Evaluating Impacts of Investments in the Tourism Sector as a Poverty Reduction Strategy in Rwanda

Forty-five percent of the Rwandan population is below the poverty line with 24% living in extreme poverty. Prospects for reducing poverty are positive with Rwanda’s economy being one of the fastest growing with over 6% GDP growth in 2014. The country’s long-term development strategy seeks to transform the nation from a low-income agrarian economy to a knowledge-based, service-oriented one, and the ambition of reaching middle-income status by 2020. Tourism is the country’s leading foreign exchange earner and one of the fastest-growing sectors targeted for increased investment to reduce extreme poverty in rural households. In this paper, a dynamic computable general equilibrium (DCGE) model is developed to evaluate economy-wide and household level poverty impacts of alternative public investment scenarios in Rwanda’s tourism sector. The changes in visitation rates associated with each investment scenario are then used as inputs into the DCGE model. By linking the DCGE to a microsimulation model of the labor market, poverty and employment impacts of the alternative investments are assessed. This study demonstrates the power and potential of the integrated economy-wide and ecosystem service supply analytical approach. Results of this analysis provide insights into how tourism investment can accelerate development and Rwanda’s progress toward achieving middle income status by 2020.