Structure of the Rwandan Economy
Senior 6 · Economics
Structure of the Rwandan Economy
Lesson 2 of 4
25 min
On one side of a busy Kigali street stands a bank branch. Its staff have written contracts, pay income tax through the payroll, contribute to RSSB pensions and keep audited accounts. On the pavement outside, a woman sells airtime and phone accessories from a small table. She has no contract, no written accounts and no pension contributions, and her business is not registered. Both are working, and both appear in Rwanda's employment figures, but they belong to different sectors of the economy.
Think: which of the two is more typical of Rwandan workers today? And which sector does the government find easier to tax, regulate and protect?
Definition
Informal sector: production units that are unincorporated enterprises owned by households, which are not registered or do not keep written accounts. NISR follows this international definition (17th International Conference of Labour Statisticians), and counts as informal sector workers people in unregistered private businesses, or registered ones without written accounts (LFS 2025, pp. 34–35).
Formal sector: registered enterprises and public bodies that keep accounts and are covered by tax, labour and company law.
Informal employment: jobs, in any sector, that lack basic protection such as a written contract, social security contributions or paid leave. A formal firm can employ people informally.
In 2025, 3,882,077 employed people, 81.3% of all employment, worked in the informal sector; 15.1% worked in the formal sector and 3.6% for households, mainly as domestic workers (NISR, LFS 2025, p. 35). Counted by job rather than by enterprise, the informal employment rate was even higher: 91.8% (p. 13). Informal sector work is concentrated in market-oriented agriculture (47% of informal sector employment), trade and vehicle repair (16.7%), construction (9.8%), transport (7.9%) and manufacturing (5.3%) (p. 35).
Worked example 1: reading the survey
In 2025 Rwanda had 4,773,000 employed people (LFS 2025, Table 4.1). Use the shares above to estimate (a) the number in the formal sector; (b) the number of informal sector workers in trade and vehicle repair.
(a) formal sector workers.
(b) informal workers in trade and repair.
Interpretation. For every formal sector worker there were more than five in the informal sector (). Any policy aimed only at registered firms, such as a payroll tax incentive, reaches a small minority of workers.
Worked example
Worked example 2: what formalisation could add (illustrative figures)
A district has 2,000 informal shops, each with turnover of Frw 6 million a year. Suppose registration would make each pay a tax of 3% of turnover, and that 40% of them register after a campaign that costs Frw 50 million.
Shops registering: .
Tax per shop: Frw.
Extra revenue a year: , that is Frw 144 million, almost three times the campaign's cost in the first year alone.
But if the tax and paperwork push some shops' costs above their thin profits, they may close or stay hidden. Formalisation works best when it also brings benefits: credit, contracts, training and social protection.
| Advantages | Disadvantages |
|---|---|
| Creates work for people the formal sector cannot absorb | Low productivity and low, unstable incomes |
| Uses local materials and simple, cheap technology | Little tax revenue, which narrows the tax base |
| Provides cheap goods and services to poor households | No social protection, safety or labour standards |
| Trains people in skills and enterprise | Poor access to credit, so firms rarely grow |
| Flexible: adjusts quickly to demand | Hard to measure, so GDP and plans are less accurate |
The private sector is the part of the economy owned and run by individuals and private organisations for their own purposes: farms, firms, cooperatives and non-governmental organisations. The public sector is owned or run by the state: ministries, districts and agencies, public schools and hospitals, and state-owned enterprises such as Rwanda Energy Group (REG) and the Water and Sanitation Corporation (WASAC). In 2025 the private sector employed 91.0% of Rwanda's workers and the public sector 5.4% (LFS 2025, p. 29). An economy where both play a large role is a mixed economy.
| Feature | Private sector | Public sector |
|---|---|---|
| Ownership | Individuals, shareholders, members | The state, central or local |
| Main aim | Profit, or members' welfare | Public welfare and public services |
| Finance | Owners' capital, loans, sales | Taxes, borrowing, charges, aid |
| Decided by | Owners and managers, guided by prices | Government and parliament, guided by policy |
| Typical goods | Private goods sold in markets | Public goods, merit goods, natural monopolies |
Rwanda's plans give the private sector the leading role in growth: NST2 expects 43% of its financing to come from private investors (Unit 9, lesson 3). The public sector provides infrastructure, education, health, regulation and a stable macroeconomy, and still owns firms where markets are thin or the service is strategic.
Warning
Informal does not mean illegal. Most informal activity, such as selling vegetables, repairing phones or carrying goods, is lawful work that is simply unregistered or unrecorded. Illegal activities (smuggling, for example) are a separate issue.
Don't mix the two measures. "81.3% of workers are in the informal sector" (counted by enterprise) and "91.8% of jobs are informal" (counted by job) are different statistics.
Tip
For any "informal sector" question, use RAPT: is it Registered? Does it keep Accounts? Does it give Protection to workers? Does it pay Tax? The more "no" answers, the more informal it is.
Important
In 2025 about 81% of Rwanda's employed people worked in the informal sector and 92% of jobs were informal (NISR). The informal sector creates jobs and cheap goods but has low productivity, little protection and little tax. The private sector employs about 91% of workers and the public sector about 5%; Rwanda is a mixed economy in which the state provides infrastructure, services and regulation, and the private sector is expected to lead growth.
VoxDev, "The informal sector: Why some economies are almost entirely hidden". As you watch, note the reasons the video gives for why firms stay informal, and compare them with Rwanda's figures above.
Practice
Sources and credits
Written by Ganzaa: the text, the chart, the tables, the worked examples and the practice items. The street scene in the opening case and the figures in worked example 2 are illustrative. The photo is shared under CC BY-SA 4.0.
