Attachment J.5-Background and Theory of Change_Amendment 1.pdf

Attachment J.5

BACKGROUND AND THEORY OF CHANGE

Background

Background Information on Country Context and Target Groups

Prior to March 2020, the Rwandan economy had sustained an impressive annual growth rate of about 7% for more than two decades. Despite these economic gains, the economy has been unable to create enough jobs to keep up with the country’s rapidly growing young labor force. According to the National Institute of Statistics Rwanda (NISR) Labour Force Survey from May 2019, the unemployment rate in Rwanda is 15%, but these official numbers do not accurately reflect the prevalence of underemployment and self-employment in subsistence agriculture which yields both low productivity and low earnings. In addition, the rates of unemployment for youth, women and persons with disabilities are higher than overall unemployment.

Self-employment within Rwanda is still widespread but trending downward; falling from a rate of more than 78% in 2010 to 68% in 2020 (driven primarily by moving from agricultural self-employment to on-or off-farm wage work). Currently, only around 7% of the working age population is in stable public or private sector wage employment. In order to effectively engage current employment seekers and new youth labor-market entrants, 200,000+ jobs need to be created annually. Some underlying causes of these high rates of unemployment and underemployment include: lack of formal education or marketable skills;

lack of understanding of how to find employment or identify market opportunities for self-employment and entrepreneurship; lack of technical, administrative, and financial capacity and tools to start and grow businesses; high population density within a land-scarce but agricultural economy; and the hesitancy by businesses to formally employ staff due to perceived strict and changing laws that disincentivize business expansion.

In March 2020 with the arrival of the COVID-19 pandemic, Rwanda’s economy was hit by lockdowns and other factors that have led to drastic and lingering reductions in the tourism and hospitality sectors, agricultural cross-border trade, and broader economic activity. In the period from February 2020 (before the lockdowns started) through May 2020, when the strictest measures were eased, the unemployment rate increased from to 15% to 22% (with higher unemployment among women), and 60% of workers who remained in their previous employment reported seeing salary reductions. Unemployment and pay cuts are projected to increase the poverty rate by 5.1% by the end of 2021. National GDP is estimated to have dropped to growth of 0.2 percent for 2020, compared to a projected expansion of 8 percent before the COVID-19 outbreak. This economic dampening may well be long term, with projections showing GDP in 2030 could still be up to 22% lower than in a non-COVID scenario, with rural areas being more economically impacted than urban ones. While the problems highlighted in the Development Challenges section below were all present in the Rwandan context before the pandemic, the short, medium, and long-term impacts of COVID-19 will continue to disrupt dynamics within the sector and will need to be addressed across E&E Activity interventions.

Demographically, Rwanda has the second highest population density in sub-Saharan Africa, and among the highest in the world. While employment is a concern for the entire population, youth, women, and persons with disabilities face the highest obstacles toward economic engagement and development. These obstacles include both cultural/societal barriers (for example, strict definitions of “women’s work”) and structural barriers (for example, women and youth face increased collateral requirements or higher interest rates at banks for business start-up or investment). More information on the situation for E&E targeted groups is presented below.

● Youth: With a total population of 12.19 million, Rwanda has approximately 3.2 million youth, more than 1 million of whom are neither employed nor active in education/training (31% of total youth population, 41% of young women, and 24% of young men). Underemployment and unemployment has contributed to a host of problems, including increased substance abuse and early pregnancy.

● Women: Though Rwandan women are active economically, representing 55.2% of the workforce, 87.6% of this participation is in informal agricultural activities. As a result, women tend to be concentrated in lower wealth quintiles; they head 27.8% of total Rwandan households but women-headed households comprise 47% of the poorest households. USAID/Rwanda analysis found the most severe constraints to women’s equitable participation in the economy are lack of access to capital and market information, networks, and infrastructure.

● Persons with Disabilities: Official estimates indicate that 4% of the Rwandan population has a disability, the most common of which are cognitive disability, followed by deafness and muteness. Persons with disabilities have trouble accessing services and resources from a young age, with only 70% of persons with disabilities enrolled in primary school compared to 98% of children without disabilities. This disparity continues into adulthood with only 56% of persons with disabilities engaged in economic activities compared to 84% of the overall population.

Development Challenges

There are three themes underlying the high-level problem of insufficient employment (formal, informal, and self-employment) opportunities and successful entrepreneurship opportunities for the Rwandan population: 1.) Rwandans lack the education and skills (foundational, technical, soft, and entrepreneurial) demanded in the labor market or required for successful entrepreneurship; 2.) Businesses lack the resources or incentives to expand and grow; and 3.).

Where entrepreneurs and businesses are succeeding in starting and growing businesses, it is often in a non-inclusive way (little or no inclusion of women, youth, and persons with disabilities) due to regulatory and cultural barriers.

While these constraints impact all sectors, given the outsized role that agriculture plays in Rwanda’s economy (agriculture contributes 26% of annual GDP) and employment (68% of the country’s population gains their livelihood from agriculture) addressing constraints in the agricultural sector and providing added value is paramount to Rwanda’s development and will be the focus of the E&E activity.

Workforce Education and Skills Gaps

The education sector has numerous policies and objectives with the intention of producing citizens who are lifelong learners.The education sector promotes skills development with a core emphasis on national values, attitudes, functional competencies, and professional knowledge and skills. There is particular recognition of the critical role skills development will play in developing Rwanda’s knowledge and technology-based economy. The Education Sector Strategy Plan (ESSP) (2018/19-2023/24) developed by the Ministry of Education (MINEDUC) details the Rwandan government’s vision for transforming the country to an industrial upper middle-income nation by 2035 and a high income country by 2050 (Vision

2050). In addition to the ESSP, the National Special Need Education Policy specifies supporting children and youth with disabilities to access formal and informal educational opportunities at all levels, but more needs to be done to operationalize it.

Rwanda’s formal education system is expected to play a key role in realizing their vision for development by producing a sufficient and appropriately skilled future workforce, including upgrading the current workforce. In addition to formal GOR led education systems, to adequately meet the workforce skills in Rwanda there is a need to diversify education and training opportunities including private sector led training by independent training institutes, employer offered training, etc.

Currently, within the Rwanda Integrated Polytechnic Regional College (IPRC system), only three out of eight of the individual colleges have agricultural-related programming which limits the sophistication and modernization of agricultural production and processing. The IPRC system needs to hasten its work with relevant GOR certifying authorities to add agricultural education opportunities at another two IPRC centres in the coming years.

Business Capacities and Incentives

The GOR is actively working to develop the economy and reform the financial and business sectors and has improved the business climate dramatically between 2010 and 2020 as is evidenced by the country improving its rank on the annual World Bank Doing Business Report from 139 to 38 over that time period. Despite improvements, challenges remain; current and potential agriculture and food systems investors cite a number of hurdles and constraints to doing business in Rwanda including its landlocked geography and resultant high transport costs; a small domestic market; limited access to affordable financing; payment delays with government contracts or government subsidies; and frequent inconsistency in the application of tax, investment, and immigration rules.

While some of the above constraints are immutable, changes to the regulatory framework to address the cited inconsistent application of and/or frequent changes to policy would help instill investor confidence to incentivize businesses to grow. The GOR must develop business-friendly regulations which are easy to understand and comply with, and which are considered to be permanent. These regulations should be evidence-based and designed in collaboration with the private sector and individual stakeholders through systematic engagement, for example, via public-private dialogues. The recent USAID/Rwanda supported Entrepreneurship Development Policy (EDP) is a recent, relevant example of how policy making can be done in a way which achieves country-level development objectives, is business-friendly, and centers inclusivity in the creation and implementation process.

Rwanda has a relatively large and dynamic entrepreneurship support ecosystem, but it lacks specialization, emphasizes start-up versus entrepreneurs in other growth stages, displays low levels of network connectivity, and does not facilitate adequate access to finance. Women, youth, and persons with disabilities are disproportionately impacted by constraints across the employment and entrepreneurship ecosystem. While Rwanda ranks 9th overall on Global Gender Gap Index, it ranks 79th in ‘Female Economic Participation/Opportunity’ and 114th in ‘Female Educational Attainment.’

Societal Inclusivity

The low participation of women, youth, and persons with disabilities in the workforce represents a lost social and economic opportunity for Rwanda to tap into the full potential and skills that these different groups have to offer the economy; McKinsey estimates that raising the female labor force participation rate to the level for males would boost GDP by 11% in sub-Saharan Africa.

Rwanda does have a high-level commitment to inclusion. On the 2020 World Bank’s Women, Business and the Law Index 2020, Rwanda scored 78.1 out of 100 which is significantly higher than the average score of 69.9 for the Sub-Saharan African region. Rwanda received a perfect score on the index for constraints on freedom of movement, laws affecting women’s decisions to work, and gender differences in property and inheritance. However, it found that reforms are needed in regards to: laws affecting women's pay, constraints related to marriage, laws affecting women's work after having children, constraints on women's starting and running a business, and laws affecting pensions. Further, a national youth policy of Rwanda was adopted in 2005 but still almost one third of Rwanda’s youth population (defined as 16-29 years old) is neither employed nor in education or training. Lastly, in 2017, the Government of Rwanda (GOR) enacted the Revised National Employment Policy which seeks to create

1.5 million productive and decent jobs by 2024, but persons with disabilities have trouble accessing economic opportunities; only 56% of persons with disabilities engaged in economic activities compared to an 84% rate for the population at large.

Despite the high-level political commitment to inclusivity, challenges remain in the operationalization and implementation of policies and laws which promote the equitable participation of women, youth, and persons with disabilities in the workforce. Low capacity at the local government level (combined with deep-rooted social norms) makes it difficult to implement national policies regarding gender equality.

There often is a gap between the rights that the law ensures and the state of women and other marginalized peoples’ rights on the ground due to prevailing customary law. Such disparities point to the need to increase coordination between the local and national government as well as work within communities to increase knowledge regarding formal laws.

Women are the backbone of Rwandan agriculture with 40% more women engaged in farming than men, but men still outpace women in contract and wage farming. As a product of the regulatory and cultural environment in which they operate, many firms in Rwanda (except for those with explicit social mandates) are not incorporating women and other marginalized groups such as, youth, and persons with disabilities into their business models. Firms need to better understand the business and social case for inclusion, and get support to operationalize the necessary changes to proactively engage women, youth, and persons with disabilities within their business models and put in place policies to reduce unintended negative consequences on inclusivity.

Theory of Change

Development Hypothesis

The objectives described above are based on the following theory of change:

IF job seekers and entrepreneurs acquire demand-driven skills and information to link to and start up enterprises;

AND enterprises have the financial, human, and technical resources to facilitate the start-up, expansion, or modernization of their operations;

AND the businesses are incentivized to promote inclusion;

THEN women, youth, and persons with disabilities will be better equipped to secure employment and entrepreneurship opportunities, at the same time as business growth increases those opportunities.

Assumptions

Underlying the E&E development hypothesis and intended results are a number of key assumptions as outlined below.

● The GOR remains committed to promoting private investment, trade, and export in the agricultural sector;

● GOR and Donor investments in improving basic, secondary, and tertiary education opportunities continue apace to supply more and more qualified individuals over the life of the activity;

● There exists a critical mass of growth-oriented firms (businesses that are motivated to expand rather than content to remain the same size in coming years) in Rwanda to partner with;

● Key services (infrastructure, A2F, advisory, etc.) which are beyond the scope of activity to provide continue to exist and improve to support private enterprise and entrepreneurship;

● There are no unknown cultural barriers that may prevent successful implementation over the course of a five-year activity period of performance;

● Rwanda and key trading countries maintain stable political relationships, and regional and international target markets maintain open borders and trade-facilitating policy orientation;

● Rwanda experiences no severe environmental or other shocks which inhibit agricultural productivity/output;

● Domestic, Regional, and Global health and economic recovery from COVID-19;

● Job aspirations (especially for youth) and current/future employment opportunities can be reconciled; and

● The cost/benefit analysis and business case for inclusion bears out in practice in the Rwandan context.

Figure 1: E&E Logframe