Remittance inflows and economic development in Rwanda

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Kadozi, E.

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2019

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Kadozi, E. (2019). Remittance inflows and economic development in Rwanda.

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536731-L-sub01-bw-Kadozi 536731-L-sub01-bw-Kadozi 536731-L-sub01-bw-Kadozi 536731-L-sub01-bw-Kadozi Processed on: 11-10-2019 Processed on: 11-10-2019 Processed on: 11-10-2019

Processed on: 11-10-2019 PDF page: 99PDF page: 99PDF page: 99PDF page: 99 CHAPTER FOUR

This chapter presents the facts and trends of remittance inflows on a global, SSA regional, and Rwanda country level. Its purpose is to demonstrate the background of this study. The chapter provides in-depth facts about Rwanda in relation to remittances and development in the country. These facts motivate the selection of Rwanda as a case study. Different trends of remittance inflows and other external inflows to SSA countries are reviewed. Trends of remittance inflows and other external inflows, as well as facts about the macroeconomic implications of remittances in Rwanda are presented. Different policies, including policies aimed at creating a conducive environment for diaspora engagement in national development, are reviewed. How this institutional and policy framework was implemented and how it positively influenced remittance-development outcomes in Rwanda is also discussed. In support of the latter, anecdotes from my personal professional experience working with the diaspora, different diaspora members, and beneficiaries in Rwanda are also presented. This establishes the background motivating the rationale for the selection of Rwanda as the best case to examine the impact of remittances on development outcomes.

4.0 Remittance Inflows to SSA Countries and Case Selection of Rwanda

In recent years, the world has witnessed increasingly high rates of emigration and a surge in inflows of remittances to developing countries. These two interlinked development phenomena have attracted growing attention of policy makers and scholars about the intrinsic role of remittances in development. Over the last three decades, remittance inflows to developing countries have increased exponentially (21 times), from US$20 billion in 1980 to $436 billion in 2014, but during the same period remittances to Sub-Saharan Africa only increased moderately, from US$18 billion to US$ 34.5 billion (see Migration and Remittance Factbook, 2016). Sub-Saharan Africa’s share of total remittance inflows to developing countries has decreased during the same period. Rwanda, on the other hand, experienced a 38 fold increase in remittance inflows. Remittance inflows to Rwanda increased from $3,381,209 in 1980 to $128,172,555 in 2014, demonstrating an exponential growth trend. Figure 4. 2 below shows the remittance inflows to developing countries, while Figure 4. 3 shows the remittance inflows to the SSA region. Trends in the two figures indicate a steady growth trend of remittances over the years.

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Processed on: 11-10-2019 PDF page: 100PDF page: 100PDF page: 100PDF page: 100 Figure 4. 2: Remittance Inflows to Developing Countries Versus Other External

Capital Inflows, from 1990-2014 in Billion US$

Source: Development Indicators Group, World Bank, Migration & Remittance FactBook, 2016,

3rd Edition

Figure 4. 3: Growth Trends of External Capital Inflows to SSA Countries, from 1980-2014 in Billion US$

Source: Data from the World Bank and Quality of Government Datasets

The two figures illustrate that remittance inflows to developing countries, and SSA countries in particular, have maintained steady upward growth trends compared to other external capital inflows. In general, the growth trend of official development aid to developing countries has remained low over the last three decades, but in the SSA region this

16 17 18 19 20 21 1980 1990 2000 2010 2020 country year Remittances FDI Net-ODA Ex te rnal Capit a l in Billions US$

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Processed on: 11-10-2019 PDF page: 101PDF page: 101PDF page: 101PDF page: 101 has been high compared to other external capital inflows. This can be attributed to the

political and economic fragility still affecting the region in general. Similar growth trends are also observed in Rwanda. Rwanda registered steeper growth trends of remittance inflows in relation to other external capital inflows in recent years.

Figure 4. 4: Growth Trends of Remittance Inflows to Rwanda, 1980-2014 (US$ millions)

Source: Data from World Bank dataset

In recent decades, remittance inflows to Rwanda have increased exponentially. According to the World Bank Development Indicators(2014), personal remittances inflows to Rwanda increased from $3,381,209 in 1980 to $128,172,555 in 2014. Subjected to GDP, the two variables (remittances and GDP per capita) share similar growth trends, as illustrated in the Figure 4. 5 below. The only difference is observed in 1994 and the subsequent few years when Rwanda was experiencing political turmoil and the genocide against the Tutsi. Obviously, this crisis affected the Rwandan economy, but it did encourage more remittance inflows. This is due to the fact that, like official development assistance (ODA), remittances respond to political and economic crises in the country of origin to meet humanitarian needs. The only difference between ODA and remittance inflows is that remittances respond to humanitarian needs, but also to the development factors and economic opportunities in the country of origin. When the economy is doing well, this presents opportunities for productive use of remittances, but institutions and policies also need to be developmentally friendly.

0 50 10 0 15 0 20 0 1980 1990 2000 2010 2020 Rwanda

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Processed on: 11-10-2019 PDF page: 102PDF page: 102PDF page: 102PDF page: 102 Subjected to GDP, the percentage of remittances to GDP increased from 0.269% in 1980 to

1.62 4% in 2013. Figure 4. 5 shows similar growth trends of GDP per capita and remittance inflows to Rwanda between 1980-2014, except in 1994 which is attributed to the effect of the genocide against the Tutsi. This confirms the existing claims in the scholarship that remittances increase during hard times such as wars, natural disasters like droughts, and economic setbacks to act as a buffer and source of income to the recipient households.

Figure 4. 5: Growth Trends of GDP per Capita against Remittance Inflows in Rwanda, 1980-2014

Source: Data from World Bank dataset

Figure 4. 6: Growth Trends (%) of External Capital Flows to GDP per Capita in Rwanda

Source: Data from World Bank and Quality of Government datasets

5 5. 5 6 6. 5 G D P p e r ca pi ta 14 15 16 17 18 19 1980 1990 2000 2010 2020 country year

Remittances GDP per capita

0 1 2 3 4 5 1980 1990 2000 2010 2020 Rwanda Net-ODA % GDP Remittances % GDP FDI%GDP P er ce nt ag e of G D P

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Processed on: 11-10-2019 PDF page: 103PDF page: 103PDF page: 103PDF page: 103 As depicted in Figure 4. 6, in Rwanda, like in the other SSA countries, official

development assistance still takes the lion’s share of external financial inflows. This is demonstrated by the growth trend of official development aid percentage to GDP per capita in Rwanda. Foreign direct investments and remittances share similar growth trends in terms of their percentage to GDP per capita. These trends depict Rwanda’s political and economic development path. The first steep upward trends of official development (Net-ODA) assistance and remittances to GDP are attributed to the effects of the genocide against the Tutsis in 1994. Another upward trend of remittances surpassing FDI was experienced between 2008 and 2012 because of the effects of the global economic and financial crisis. During the global financial crisis, global FDI inflows were affected, but remittance trends continued to increase.

Despite the continued impressive growth of remittances, the development potential of remittances has continued to be a subject of debate among scholars and policy makers. The underlying question is whether remittances to developing countries contribute to development outcomes. Many studies examine the effect of remittances on economic growth and poverty. Nevertheless, the findings of these empirical studies continue to be inconclusive. This can be attributed to the theoretical, conceptual, empirical and methodological issues that affect the field. To the best of my knowledge, there is no study that has approached the development impact of remittances in the receiving country comprehensively, by addressing the macro and micro impact of remittances and the conditional role of the prevailing institutional and development factors in the recipient country. Most studies on this topic approach the remittance-development impact either at the macro or the micro level, based on the macroeconomic indicators at the country or cross-country level. The role of the institutional and policy environment and the contextual aspect remain ignored in these studies’ theoretical and empirical frameworks. Particularly, the causal path between remittances, the institutional and policy environment and the overall development outcomes, as well as the contextual aspect, have been largely underestimated both theoretically and empirically. This is a contributing factor to the ongoing inconclusive empirical debate in the field.

Remittances are private financial and in-kind transfers from migrants abroad to a recipient person/household for socioeconomic use determined by the institutional environment and the underlying motivation to remit. Thus, their effect can be evidenced at both the micro (household) and the macro level. Like other international external capital inflows, however, the conditional role of local institutions and the policy environment mediates the growth and

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Processed on: 11-10-2019 PDF page: 104PDF page: 104PDF page: 104PDF page: 104 development effect of these inflows. In this regards, SSA countries have varying levels of

development and differing institutional environments, which affects the remittance-development impact within and across the region. There is a growing trend in the literature to underestimate the role of institutional and development factors and their variations between countries. A country’s institutional and economic context matters in terms of attracting and deploying remittances for economic development. Moreover, the application of these factors is not one size fits all across SSA countries.

In consideration of the above empirical gaps, this study contributes to this body of knowledge by examining the development impact of remittances in SSA countries and Rwanda in particular. The SSA countries are an interesting and relevant case for such a study. Over the last three decades, the region has witnessed increased remittance inflows, which is hypothesized to have affected development in the region. This assumption is contested by the underlying institutional and development factors that may be affecting the way these inflows are contributing to development in the region. The structural and institutional challenges existing in the region might overshadow the development impact of these inflows in the region. This is also coupled with the lack of reliable data that stops scholars from venturing into this field. The findings about the remittance-development impact in the SSA region can increase our understanding about the development impact of remittances at the cross-country level.

At the country level, Rwanda presents an important case to contextualize the analysis of this study. Rwanda is an interesting case study in the context of the remittance and development discourse. This is because of the history of the country and the recent impressive progress in development, evidenced in the development outcomes and in the recommendable progress in the effective institutional and policy environment. Rwanda is a small landlocked country with no natural resources, characterized by decades of divisive politics and political instabilities. The country experienced significant political conflicts that culminated in the genocide against the Tutsi in 1994 and, before and during the genocide, the emigration of Rwandans to neighboring regions and far abroad. Not only human lives were lost (estimated at one million Rwandans), but also all institutions. As a result, Rwandans (including those in the diaspora) lost their dignity and their trust in their government and state institutions. However, the recent observed progress in development, together with the recommendable progress in institutional and policy effectiveness and the availability of comprehensive data enable us to investigate the development impact of remittances in the

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Processed on: 11-10-2019 PDF page: 105PDF page: 105PDF page: 105PDF page: 105 country. These factors qualify Rwanda as a case for this study. The next section discusses the

rationale for selecting Rwanda in detail. 4.1 The Case Selection of Rwanda

The selection of Rwanda as a case study was motivated by different factors. The following anecdotes establish the background and the rationale for selection of Rwanda as the best case to examine the impact of remittances on development outcomes. These anecdotes are based on my professional experience working with the Rwandan Diaspora and the Government of Rwanda at the Ministry of Foreign Affairs and Cooperation of Rwanda from 2008-2011. They capture my personal interactions with different Rwandan Diaspora members, students, and Government officials in different periods and on different occasions. Any error is, of course, my responsibility rather than that of anybody or any institution. These anecdotes provide evidence of the development implications of remittances.

Since immediately after the genocide, one of the mandates of the Rwanda Ministry of Foreign Affairs and Cooperation has been to engage the Rwandan Diaspora and to create a conducive environment for the Diaspora to contribute to development in Rwanda. While my colleagues and I we were working on the implementation of this policy, I observed that people (including technocrats) had mixed views about the positive role of the diaspora in Rwanda’s development path. Colleagues would tell me that, “with all the efforts and budget you are investing in these activities do you really expect any developments from the diaspora?” The other side of this coin was however pressure from the diaspora demanding facilitations to contribute to Rwanda’s development, for the Government to create conducive mechanisms to transfer their resources back home. Every day we would receive complaints from the diaspora requesting that the Government facilitate them in repatriating their resources (financial, knowledge, business and investments) back home. This was not only an issue in Rwanda, when I met colleagues from other SSA countries, they expressed similar experiences. And some time the issue could be politicized, with the underlying question, does the diaspora really want to contribute to development back home? After all, we do not see their money. This was associated with the institutional delivery mechanism and historical perceptions towards the diaspora.

Some years later, we began to experience a shift in the public attitude and opinions towards the diaspora, from pessimistic to optimistic. This was mostly driven by two factors; First, the strong policy and outreach programs targeting the diaspora by the Rwandan Government and Second, the positive feedback from the Rwandan Diaspora who were

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Processed on: 11-10-2019 PDF page: 106PDF page: 106PDF page: 106PDF page: 106 becoming more interested in repatriating their resources back home. As result, we started

receiving interest from other people (from the government, the private sector and NGOs) in the diaspora’s contributions to development back home. It is in this context that we received two students (who prefer to remain anonymous) who were doing their internship at the ministry. They came in different time periods and were interested in doing their internship under the Directorate of the Diaspora. While discussing options with them, my first question was “why are you interested doing an internship in this directorate?” They both had the same answer: “I want to investigate how the diaspora contribute to development in Rwanda, specifically their remittances.” I asked, “why the interest in their remittances?” The first one said:

I am a genocide survivor with no parents, my Aunt fled to the USA right after the genocide against the Tutsi. Since then, she has been supporting me and my siblings with our education and other requirements, now you can see I am now about to finish my undergraduate education. My siblings will also be finishing soon. We are not alone in this experience; I know most of my friends depend on such support. My interest is to investigate how these financial inflows are contributing to development of recipients in Rwanda.

This woman further emphasized that “it has been my plan to conduct such study since I started University.” I received a similar testimony from the second student (though his aunt leaves in Canada). A few years later, I encountered similar interest when I was teaching at the Independent University of Kigali (ILK) in 2013. A final year student approached me during break time and asked if I could advise him on how he could conduct his research project on the role of remittances in poverty reduction. I asked him why he was interested in this topic. His answer was:

We migrated from the Democratic Republic of Congo and we settled in Rwanda; some of us had no prospect of study. I was lucky my uncle, who had migrated to Canada, supported my education from primary up to University and you see I am about to finish. It has been my wish to explore this topic and demonstrate the role of these people (the diaspora) in promoting the socio-economic welfare of those of us who remained behind. There is lack of evidence about the socio-economic contribution of the Rwandan Diaspora out there.

This topic has not only been the interest of students. They share this interest with most Rwandans inside and outside the country. Another example is a Rwandan Diaspora couple I met in 2010. They had lived in Italy for 20 years; the woman was a business owner and a man was a medical doctor. They had implemented their long-term idea of investing back in Rwanda in real estate and hotels. During the implementation of their projects, they experienced conflict with their relatives who were managing their business in Rwanda. At

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Processed on: 11-10-2019 PDF page: 107PDF page: 107PDF page: 107PDF page: 107 that time, relatives who were running the businesses of their diaspora relatives were able to

take advantage. As this couple struggled with this, they were advised to contact the Ministry of Foreign Affairs and Cooperation for facilitation. They ended up in our office. The Ministry and the Rwanda Development Board responded quickly and addressed their problem. This couple could not believe their problem of almost three years could be solved this quickly. They were excited and came back to our office and said: “we are so happy with your support and it has encouraged us to do more back home. There are many Rwandan Diaspora projects, but they are not documented and most of the diaspora want to invest back.” This couple and their family have since permanently returned back to Rwanda.

Based on my professional experience working with Rwandan Diaspora (in different occasions), me told me that they were implementing projects in different parts of Rwanda. Some helped their families and relatives to set up micro projects; others implemented community projects, such as the One Dollar Project6, a diaspora project that constructed hostels for University students who are genocide survivors and had nowhere to stay during the holidays. Others construct schools or are heavily involved in buying land and houses in Kigali and other parts of the country. This growing interest in contributing to Rwanda’s development led to requests of the Ministry to facilitate the transfer of money back home at lower costs. These requests either came directly to the Diaspora Office in the Ministry or through events that brought together the diaspora and the Government of Rwanda in the country or abroad.

In 2009-2010, the Ministry responded to these requests by requesting the Bank of Kigali (Rwanda’s parastatal bank) and other commercial banks to develop a diaspora bank account and other diaspora products and to subsidize diaspora money transfers. Rwandan embassies abroad were also requested to facilitate the process by providing legal and administrative documents, other services were done online. The diaspora quickly responded to this initiative. In the following years, formal remittances started progressively increasing and more commercial banks began opening diaspora accounts and products targeting the diaspora in their host countries. Moreover, bank officials and other private business individuals began accompanying the president and other high-level government officials on Rwanda Day. Rwanda Day is a major annual event where the president meets Rwandan Diaspora communities abroad to discuss development in Rwanda and how the Rwandan Diaspora can contribute. This is a mobilization strategy to encourage the diaspora to contribute. Since

6_{For details on part of this project on the Rwanda Diaspora Global Network. (n.d.). Involvement. Retrieved from}

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Processed on: 11-10-2019 PDF page: 108PDF page: 108PDF page: 108PDF page: 108 2010, this event has been instrumental in mobilizing the diaspora to contribute to the

development in Rwanda. It has also been a policy forum for addressing challenges the diaspora face and a platform where locals and the diaspora (and their friends) meet and business deals are made.

They are number of interesting testimonies and cases about the interventions of the Rwandan Diaspora in the socio-economic development in Rwanda. Some are individual, household-based, and others are collective. Due to these developments, in 2015, the stake of remittances and development reached at the policy agenda of the Ministry of Finance and Economic Planning of Rwanda. There was a call to mobilize remittances from the diaspora to promote savings and investments in the country. In that process, a policy strategy for mobilizing remittances for investments in Rwanda was developed. I was associated with the development of the strategy. The underlying question was, how do we better understand the development impact of remittances? Currently, the diaspora are targets for commercial banks, telecom companies, money transfer companies, real estate developers, and others targeting their remittances and savings. This led me to think about the following question: what is the contribution of remittance inflows to the development outcomes and how can we best measure and explain the development effects of remittance inflows? Under what conditions do remittances affect development outcomes? A number of things have influenced the theoretical, empirical and analytical framework of this study:

First, though we knew that remittances influence development in Rwanda, these anecdotes show that we did not know how remittance inflows work to produce development outcomes. Something interesting was going on, but it was not really grasped by policy makers and scholars.

Second, the mediating and conditional role of the policy and institutional framework in inducing, shaping the choices of, and incentivizing remitters is visible and the same applies to the choices of recipient households in how they utilize remittances. Most importantly, improvement in policies and the institutional environment altered attitudes, created opportunities, and increased interests to repatriate remittance resources in Rwanda.

Third, we see practically where remittances are channeled and utilized by the diaspora and remittance recipients and the change taking place in people’s lives. It is clear that people appreciate the effect of remittances in their life.

This information provides us with insights and propels us to think about the theory and analytical framework employed to study and explain how these inflows affect development outcomes and through which mechanisms these changes take place in developing countries.

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Processed on: 11-10-2019 PDF page: 109PDF page: 109PDF page: 109PDF page: 109 The development impact of diaspora resources remains a policy puzzle for researchers and

policy makers. We observe that these financial resources are contributing to the welfare improvement of recipient Rwandans, even with a spill-over effect to non-recipient households and communities. What would have happened to the students described above if they had not received remittances from their relatives? What would have happened to the Diaspora couple who was investing in Rwanda had there been not a friendly and encouraging policy and institutional framework? These counterfactual questions challenge researchers and policymakers to consider how we can empirically understand the development implications of remittance inflows. Ultimately, these financial resources end up in the hands of the recipients, either at a personal or a household level. They may be invested in property or other socio-economic investments, which ultimately affects both micro and macro development outcomes in the economy. Formal remittances are channeled through banks and other money transfer operators, which affects financial sector development and the components of the national account. Therefore, the underlying question is, empirically, how can we better understand the development impact of these inflows in developing countries like Rwanda? How and through what mechanisms are these inflows contributing to the development outcomes in Rwanda? How does the institutional environment and policy framework causally condition this process and the mechanisms through which these inflows affect development outcomes? How do the development effects of remittances play out among recipient households in different socio-economic categories? These questions prompt the researcher to conduct an in-depth analysis in Rwanda.

In recent years, migration has also been observed but for different economic and social reasons. As a result, more remittance inflows have been sent by the Rwandan Diaspora. The remittance growth trends indicate a low and constant trend for the period from 1980-2000 (refer to Figure 4. 3), but this trend picks up immediately after the genocide. This leads to one of the main questions of this thesis: why the low and constant trend before 1994 and why the steeper, steady growth trend from immediately after the genocide up to recent years? The political stability and structural reforms in different sectors (social protection sectors, economic stability, business environment, services, financial sectors, government effectiveness, etc.) of the economy resulted in the strong and stable economic growth (with an annual average of 7% of GDP per capita growth) the country has experienced over the last two decades. Poverty has decreased from 58.9% in 2000/2001 to 39.1% in 2013/14, while extreme poverty has decreased from 40.0% to 16.3% in the same period (National Institute of

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Processed on: 11-10-2019 PDF page: 110PDF page: 110PDF page: 110PDF page: 110 Statistics of Rwanda, 2013/14)7. Nevertheless, we know little about the stake of remittances

in this observed development in the country in recent years.

In recent years, progress in the areas of institutional and development factors has been observed. In the SSA region, international organizations and think tanks have echoed Rwanda’s progress in areas of governance and institutional development. International organizations indicate that Rwanda leads African countries in some institutional and economic development indicators associated with improved development outcomes. The World Bank’s Country Policy and Institutional Assessment (CPIA) report “ranked Rwanda first among SSA countries with a 4-point scores (rated on a scale of 1, low to 6, high) in the area of institutional performance” (World Bank, 2015b: 4). The report argues that in relation to other SSA countries, Rwanda leads in performance of a variety of institutional and macroeconomic indicators. Indeed, the report shows that in Rwanda, policies are actually implemented, rather than remaining promises or intentions8. In other words, the country is not only undergoing economic progress, but also progress in institutional and policy effectiveness. The recent joint study between the World Bank and the Government of Rwanda (Country Report, 2018) indicates that Rwanda has registered rapid improvement in governance, including control of corruption, rule of law, regulatory quality, business climate and civil service performance, which gives Rwanda a competitive edge over its SSA peers.

The Mo Ibrahim governance index report (Mo Ibrahim Foundation, 2016) places Rwanda among the five African countries that have demonstrated greater improvement in the overall governance level and sustainable economic opportunities over the last decade. It emphasizes that “Rwanda is the only country to feature both among the ten highest scoring and the ten most improved countries over the past ten years.” The same report places Rwanda first in Africa in performance in human capital development. Transparency International (Transparency International, 2015) place Rwanda as the fifth-least corrupt country in Africa, 44th worldwide and first of East African countries. In areas of economic institutional environment, the World Bank Doing Business Report (2015) ranks Rwanda as the second country in Africa in ease of doing business. Regarding financial sector development, the

7_{For more details, see the Rwanda Poverty Profile Report (2013/14), Results of Integrated Household Living Conditions}

Survey (EICV), National Institute of Statistics of Rwanda.

8_{The CPIA consists of 16 criteria grouped in four equally weighted clusters: economic management, structural policies,}

policies for social inclusion and equity, and public sector management and institutions. For each of the 16 criteria, countries are rated on a scale from 1 (low) to 6 (high). The scores depend on the level of performance in a given year, rather than on changes in performance compared to the previous year. The ratings depend on actual policies and performance, rather than on promises or intentions. In some cases, measures such as the passage of specific legislation can represent an important action that deserves consideration. However, the manner in which such actions should be factored into the ratings is carefully assessed, because in the end it is the implementation of legislation that determines the extent of its impact (World Bank, n.d.).

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Processed on: 11-10-2019 PDF page: 111PDF page: 111PDF page: 111PDF page: 111 country has registered progress in the indicators of financial development. According to the

available statistics from the National Bank of Rwanda, the broad money and credit to private sector increased significantly from 1995 to 2014; subjected to GDP, the broad money (M3) and credit to private sector to GDP ratio increased from 14.4% and 7% in 1980-1993 to 20.3% and 13.4% in 2000-2013, respectively. Similar statistics indicate that the financial sector contributed 6% to GDP in 2014 (National Bank of Rwanda, 2015b). With these statistics and other macroeconomic indicators, the country has been able to maintain prudent macroeconomic stability over the last decade.

The improvements in the institutional and development indicators discussed above appear to have been influenced by the political and policy approach the country embarked on immediately after the genocide. There have been elements of political settlement which influenced governance, the economy and inclusive development in the country. It is worth observing that the political settlement approach is normally underestimated or ignored in the scholarly narratives explaining factors behind political and economic stability and progress in post-conflict countries like Rwanda. Political settlement has been one of the underlying factors for Rwanda’s rebirth and recent development immediately after the genocide. On this note, it is worth recalling that before and during the genocide, Rwanda was grounded on divisive politics and unequal distribution of development benefits in the country. With this background, a paradigm shift is observed immediately after the genocide, during which the entire system changed. This can be attributed to the political settlement that ushered peace, stability, and inclusive developments in all aspects of the country. The political settlement was based on the politics of consensus and people-centered development policies, which improved performance and built confidence in the regime by the citizens (including the diaspora).

I argue that, in contrast to the previous regime (that focused on divisive politics and ethnicity), the post-genocide regime was able to consolidate and successfully manage the political settlement. As result, it established a solid foundation for national unity, national building and fast economic recovery and progress. This is reinforced by Kelsall’s (2016:8) argument, “at the heart of political settlement is the idea that societies cannot develop in the midst of violence or civil war; yet the way different societies solve the problem of violence, the political settlement they craft, creates powerful path dependencies for the way they do or do not subsequently develop.” He emphasizes that political settlement is a crucial factor in development. Kelsall uses Rwanda as a contemporary example of a classic development state of the post-war era (comparable to South Korea and Mauritius) that has successfully

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Processed on: 11-10-2019 PDF page: 112PDF page: 112PDF page: 112PDF page: 112 implemented an inclusive, coordinated and impersonal type of political settlement. In

Rwanda, the political settlement paved a foundation for formal institutional and economic reforms, national unity, nationhood (that had been lost), power sharing, stability, reconciliation of Rwandans (that has been destroyed by genocide and previous politics), and regaining of trust in the regime by Rwandans. The settlement also provided an opportunity for the most marginalized groups, such as Tutsi, women and youth. These fast and necessary structural reforms and policy enabled process and government effectiveness. Experience shows that the policy making process and implementation fails in divisive and combative political landscape, especially in developing countries. Currently, in Rwanda, the political settlement still exists, but it is continuously evolving to accommodate new development (political and economic) issues.

In the context of the diaspora, in contrast to the previous regime, the post-genocide regime prioritized the Rwandan Diaspora in the national development. A number of policy initiatives were established and implemented geared towards involving the Rwandan Diaspora in the national development. The Rwandan Diaspora have constitutional rights of leaving and returning to their homeland when they want, dual nationality, voting rights, and participation in the national dialogue (see Articles 23 and 24 of the Rwandan constitution). Through its foreign policy, the Government of Rwanda (MINAFFET, 2019)9_{has embarked on an} aggressive policy of engaging its diaspora in the national development. This policy has the support of practically every Rwandan, whether they agree with the current regime or not. Rwanda’s foreign policy broadly provides a policy orientation for facilitating the Rwandan Diaspora to remit their resources (expertise, investments and remittances) for development back home. This policy informed a number of programs and initiatives geared towards attracting Diaspora interests and resources back in Rwanda, such as the One Dollar Campaign mentioned above.

Rwanda Day is an annual forum that brings together the president, other high government officials and the diaspora to discuss different issues pertaining the national development. During this event, a number of diaspora issues are addressed. Information on business and investment opportunities in Rwanda are provided to the Rwandan Diaspora and their friends. The forum provides opportunities for Rwandan business communities to interact with the diaspora and their friends and deals are made. However, it remains a challenge to access

9_{http://www.minaffet.gov.rw/policies/strategic-framework-policy/ accessed on 29}th_{August, 2018;}

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Processed on: 11-10-2019 PDF page: 113PDF page: 113PDF page: 113PDF page: 113 formal documentation about the business and investment projects that were established

through Rwanda Day fora.

The “Come and See, Go and Tell” program facilitates a short-term visits for members of the Rwandan diaspora who have not come to Rwanda for a long time. During such visits, the Rwandan Diaspora are shown the different institutions and areas in Rwanda to be better informed about the developments in the country. Experience shows that, after such visits, some decide to return permanently. Others develop project ideas to implement in Rwanda.

The annual Diaspora Youth Camp organized in Rwanda is another initiative that brings diaspora youth from different countries to Rwanda. The program is organized by the Ministry of Foreign Affairs and Cooperation together with the Ministry of Education. During this camp, diaspora youth learn about the history and past, present and future developments in Rwanda. Rwandan communities abroad have been encouraged and facilitated by the Rwandan diplomatic missions to build and strengthen their structures abroad. This has increased communication and collaboration between Rwandan migrants and their country of origin. This communication has facilitated the accessibility of local opportunities in Rwanda by the Rwandan Diaspora.

As determined by the constitution, the Rwandan Diaspora are involved in the national policy decisions, such as national elections and national dialogue. The national dialogue is an annual event that brings together the president, high government officials, private sector, civil society and citizens from different parts of the country to discuss issues regarding the development of the country.

Over the last decade, banks have been encouraged to develop diaspora products to mobilize formal remittances and investments from the diaspora, coupled with the abolishment of exclusive agreements signed between banks and money transfer operators in Rwanda to encourage competition and openness of the remittance market in Rwanda.

All the above highlighted policy initiatives, together with the institutional and development progress the country has experienced in recent decades, have continued to pay dividends in terms of attracting the interests and resources of the diaspora back in Rwanda. The positive economic growth trends, government effectiveness, institutional enhancement (both political and economic) and diaspora engagement initiatives have increased the confidence and trust of the Rwandan Diaspora in their country of origin. This goes hand in hand with the Rwandan Government’s growing recognition of the impact of the Rwandan Diaspora on the national development and their commitment to support their families back home. All these initiatives have resulted in the return of some of the diaspora, either

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socio-economic motives. Unfortunately, this institutional and policy environment has been underestimated in the theoretical and analytical frameworks examining development impact of remittances. I contribute to this scholarship by examining the stake of remittances in the development outcomes in Rwanda. To what extent do the repatriated remittances from Rwandan migrants contribute to the development and how can this effect best be measured in Rwanda? How has the policy and institutional framework influenced the mechanisms through which remittances are attracted and deployed productively to affect development outcomes in Rwanda? The next chapters provide detailed empirical results about the growth effects of remittances in SSA countries and Rwanda in particular. The conditional effect of institutional and development factors influencing the growth effect of remittances SSA region is extensively discussed.

In conclusion, Rwanda offers a sound case to study the micro and macro implications of remittances on development. The country presents itself as a clear example of the implications of the institutional and policy framework in conditioning the overall development outcomes, particularly remittance-development outcomes. It demonstrates how effective institutions and policies matter in influencing development. Figure 4. 4 and 4. 5 above demonstrate the turning point, the big difference between pre- and post-genocide Rwanda in the context of the volume of remittance inflows and their implication for Rwanda’s development. The year 1994 was a turning point in the long-run sluggish effect of remittances in the country’s development. There must be reasons for this, one of them being the improved effective institutional and policy environment. There are other exciting different (positive) socio-economic trends in post-genocide Rwanda. This can be attributed to the effective policies and institutions that were introduced and implemented immediately after the genocide and the active engagement of the diaspora in the national development. As discussed above, the post-genocide regime adopted different institutions, policies, structural reforms and diaspora policies that resulted in impressive recent development and remittance inflows to the country.

These stories of development success, backed by rigorous empirical examination, provide a credible approach to better understand the broader view of remittance-development outcomes. They contribute to the scholarship of remittance and development. My personal work experience with the diaspora, the positive development trends in Rwanda, and the ongoing theoretical and empirical gaps in the field of remittance and development, inspired me to explore the broader understanding about the development impact of remittances.