Hundreds to lose jobs as Rwandan firms file for bankruptcy

Friday January 17 2014

The company registration office at Rwanda Development Board (RDB). More than 500 Rwandans are likely to lose their jobs in the coming months as some 53 companies in various sectors close shop after filing for bankruptcy. Photo/Cyril Ndegeya

The company registration office at Rwanda Development Board (RDB). More than 500 Rwandans are likely to lose their jobs in the coming months as some 53 companies in various sectors close shop after filing for bankruptcy. Photo/Cyril Ndegeya Nation Media Group

By ALEX NGARAMBE Rwanda Today

More than 500 Rwandans are likely to lose their jobs in the coming months as some 53 companies in various sectors close shop after filing for bankruptcy, Rwanda Today has learnt.

While the Rwanda Development Board (RDB), which is charged with investment promotion, has not revealed the reasons for the companies’ action, industry experts point to lack of skills, technical knowledge and experience.

“Businesses are not required to give us reasons for closing; all that is required is that they give us notice of their intention to close,” Ms Louise Kanyonga, the Registrar of Companies at RDB, told Rwanda Today.

The list includes East African Steel Working Ltd, Ortadogu Energy Petroleum, Engineering, Construction and Trade, as well as Rwanda Polyvalent Construction and General Trading Ltd.

The companies will officially be closed when the public notice of objection lapses at the end of the month.

Removed from the register

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The notice serves to ensure that anyone, especially creditors, with unfinished affairs with the business is given an opportunity to object to its closure before the winding down are concluded.

“This is crucial because, once the business is removed from the register, it ceases to exist as a legal entity and therefore one cannot bring any claims against it, “Ms Kanyonga explained.

She said anyone with an objection can prevent the business from closing legally until the ground of objection is removed, as provided for in the company law.

Opening new businesses

Although more companies get registered in Rwanda every year, not many celebrate their second birthday, stagnating the growth of local industries and their contribution to the economic growth of the country.

With more companies folding up, jobs are increasingly getting lost, with people finding it difficult to fend for their families. This has a negative impact on the economy.

With the high rate of closure, especially for local industries, the 14 per cent annual growth projection by 2020 for industrial sector could be difficult to achieve or be driven by foreign investors.

Under the circumstances of deregistration, a company gets removed from the register once it has submitted all required documentation for closure and the two-month non-objectionable period has lapsed without receipt of objections.

However, the law states that, after closure, it does not prevent the bankrupt companies from opening new businesses at a later stage.

Investment experts are not predicting a slowdown of the economy as a result of the closure of these companies since new firms will fill the gap.

“Although some people will lose their jobs, the number of people employed in the industrial sector is growing bigger because companies getting registered outnumber those being closed,” said Eric Rutabana, Chief Investment Officer at Business Partners International Rwanda Ltd.

Most of the closing companies were formed with a particular purpose, such as tenders to procure and supply items, and after the purpose or losing the tender they found themselves out of business, thus the need to close shop.

Not unique to Rwanda

However, many were formed to operate businesses but registered overwhelming losses which are forcing them out of operations.

Mr Rutabana however says that a high rate of businesses closing is not unique to Rwanda as it is common in Third World countries. He said the situation only improves with the level of the economy of a given country and Rwanda’s will improve since the economy is growing.

Rwanda is still looking for investors to rescue eight large but struggling, debt-ridden factories it sold off in 2012 that could be forced to shut down and send home more than 1,000 employees.

In 2012, the Ministry of Trade and Industry was in negotiations with investors to acquire stakes in Rubirizi Dairy, Utexrwa, Sopar, Rabi, Sotiru, New Rucep, Sonafruits and Ikirezi.

Struggling firm

Rubirizi, one of the country’s largest milk processors, was one of the firms struggling two years ago.

The estimated demand for Kigali’s market for pasteurised milk products is 680,000 litres per day, with sales estimates of 83,000 litres daily and the investment required is Rwf250 million in new commercial loans as well as Rwf150 million in new equity.