As the population increase, the expenditure rate and consumption rate is directly linked to the influence caused by the changing dynamics. East Africa state Rwanda has been heavily affected by the changing dynamics that have occurred courtesy of mortality rate. Since the millennial inception year of 2000, there has been a significant increase in the country’s Gross Domestic Product (GDP).
The country’s value for household final consumption expenditure per capita (constant 2005 US dollars) was recorded at 343.39 in 2014. Over the past 54 years, the value for this indicator has fluctuated between 343.39 in 2014 and 150.72 in 1964.
Neo-classical growth theories emphasised the importance of investment as one of indicators of long-run economic growth. Besides, most developed countries attained high levels of development through investment-led growth strategy, which has a multiplier effect on income growth of a country. Investment in capital and heavy industries provides base for long-run sustainable growth.
Over past decades, there has been growth in consumption expenditure in most developed countries. High consumption expenditure accompanied with high income shows maturity in the level of economic development. Such growth in consumption expenditure in developed countries shows change in nature of economic activities directing growth of economy. Countries with highest household final consumption expenditure in world are United Arab Emirates, the USA, Hong Kong, Switzerland and Luxemburg.
However, consumption expenditure is also increasing in developing countries in post globalisation period. This growth is result of increasing foreign direct investment in developing countries, especially in services and consumption-based industries, which is driving consumption-based growth. This is noticeable in form of growth of service sector activities, like banking, insurance, hotels and restaurants, and information technology.
High consumption and its contribution to GDP is a new phenomenon that is giving rise to a consumption-based growth strategy in developing countries.
In African countries, investments are still low and there is heavy reliance on the consumption-based growth strategy. However, such strategy is not sustainable in long-run and will not lead to sub-optimal use of resources.
Rwanda is one of the fastest growing economies in Africa. It has made a significant progress in recent years, maintaining stable growth rate of around 7-8 per cent between 2000 and 2015. Rwanda is a market of over 11.8 million people with a rapidly growing middle-class that is driving up consumption expenditure.
Some of the other factors contributing to the growing consumption expenditure in Rwanda are growth of FDIs, urbanisation, and growth of middle class. The rise in foreign private investment is fueling the expansion of the service sector and driven up consumption expenditure in the country.
Most of the investments in Rwanda are from the European Union countries like Germany and the United Kingdom, East African Community (EAC), South Africa, and Kenya. In 2015, 23.8 per cent of total foreign private capital was invested in the financial sector, energy received 18.7 per cent, and ICT 16.8 per cent, while tourism 14.7 per cent and manufacturing got 6.6 per cent.