Rwanda stands to gain from its recent ranking as the fifth best destination for investment globally.

The ranking, according to the profitability index by Foreign Policy Magazine indicates that Rwanda is likely to pull in more investors into the country.

The increased revenues will then reduce fiscal deficit and overreliance on donors, which will in the long run support balance of payment, translating to a less volatile franc.

The magazine ranked the country on the basis of asset growth, preservation of value and ease of capital repatriation.

Bond issuance

The report indicates that increased government spending on infrastructure and development related projects from bond issuance will steer rapid growth in the country over the coming year, which will support major companies.

“In this case, we are likely to see major growth in industrial and the services sectors,” say researchers from StratLink, an international research and risk management company.

“The public debt to GDP ratio may fall as inflows from bonds will make the country less dependent on aid partners.”

The researchers said that low public spending allows the country to diversify its economy compared with aid with strings attached or conditioned loans. This will help to ease currency risk in the long run.

At a yield of 6.875 per cent, above the Repo rate, the Eurobond is likely to keep investors interested for a long while. The investors oversubscribed to the Eurobond on its debut, in line with expectations, the report said.

READ: Investors scramble for Rwanda’s Eurobond

Wait-and-see

“This, in our view, might have been one of the factors that contributed to the slow performance of the All Share Index and Rwanda Stock Exchange stock indices in the past months as the investors had a wait-and-see perception,” the researchers noted.

StratLink also noted that Bank of Kigali, which recorded increased profitability that was attributed to a 50 per cent increase in lending to SMEs at attractive interest rates, closed the month with a lead in the stock’s turnover.

READ: Bank of Kigali to pay Rwf5.9bn in dividends after increase in profits

“We maintain that there will be sustained strong performance in the RSE market as we expect major listed firms to reap from the good reputation gained from Eurobond listing,” said the researchers.

According to the report, the country’s leading brewery, Bralirwa, delivered a strong 2012 performance, with earnings reportedly at an increase of 29.8 per cent compared with the previous year.

Proposed dividends stood at Rwf20 ($0.03) per share, a 17.4 per cent decrease compared with 2011/12.

Currency volatility high

“In our view, continued investment in brand building as well as strong consumer connections and focused leadership will steer Bralirwa’s revenue earnings,” said StratLink.

“However, there has been a 14.13 per cent increase in total government taxes and a net debt of nearly 32 per cent of profit after tax, which eroded annual dividends.”

The researchers however called for caution among foreign investors since currency volatility remains high, necessitating the need to factor in substantial currency risk.

“Widening current account lowers the Rwandan franc’s demand as repayment of the bond would be dollar-dominated,” they said.