FAHEY’S CONCRETE LIMITED

RWANDA’S ATTRACTIVENESS TO FOREIGN DIRECT INVESTMENT

BY

EHINOMEN REGINA OKAGBARE

BMG705: Global Business in Context

Lecturer: Oluwaseun Adegbite

April 19, 2022

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 Contents

1.0 Introduction.................................................................................................................3
2.0 Overview of Fahey’s Concrete Limited …………………………………………………4
3.0 Overview of the Host Country (RWANDA)……………………………………………..4

4.0 Porter’s National Theory of National Advantage………………………………………6

5.0 Mode of Entry Strategy…….……………………………………………………………. .7

6.0 Analysis of Factors Affecting Investment in Rwanda…………………………………9
7.0 Foreign Direct Investment Attractiveness and Issues…….………………………….11
8.0 Conclusion …………………......................................................................................11
9.0 References ..............................................................................................................13

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1.0 INTRODUCTION

According to Morrison p.37.(2020), globalization is the process whereby commodities,

services, persons, organizations, cash and data are transferred speedily worldwide
according to the inclination of the policy-makers with minimal restrictions across
borders. The purpose of this course is to broaden the skill and comprehension of the
critical problems companies are faced with when doing business globally.

The major reason for aggressive globalization strategies undertaken by a number of big
firms is the risk of decreasing productivity and profitability. To remain relevant in the
market, these organizations want to create sustainable positions in pivotal global
markets with commodities and services that meet the demands of rising globally
different customers (Deresky, .p237. 2016).

According to Investopedia Team (2021), Foreign Direct Investment (FDI) is acquisition

of interest or controlling shares in a foreign organization for the purpose of spreading its
business activities to a new country.

Source: Morrison. p.39 (2020)

This study aims to evaluate how the Rwanda’s cement industry will prove its
attractiveness to Fahey Concrete Limited an SME located in the UK interested in
international expansion.

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2.0 OVERVIEW OF FAHEY’S CONCRETE LIMITED

Fahey’s Concrete Limited is an active Private Limited organization situated in Cornwall.

United Kingdom. Incorporated 6 September 1989 with origin in the UK. Its main
business is cement and ready mixed concrete manufacturing (Gov.UK, 2022). The
company has an estimated number of 68 employees (Dun & Bradstreet, 2022) and
generated a turnover of just over £14Million as at June 30, 2021. The principal business
is ready mix concrete which contributes about 90% of its total sales. The revenue,
operating profits and profits after interest and Tax of the company has been on the
increase over the years, with the exception of year 2020 when figures dropped due to
effects of covid-19. Its share of the market is solid and competitive advantage over other
local competitors has grown significantly over the years. Furthermore the company had
no debt as at June 2021 and has substantial cash deposits to carry out its business
activities. (Gov.UK, 2022).

3.0 OVERVIEW OF THE HOST COUNTRY (RWANDA)

Rwanda is a country located in central Africa, also known as “The Land of A Thousand
Hills” with population estimated at 12.3million. About 50% of the population is below 20
years, with the average age estimated at 22.7years hence the country is fairly young.
Rwanda’s cultural values include diligence, harmony, loyalty, social integration,
tenacious and more. The languages spoken include Kinyarwanda, English, Kiswahili
and French (Government of Rwanda, 2022). On the economic outlook of Rwanda,
Gross domestic Product (GDP) has been on the increase since 2000 until 2020 were it
slumped to approximately $10.33million at a rate of -3.36% (Statista,2021) a decline of
12.82% from the previous year 2019 (Macrotrends, 2022). The sharp decline was due
to the impact of Covid-19 on the economy according to World Bank and Kayitare, 2021.
See figure 2 and 3 below for data on GDP percentage growth rate and GDP in values

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Figure 2: GDP (current US$)-Rwanda 2000-2020 (World Bank, 2022)

Figure 3: Gross domestic product (GDP) growth rate in Rwanda 2026

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The GDP rose by 11.1% in the initial 9 months of 2021 (World Bank, 2022) signifying a
growth from the slump in 2020. The World Bank report also indicated that although
there was a reduction in employment rate the growth was due to increased activities in
manufacturing and construction sectors. In addition the above data provided by Statista
estimates that GDP will continue to rise until 2026.

4.0 PORTER NATIONAL THEORY OF NATIONAL ADVANTAGE

This theory was created to aid in the comprehension of the rivalry advantage that
countries or segments have due to the availability of some elements, it also describes
how governments can play the role of a stimulant by improving a regions status in a
worldwide economic environment that is competitive (Investopedia Team, 2022) .

Figure 4: Porter’s Diamond Model (Expert Program Management, 2022)

The porters Diamond Model is composed of the 4 elements displayed in figure 4 above,
they regulate both rivalry advantage at national level and that of the company (Cavusgil
et al, 2019).

4.1) Factor Conditions: This is the availability of human capital inform of advance skilled
labor, infrastructural facilities, mineral, capital resources, technological Know-how and
entrepreneurial skills.

4.2) Firm Strategy, Structure and Rivalry: This refers to the nature of local completion,
factors that affect business creation, organization and management. Companies are
under intense continuous pressure by competitors to improve their business and be
creative. Human capital, leaders in technology and high quality products is also
competed for along with share of the market

4.3) Demand Conditions: Under this factor firms operating in domestic markets with high
demand become more innovative and produce high quality commodities and services.

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4.4) Related and Supporting Industries: This refers to the availability groups of rivals,
skilled labor and vendors. An industrial Cluster is the confluence of support
organizations, vendors and companies in a homogeneous sector found in a specific
geological area. Functioning within this type of confluence leads to benefits through
transfer of data and skills

The key determinant of national competitive advantage is the know-how and expertise
of the people, organizations, regions and industrial sectors have, it is the deciding factor
for the location of a company (Cavusgil, et al. p163-164. 2019).

5.0. MODE OF ENTRY STRATEGY

There are several modes to penetrating a new market or country which include export,
Foreign Direct Investment, Outsourcing, Franchising among others see figure 5 below

Figure 5: Modes of Entry (Teixeira, A. 2022)

Exporting involves movement of goods or services from the home country to the host
country either directly through its sales officer or indirectly through an export agent. FDI
involves investment in the high yielding assets in an overseas country either through
whole or part acquisition using its stake in the company’s ownership to coordinate its
operations. Partly owned companies are also called Joint ventures, while whole
acquisitions are either in the form of Greenfields acquisition where the investment is
started from scratch for example a new factory in a foreign region or acquisition of a
company that is already in existence which enables to begin activities early. In some

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developing economies international organization are discouraged for wholly owned
acquisitions in such situations follow the joint venture mode of entry (Morrison, 2020).

According to Cavusgil, (2019), Outsourcing is the transfer of non-vital operations to

vendors who are specialized which improves efficiency and allows firms concentrate on
their core business. Franchising is a contractual agreement where a company utilizes
the image, goods and patterns of another company with a license Morrison (2020).
Advantages and disadvantages of some of the various modes of entry into international
market are shown in the figure 6 below

Figure 6: Entry mode advantages and disadvantages (Eshalaghy, 2022)

The entry mode strategy recommended for Fahey’s concrete limited is a Joint Venture
for the following reasons expertise provided can lead to new developments in the host
country, the speed of entry into the Rwanda market will be swift and easy, responsibility
of the executives will be shares, overall activities and cost of administration will be low
( Hollensen, 2019). Nevertheless conflicts may arise due to divergent goals, double
management structure, culture disparities and conflicts with regards to profit
repatriation.

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6.0 ANALYSIS OF FACTORS AFFECTING INVESTMENTS IN RWANDA

GOVERNMENT POLICIES

The Rwanda government has laid out several policy reformations with the purpose of
enhancing its investment environment and invariably grow foreign direct investments.
Additional polices to reduce bureaucracy in obtaining permits in construction was
implemented in 2018, improvement in the provision of power and energy including
reduction in the time it takes customs to process exporters (U.S. Department of State,
2019). The government of Rwanda has also proclaimed policies that exempts new
SME’s from trade license payment during the initial two years of carrying out their
activities according to the world bank ease of doing business report 2020.

AVAILABILTY OF RESOURCES AND DEMAND

This is an important factor and Rwanda has the raw materials for cement production
including the demand for the product due to increasing construction projects in Rwanda
according to AsokoInsight, (2019). The article indicated that there is a boom in the
construction industry with revenues increasing by over 60% in 2018 when compared
with 2012. The reasons for the boom includes the government’s commitment to invest
in infrastructural facilities, increasing population and growing middle-class are
contributing factors for the growth in real estate sector. The increase in local real estate
sector investments by diaspora’s is also influencing the demand for new properties.

In 2018, domestic demand for cement was 600,000MT per year with importing 46 per
cent of its domestic cement requirement in order to satisfy growing local demand
despite several cement manufacturing players (Gahigi and Esiara, 2018)

TAXATION POLICY

The Rwandan government added incentives to attract and keep investors in so many
aspects of its taxation policies, including for instance, (i) Investors are "entitled to a flat
accelerated depreciation rate of 50% for the first year for new or used assets" if he or
she (a) Invests in business assets worth at least USD$50,000.00 (b) Operates in
construction projects worth at least USD$1,800,000.00 among others. (Rwanda
Development Board. 2015)

FOREIGN INVESTMENT ADVANTAGES

Several advantages exist for foreign investors for example ease of obtaining resident
permits, easy acquisition of Rwanda citizenship, ability to acquire and own landed
properties and the freedom to repatriate earnings and capital to country of origin
Balinda, (2016).
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SECURITY AND POLITICAL INSTABILITY

The security in Rwanda has influenced investors positively and encouraged confidence
in investments. If insecurity was rampant and political instability existed investors would
not invest in the country

FDI INFLOW

Rwanda introduced reforms in April 2019, aimed at removing bottlenecks in securing

construction permits. This reduced the number of steps required to secure a
construction permit from 15 to 9, while the required number of days was reduced from
113 to 57. (Asokoinsight, 2022).

Figure 7: Foreign Direct Investment flows to Rwanda 2012-2019(US$ Millions) NISR

According to the above data provided by the National Institute of statistics Rwanda, the
foreign direct investment (FDI) inflow in Rwanda in 2019 was USD$1.986.2Million, a
significant increase of 86% from USD$260.4million in 2018, in addition FDI projects also
rose significantly from 41 in 2018 to 104 in 2019.

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7.0 FOREIGN DIRECT INVESTMENT (FDI) ATTRACTIVENESS AND ISSUES

FDI is an essential element in foreign economic consolidation, it develops extensive

solid connections between nations and also aids the movement of skills and new
innovations. The following provide reasons why Rwanda is an attractive location for FDI
according to Balinda, (2016)

i) Increasing Growth rate maintained: This is reflected in stable foreign exchange rate,
consumer price index including a yearly average growth rate of 8%

ii) Good Governance: A comprehensible insight for growth by the president of the
country using non-public funding.

iii) A business friendly environment: according to World Bank among top worldwide
change makers since 2008, placed among top 50 economies worldwide, ranked thirty
eighth among best countries to start a business including lowest startup costs in 2020
and has strong regulatory policies (World Bank 2020).

iv) Market is easily accessible: Population of over 11million made up of mostly young
and increasing rapidly middle income earners.

v) Unexploited investment potential: opportunities exist in Agriculture, information

technology, energy, infrastructure, housing, tourism, construction. Banking and
extraction of minerals

vi)Competitive advantage: In Sub Sahara Africa, Rwanda ranks third in

competitiveness.

According to U.S. Department of State (2019), some of the short comings of foreign
direct investment in Rwanda include

i) Difficulty in operating a successful business due to high transport cost due to the
topography of the country, limited financing opportunities and delays by government in
making payments for completed contracts

ii) Limited availability of skilled workers

iii) Intermittent challenges with acquiring foreign currencies

8.0 CONCLUSION AND RECOMMENDATION

This report aimed to identify factors that would highlight the attractiveness of cement
industry in Rwanda to Fahey’s Concrete Limited. The report found out that the cement
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industry is a viable sector and that the success of foreign direct investment is dependent
on a conducive environment, an environment where the government supports and
encourages economic development significantly. The government of Rwanda has
carried out several reforms that will ensure the attractiveness of the economy to foreign
direct investment. In light of the above the following recommendations are given.

• Rwanda should ensure there are policies put in place that will have control the
activities of FDI’s to some extent ensure the continuous economic growth.

• Fahey’s Concrete Limited should use this opportunity to contribute to the technical
knowledge gaps in Rwanda.

• Fahey’s Concrete should invest in research and development in Rwanda in search of

other raw materials that could be useful in making cement so as to reduce the
importation of such materials.

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Balinda, S. (2016). Factors Attracting Foreign Direct Investments (FDIs) in Rwanda: The
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