The service sector is an avenue for economic transformation as not all countries have a
competitive edge in manufacturing. The growing literature on service sector primarily focuses
on its development in the US and Europe and on Asian emerging service economies like
India. Not as much attention has been paid to the role that services can play in the economic
growth of African countries primarily due to the high prevalence of agriculture in these
countries. But with avenues of structural adjustments and globalization, some African
countries have become service-based economies. Services are considered as an alternative
to manufacturing-led development in Rwanda since its aims is to become a service-based
hub to serve countries in the East African Community (EAC). Recently, the growth rate of the
service sector has been impressive in the Rwandan economy. The present study is an
attempt to study in detail the development of the service sector over the years in Rwanda’s
economy and empirically estimate its determinants by using an econometric methodology.
The empirical results are based on micro-data collected during the Rwanda Enterprise
Survey 2011 and the 2014 Establishment Census. The survey has data on 241 firms and
establishments. Linear and limited dependent variable techniques are employed to
investigate the factors behind the development of the service sector. Models are specified
and estimated to assess the factors contributing to sales growth, innovation and turnovers of
service firms. The results show the factors that have contributed to the development of the
service sector. These factors can be used in forming public policy with the aim of using the
service sector as a vehicle for speeding up the shift from a low income to a middle income
state.