Rwanda A Country in Economic Transition (with emphasis on 2000 to 2006) March 16, 2008 World Bank/CSAE Workshop Shared Growth and Job Creation in Africa: Engines and Barriers

Population and GDP Growth Source: WDI (pop), MINECOFIN (GDP) This analysis will focus on 2000 to 2006 period

Basic Trends, Source: MINECOFIN (GDP), eicv1 & eicv2 (Employment and Population) RWF (US$)* RWF (US$)* ∆% ∆Annual Growth Rate GDP per capita 80,987 ($857) 97,847 ($1,036) 16,589 ($179) 20.8%3.2% Employment (1000s) 3,4954, %2.3% * RWF = $1 US (PPP)

Consumption Poverty: The relatively small movement in the poverty headcount masks larger declines in the poverty gap, and severity. Extreme poverty headcount declines from 41.3% to 36.9%; i.e. by 10.6% Poverty measure % ∆Annual % ∆ Headcount % Gap % Severity %

Dramatic changes in labor market Lower employment-to-population level Increased non-agricultural employment Increased wage work –Increased wage work within agriculture Higher share of workers with multiple jobs

Lower Employment-to-Population Ratio (15-64) 2000: 84.7%2006: 79.2% -The change is driven by a decline in year-old participation rates -Accounts for nearly 75% of change Share P Rate P Rate %72.9%94.3% %62.8%91.8% Change - 0.8%-10.1%- 2.5%

Lower Employment-to-Population Ratio -Appears related to increased educational attainment, a good outcome! -Increased enrollment rates, (similar across gender) -Likely that increased education is driving lower participation and not vice versa (unemployment is near zero in Rwanda) -May trade-off some GDP growth today for more productive workers tomorrow Age2000 Male 2006 Male 2000 Female 2006 Female 7 – –

Dramatic change in labor market Ag/Non-Ag -Non-Agricultural jobs increased from 11.4% of primary jobs in 2000 to 23.7% in Relative decline in agriculture is occurring throughout the country

Changes in Value Added and Employment across sectors

Y/N = (Y/E)(E/A)(A/N) GDP per capita can be decomposed into 3 parts: -Output per worker -Employment to (Working Aged) Population Ratio -Working Aged Population to Total Population Decomposition of the change in GDP uses Shapley approach to divide each component As with all such decompositions, this does not provide a direct causal interpretation. Decomposing change in GDP per capita

Δ(Y/N) Change in GDP per capita +16,859 (100%) Δ(Y/E) Change in output per worker +20,487 (122%) Δ(E/A) Change in Emp-to-working age pop ratio -6,023 (-36%) Δ(A/N) Change in working age to total population +2,395 (+14%) Lower participation is associated with a sizable decline in GDP per capita of 6,023 RWF –7.4% of GDP per cap in 2000; 36% of the ∆ in GDP per capita –Remember driven by 15 to 24 year-olds

Decomposing change in GDP per capita due to employment changes Δ(E/A) -6,023 (-36%) Primary -15,693 (-93%) Secondary +2,711 (+16%) Tertiary +6,959 (+41%) Note: Values represent the contribution to the change in GDP per capita Percentage values are in percent of total change in GDP per capita

Decomposing change in GDP per capita Δ(Y/N) Change in GDP per capita +16,859 (100%) Δ(Y/E) Change in output per worker +20,487 (122%) Δ(E/A) Change in Emp-to-working age pop ratio -6,023 (-36%) Δ(A/N) Change in working age to total population +2,395 (+14%) Notice the increase in output per worker. This drives growth in GDP per capita. –25% of GDP per cap in 2000; 122% of the ∆ in GDP per capita

Decomposing change in GDP per capita due to changes in output per worker Δ(Y/E) +20,487 (+122%) Primary +8,105 (+48%) Secondary -10,662 (-63%) Tertiary -15,698 (-93%) Inter-sectoral Shifts +38,740 (+230%) Note: Values represent the contribution to the change in GDP per capita Percentage values are in percent of total change in GDP per capita

Inter-sectoral changes and growth The contribution of inter-sectoral changes account for 230% of the change in GDP per capita –Given the average output per worker of each sector, the inter- sectoral shifts have accounted for an increase of roughly 90,000 RWF in output per worker and 39,000 RWF in GDP per capita. –In comparison, the TOTAL output per worker in 2000 was approximately 185,000 RWF and the TOTAL GDP per capita in 2000 was approximately 81,000. After accounting for both employment and output per worker changes in each sector, the total contribution of each sector is negative.

Inter-sectoral changes and growth Output per worker declines in secondary and tertiary sectors –Possibly the new influx of workers are moving into less productive areas (to examine both cohorts of individuals and change in industry sub-sector concentration to try to identify these “new” jobs and an idea of their earnings levels, etc.) Output per worker increases in agriculture –To explore further- Two hypotheses –Increased wage work is on different type of crop (for export) –Increased output per worker with same crop As people flow out of agriculture, Lewis model or any production function with decrease in labor for a fixed capital asset (land) would suggest an increased output per worker. –May be both or a combination

Output per worker/Earnings by sector Percent change in median real earnings across sectors agrees with previous results * Macro data uses GDP/value added by sector from National Accounts and employment by sector from eicv1, eicv2; Median earnings comes strictly from eicv1; eicv2 (LSMS type household survey data). Data Source Sector Macro* (Y/E) Micro (Median Earnings) TOTAL+26%+49% Primary+28%+42% Secondary-50%-64% Tertiary-30%-48%

Increase in wage work and multiple jobs Towards wage work –2000: 11.2%2006: 22.9% Increase in share of workers with multiple jobs –From 16% to 39% –Will assess if these are agricultural jobs for “new” non-agricultural workers

Dramatic change in labor market Increased wage work in Agriculture -Near tripling of agricultural wage employment -Occurring throughout country -Decrease in non-wage agri employment is large, at least as share of total employment

Conclusions so far Depth and severity measures of poverty show greater poverty reduction than the headcount measure –Poverty reduction was disappointing, given growth, when using the headcount measure –Other measures also suggest improvement in recent years. The labor market has shifted dramatically towards non-agricultural work –This is associated with large gains in GDP per capita over the 2000 to 2006 period –Gains may continue in the long run (particularly if this is the result of new entry by relatively high-skilled young entrants) but will require a proper climate to foster growth in the non-ag sector

Conclusions so far Agricultural employment has become increasingly wage oriented –Short run implications require more analysis Initial results are somewhat mixed when comparing changes in earnings vs changes in household expenditures for such workers –More needs to be done to understand this change within the context of household allocation of labor

Next Steps More with earnings data –Segmentation, etc. What type of non-agricultural work are people doing? Can we identify the newcomers? What are the agricultural wage workers producing? –Who is hiring? Second Jobs Diversification of Income Education & Skills Return Migrants Food Prices