March 26, 2014 / 1:30 PM / 5 years ago

INTERVIEW-Rwanda might offer tax breaks in revised investment code

* Economic slowdown makes investment plans more pressing

* Revised investment code will replace 2005 version

* New code could be in place by end of April

By Edmund Blair and Jenny Clover

KIGALI, March 26 (Reuters) - Rwanda may offer reduced tax rates soon for investors in energy, transport and logistics, as well as to fund managers and export-oriented projects, under a new investment code, a Rwanda Development Board (RDB) official said.

The new code, which still needs cabinet approval, is part of a broader strategy to wean Rwanda’s economy off aid and speed up the country’s development. It could be in place by the end of April, said Vivian Kayitesi, head of investment promotion and implementation at the state board.

The proposals could see investment in selected areas qualify for reduced corporate tax, now set at 30 percent. They also aim to ease restrictions on employing expatriates and attract investment from financial institutions.

This could see Rwanda follow the lead of the Indian Ocean island of Mauritius, a financial centre serving Africa and beyond.

“We are trying to see if we can attract more foreign direct investment and to widen the tax base as well,” Kayitesi told Reuters at the board’s headquarters in Kigali.

The priority would be to provide tax incentives to investors in sectors such as energy, transport and logistics, which are vital to clearing bottlenecks to development, although Kayitesi did not give the size of tax reductions to such ventures.

“Export-oriented projects would probably get a lower rate” than the current 30 percent, she said, adding there could also be tax holidays of zero percent for a couple of years for “really large projects”, without saying what size would qualify.

Rwanda has won broad acclaim for policies that have ranked it the easiest place in Africa to set up a new company after the nation was left in ruins following the 1994 genocide that killed 800,000 people. Western donors have poured in cash, praising the efficiency with which aid dollars are used.

Kayitesi said Rwanda secured $400 million to $500 million of foreign direct investment in 2013.

But its economic ambitions have faced headwinds. Some Western aid flows were halted in 2012 after U.N. experts accused Rwanda of supporting a rebel group in eastern Democratic Republic of Congo - a charge Rwanda has vigorously denied.

ATTRACTING FUNDS

Alongside the goal of attracting investment in vital infrastructure, the aim was also to draw in new kinds of businesses to the crowded, land-locked east African nation of 11 million people to create more jobs and reduce poverty.

Kayitesi said that this would include attracting financial institutions, such as wealth management funds.

Compared with the financial centre in Mauritius, Rwanda may have some advantages, as it sits at the heart of Africa and is a member of trade blocs, such as the East African Community, a market of more than 130 million people.

With few raw materials to exploit, limits on how far agriculture can be expanded and ambitious plans for poverty reduction, building a bigger service sector is seen as a valuable way of generating growth and employment.

“The plan is emulate the success of Mauritius,” said Ibrahim Sagna, managing partner of investment firm Century and adviser to the RDB on the code and investment strategy, adding the aim was to make any tax reductions significant enough to draw in new investors and offset any lost revenue from existing sources.

Among other measures, Kayitesi said big investors could be allowed to bring in some expatriates without facing demands to prove Rwandans cannot do those jobs. For now, firms have to conduct a labour market test if they want to employ foreigners.

The new code, which updates one drawn up in 2005, also seeks to entice investors into areas they find less attractive, such as building low cost housing. Kigali alone needs 30,000 dwelling units a year for the next 10 years.

Kayitesi said the code would make Rwanda a more attractive destination. “It will make my marketing pitch much better.”

Stepping up the pace of investment has become more pressing after a sharp slowdown in the Rwandan economy last year. Growth slipped to 4.6 percent, well below the 7.3 percent recorded in 2012. The slowdown was mainly blamed on cuts in donor aid, which accounts for about 40 percent of the budget.

“We hope to have a new code at the end of April,” Kayitesi said.

Once approved by the cabinet, parliamentary approval is seen as a formality given the majority of lawmakers are from President Paul Kagame’s party. (Writing by Edmund Blair; Editing by Susan Fenton)

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