relation to energy. Ngali aimed at having at least 255 MW worth of energy projects by 2017, which would likely cost around 778 million USD. Ngali had already developed several partnerships with companies in China, Czech Republic, Spain, South Africa, Kenya and DRC.402 Ngali also helped establish the East Africa Commodity Exchange (EAX).403 Ngali co-owns the EAX with Nigerian Tony Elumelu’s Foundation, Heirs Holdings, Berggruen Holdings and 50 Ventures.
“Our mandate is to help solve the structural deficits that our country faces. We work in the national interest. Energy is one of our key constraints to sustain economic development. We are looking for strategic partners. The vision is to do things no one else is ready to do but that will benefit Rwanda in the long-run.”404
There are many informal investment groups that operate in Rwanda. Among these groups is the Rwanda Investment Group (RIG), which was created in 2006.
The creation of RIG was part of a national drive to pool investments to strategic sectors. There are also regional investment groups and sector-specific investment groups. The Petrocom Group, headed by Egide Gatera, is another example of such a group.405 These were patriotic projects.406
400 Andrew Nyamvumba is CDS Patrick Nyamvumba’s brother. He was involved in the liberation effort in the early 1990s.
401 Interview, Nyamvumba, April 2012.
402 Internal Ngali documents.
403 On 5 November 2013, the first trade deal was conducted on the EAX, with 50 metric tonnes of maize sold by a Ugandan to a Rwandese farmer for $19,900 (Mugwe 2013).
404 Interview, Andrew Nyamvumba, CEO – Ngali, October 2011.
405 Discussed in Chapter 8.
406 Interview, Mbundu, March 2012.
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“It was all the President’s initiative. Businessmen sometimes complained about lack of funds when they were asked to invest in national projects. He called some of the most important Rwandan
“It was all the President’s initiative. Businessmen sometimes complained about lack of funds when they were asked to invest in national projects. He called some of the most important Rwandan