Partner 1: Embassy of Rwanda 

A strategy to enhance Dutch FDI in Rwanda

This report is a culmination of seven months research and was commissioned by the Embassy of Rwanda in the Netherlands in conjunction with the International Research for Students Program (IRSP) of the University of Groningen. The research was conducted by six senior students of the program International Relations and International Organization; four of whom travelled to Rwanda for a three-week intensive data collection fieldtrip in March 2011.

It took quite some time to get familiarized with the topic and it was not until the fieldtrip that the team got a clear understanding of what Rwanda is like. We thank the Rwandan Embassy for the Netherlands and the IRSP, for availing the opportunity, to learn about this part of the world, as well as for the opportunity of putting our research skills to the test.

Rwanda is in the midst of an intensive process of transformation in which private sector development and attraction of Foreign Direct Investments (FDI) have been identified as critical components that play a central role in the development of the country.
The former, because the Government of Rwanda (GoR) believes that the private sector operating in a market economy is best suited to efficiently allocate- and effectively utilize resources to boost production. As such, the GoR recognizes the need to stimulate the private sector, and to put a physical and soft infrastructure in place as preconditions for its proper functioning.
The latter, because the country does not possess sufficient capital, expertise, and equipment to achieve the level of development as laid out in the Vision 2020 document (which charts out a roadmap to transform Rwanda into a middle-income country by the year 2020). Therefore, the GoR emphasizes the need for FDI in order to enable the momentum required to transform the country from its predominantly agricultural base into a knowledge-based economy dominated by a service industry with a focus on ICT.
With the above in mind, numerous projects and programs were and are initiated through different bodies from all governmental levels in order to foster private sector development and to attract FDI. This research project commissioned by the Rwandan Embassy in the Netherlands, specifically attempts to explore mutually beneficial FDI opportunities that could be brought to bear, outbound from the Netherlands. It thus combines investment opportunities in Rwanda with the existing expertise and comparative advantage of Dutch firms into a synergistic advantage for both countries. The findings of the research boil down to the following: 
Rwanda is on a steep development slope, heading upwards with remarkable speed. Since the country’s development is only recently really taking off, there are abundant business opportunities ready to be exploited by any foreign firm with the right spirit to do business in Rwanda. Additionally, there is a government in place which is vigorously encouraging and facilitating such investments - as long as the projected activities are in line with the aims of Vision 2020. Dutch firms have a particular expertise in the areas of agriculture and related infrastructure, as well as in horticulture and wet infrastructure. Other opportunities exist in sustainable energy, and in the ICT- and financial services sectors. 
           

Rwanda is one of the first Sub Saharan countries to embark on a new, comprehensive private sector-focused model of development, thereby functioning as a model for other (Sub Saharan) countries to follow. Any company with the slightest interest to expand its business and activities into Africa had better be there soon. It is the informed opinion of this research project that Rwanda is the perfect location to start a business in SSA: it provides a small and stable base to set up activities and get familiar with the region, from which to expand into the wider East African Community (EAC) market, and from there, possibly to the rest of Africa. 

In a generalized fashion, this opinion is shared by Leslie Rance, General Manager East Africa Markets of British American Tobacco. Quoted in Ernst & Young’s Africa attractiveness survey of 2011, he says: ‘So when asked what the biggest attraction of doing business in Africa is, it has got to be growth. Many industries in developed markets are getting saturated. It’s much easier to identify growth in Africa. So the point really as I see it is not whether you should be doing business in Africa, but rather how.’[1]
 

This report aims to chart out a strategy to enhance Dutch FDI in Rwanda. The methodology used to compile this report starts with an assessment of Rwanda’s development strategy and envisioned goals, and of its general investment climate. This is followed by an analysis in the second chapter of seven of Rwanda’s core economic sectors in order to identify opportunities for investment contained therein. The third and last part of the report analyzes the Dutch economy - focusing on the Dutch ‘top sectors’ - and continues by relating Dutch investment potential and expertise to business opportunities in Rwanda, thus discovering potential areas of synergy. 
Most of the currency figures used in the report which were originally in Rwandan Francs (FRW) have been converted to Euro at a rate of 0.00115 Euro/Franc, and vice versa: 870 Franc/Euro.[2]

 During the course of the research, one of the observations made while in Rwanda is the pride the country takes in itself and in its development. This particular characteristic is a cause to the drive for further development, because it motivates the Rwandan people to strive to overcome obstacles and to continue to be an example for other countries. We carry the hope that this report will help enhance Rwanda’s socio-economic development, whose sweet fruits will be harvested to benefit the people of Rwanda.

[1] Ernst & Young’s 2011 Africa attractiveness survey, “It’s time for Africa”, 32.
[2] http://www.bnr.rw/currencyrates.aspx?code=EUR

You can download the research below. N.B. It is strictly forbidden to use and/or copy (parts of) this research without written approval of the both the IRSP and the Embassy of Rwanda.

Researchers

• Laura V. Heins
• Ding Qi
• Johanna H. Piest
• Martijn Regelink
• Paul L. Dziedzic
• Benjamin G. G. Bernabela
  

Supervisor 

• R. Gigengack
  

Partner 2: TNT Post 

TNT Post in the changing postal landscape: Opportunities and Challenges

Post matters. It is important for the productivity of the economy and for social cohesion. The European postal landscape is rapidly changing in the face of technological innovation and ongoing liberalisation efforts by the European Union (EU). Technological innovation has led to diminishing postal volumes, which are a challenge to all postal operators. At the same time, the liberalisation of the postal market creates challenges for companies in their “domestic market”, while it also generates opportunities for these companies in new markets. TNT is also confronted by these developments. In order to  successfully research them TNT Post has drafted the following research question; “In how far is it possible, under the current regulating regime, to at the one hand ensure the universal postal service, while at the other hand simultaneously anticipating on the changing postal market?”

 Regarding the liberalisation of the postal market, one should take into account the position of the European Union on public utilities services, which postal services are. From the European level, public utilities were justifiable excluded from the internal market during the 1980s, but the view of the European Commission changed rapidly with the introduction of the internal market program in 1992. The commissions’ rationale was that liberalisation of national monopolies and the introduction of cross-border trade as a logical corollary to the internal market program and as a policy would foster the competiveness of the European industry. For instance, reducing the price of electricity would result in lower costs for the manufacturing industry, and a thriving telecommunications market would spur an innovative economy. At the same time, the economic and political winds in the Member States began to change, introducing more and more (neo-) liberal thinking in their policies towards public utilities. 

The attempt of the EU to create a competitive, Europe-wide market for utilities has been opposed regularly by those concerned that efficiency is in conflict with the public service obligation that utility companies have had. The EU manages the relationship between the economic objectives and the social objectives of public service provision in three ways: first by stating that certain public services, in particular those closely associated with the welfare state, fall outside the scope of EU competition law; second, by tolerating certain anticompetitive arrangements when these are necessary to finance the provision of public services; third, by imposing minimum public service obligations to be provided in all Member States. 

The European Court of Justice has explicitly confirmed that the rules of EU competition law also apply to the national universal postal service of the Member States. In particular, the players in the postal market are subject to the competition rules contained in articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU) and to preventative control of mergers and acquisitions as regulated in the EC Merger Control Regulation.[1]

Article 101 TFEU prohibits agreements between undertakings, decisions by associations of undertakings and concerted practices, if these may affect trade between Member States and if they have as their object or effect the prevention, restriction or distortion of competition. Article 102 TFEU contains a prohibition of the abuse of a dominant position of one undertaking (or of two or more connected undertakings), which may affect trade between Member State. National competition authorities and national courts have been empowered to apply articles 101 and 102 in full in close operation with the European Commission in order to ensure the effective and uniform enforcement of these competition rules.

Public services were usually provided for by the state as it is difficult to tempt the private sector to step in: the cost of providing a postal service to all citizens at affordable rates is usually higher or equal to the revenues that can be generated. The European Court in its litigation has thus recognised that financing public services through restrictions of competition (for example granting exclusive rights, thereby creating a monopoly position) might be unavoidable. The Court has interpreted article 106 (2) of the Treaty on the Functioning of the European Union in a manner that accommodates this financing. In order for state laws to benefit from this exemption when there is a service of general economic interest, the performance whereof would not be ensured under economically acceptable conditions? There is no European definition of a ‘service of general economic interest’, Member States are (under certain criteria) allowed to define for themselves what services fit in that category. There is a strong consensus that services provided by network industries, which postal services are, fall under this category and are thus (partly) exempted from the competition law of the EU.

 As the European Court of Justice has recognised the right of Member States to suspend the application of competition law to ensure the efficient provision of public services, the Council, in its liberalisation directives, has begun to establish EU-wide public service obligations. While respectful of national concerns, “EU public service law’ has two features that distinguish it from national public service law: an emphasis on consumer interest, and a preference for market solutions. 

The European notion of public services embodies the following characteristics: universality (the service must be available to all consumers throughout the territory); continuity; quality; affordability; user and consumer protection. The liberalisation directives identify universal service obligations in each sector. For the postal sector, the postal service’s Directives are relevant. The Universal Service Obligation (USO) as established in the European directive, guarantees a certain set of criteria regarding the quality of service on the postal market.[2] The criteria for a universal service are vaguely defined and the Member States have much room to manoeuvre. For example, Member States have to ensure that the price for the postal services will be affordable for all users. What ‘affordable’ is, is not defined by the directive. More concrete are the obligations about sorting and delivery of postal items, which have to contain not less than five working days a week, one clearance and one delivery to the home or premises of every person. These include the clearance, sorting, transport and distribution of postal items up to two kilograms and postal packages up to 10 kilograms. The USO affects the competitiveness of the Universal Service Provider, as well as of the challengers. The provider has to adhere to the conditions set by the government, while the challengers are sometimes faced by protective measures by the government in order to safeguard the USO. The historical evolutions of these postal Directives are analysed in the first part of this research. 

The question on how to maintain the universal service is at the heart of this research. The question for TNT Post is how to ensure collection from pillar-boxes and post offices and delivery to all addresses, in other words fulfilling the universal service obligation, in a changing postal landscape. The liberalizing postal market gives rise to discussion on both the national and the European level. One thing is certain from the discussions on liberalizing the postal market: there does not exist a one-size-fits-all solution. While the Commission at the EU-level strives to provide a mechanism to guarantee true level-playing field, it has set the framework in European directives, and left it to the Member States to proceed with its transposition, implementation and enforcement. A unique mechanism for safeguarding the universal service cannot apply for all Member States, since it is supposed to be related to the special characteristics of each country, its economic status and mail traffic, its geographic specificities and the special conditions of the local postal market. 

This is precisely the reason for providing an analysis of the postal markets in four different countries. By a comparison of the level of competitiveness and the way the Universal Service for the postal market is designed in the Netherlands, the United Kingdom, France and Germany this research aims to formulate an answer on the research question. 

  The final stage of the research will include an assessment of the actions TNT can take to change the position of stakeholders towards a more positive and constructive partner. It is important to know what these stakeholders want and how their goals can be reconciled with the goals of TNT and other stakeholders. This stage will also include recommendations on how to influence the evolving postal market and particularly the legislative and regulatory environment.


[1] Regulation 139/2004/EC.
[2] Directive 2008/6/EC of the European Parliament and the Council of 20 February 2008 amending Directive 97/67/EC with regard to the full accomplishment of the internal market of Community postal services, art. 3 and 4. Official Journal L052, February 27, 2008, p.003 – 0020.

Unfortunately, we cannot publish a full version of this research.

Researchers:

• Bernadette van Doorn
• Idwer Genee
• Janine Lakerveld
• Jurjen Hoekstra
• Lotte de Haan
• Marjolein Kats
  

Coordinatoren:

• Dr. N. de Deugd
• Dr. A.G. Harryvan