The crucial Role of industrialization is well recognized in the development of many countries and is viewed as the answer of malfunction of economic growth especially in developing countries. The historical record shows the importance of industrialization in developed countries of today like Chine, Singapore, South Korea for boosting their economic growth as well as eliminating poverty.
Various authors and industry analysts described industrial sector growth as the heart and engine of economic growth, especially during economic transformation (Libanio 2006; Kayode 1989) Also Knuznets(1966) in his empirical study implied that long term of development path of countries linked to increase in the share of industry in GDP and define industrialization as the key characteristic of modern economic growth, Wagner (1936) suggest that increase in industrial production leads to better wealth of national income which gives government ability to build economic stability. It is therefore, countries at the early stage of their development have viewed the industrial sector as the main vehicle for improving their economy, therefore, the government play vital role to promote industrialization.
However, in many developing countries the industrial sector is still stagnant including Rwanda. According to NISR (2018) the industrial sector contributed 16% of whole nominal GDP, which compromised share of three main sectors where manufacture sector share accounted 7%, mining and quarrying counted 3%, constriction counted 6%, Their main production activities are focused on the Agro-processing and construction and export rely depends on commodities like tea, coffee and minerals.
In period from 1980 to 1985 average industry growth share of GDP accounted 4.28% dropped on 0.42 in period between 1986 and 1990 in the period from 1991 to 1995 industrial growth was dropped at rate of -7.76% due to political instability and genocide, In the period after 1995, due to main political reform industrial sector growth showed more progress where in 1996 to 2000 its growth raised at 10.42, the period from 2001 to 2005 dropped at 9.95%, 9.1% in the period from 2006 to 2010 reached on average of 10.3% in 2011-2015 (World Bank, 2018; Kasim and Richard, 2017).
But this sector is remaining small with low 1970 to 2018 the average share accounted 16.99% of GDP less half of the service sector (World Bank, 2018). Low growth of the industrial sector in Rwanda is still a matter of sustainable development where main vision is to transform its economy from early stage to low middle income in 2020, middle income countries (MIC) status by 2035 and in high income by 2050.
The industrial sector has been considered as the main motivator of economic transformation than other sector, According to Kaldor (1966) indicated that industrial sector, especially manufacturing is the engine of growth of any country who veers to promote growth and development of its economy. Thomas (2003) manufacture industry accelerates productivity and innovation in which the spillover effect spread to the other sectors of the economy and Banjoko et al. (2012) stated that developing countries who are oriented agrarian and services in the past formulated several initiatives to sustain growth and development of the industrial sectors. But
The performance of the industrial sector has not been convincing and characterized with fluctuation for instance, in 2010 industrial shares was 18% dropped to 17% in 2013 respectively till to 16% in 2018 (NISR, 2018). Why Rwanda’s industrial grows slowly? This is a big issue which demands more comprehensive investigation to ascertain which factor affecting performance of the industrial sector in Rwanda. Basing various Schools Of Thought like Keynes (1936) and Roomer (1956) who identified macroeconomic factor as main factors which have more impact on firm decision. This study seeks to investigate if change in some macroeconomic factors explains this low growth of the industrial sector in Rwanda.