Rural income diversification in Rwanda: Opportunities and challenges

The Government of Rwanda continues to work to accelerate structural transformation to expand and diversify the country’s economy. High rural population density and small agricultural landholdings are driving workers from agricultural households to seek employment outside of farming. Using representative data on agricultural production and employment for rural households in Rwanda from 2022, this research evaluates the opportunities rural households have to diversify their labor portfolios. We find that, rather than nonfarm household enterprises developing to meet greater rural service and goods demand, agriculture wage labor is the dominant source of off-own-farm employment. However, such informal agricultural wage labor is seen as low-productivity work and is among the lowest paid. Among nonfarm employment options, nonfarm businesses generate less income than nonagricultural wage labor, likely reflecting high barriers to entrepreneurship and low demand for off-farm services in rural areas. In contrast to employment profiles from other low-income countries, we find that the probability of a worker from an agricultural household in Rwanda engaging in rural, off-farm wage labor decreases as household welfare increases. Agricultural households that have workers seeking to hire out their labor tend to have the smallest landholdings, while households that hire in labor have the largest landholdings. Additionally, households with a higher share of members who completed primary education are less likely to hire out their labor, especially for agriculture wage work. These results suggest that programs that offer support services to agricultural households, such as financial services and affordable and relevant education, may be important in incentivizing these households to engage in entrepreneurship and form their own businesses or to seek wage employment in more remunerative sectors than agriculture.