The service sector is an avenue for economic transformation as not all
countries have a competitive edge in manufacturing. Findings from a micro-level
research on the service sector confirm that ICT integration, firm’s age, the education
of the owner, the boss’ attitude, family business, networks, new processes, major
improvements, market share, on the job training and know-how significantly, and
positively increase the probability of a firm’s growth. Even though the growth rate
of services is currently impressive in the Rwandan economy, no investigations have
been done on the determinants of the growth of the firms in the service sector. This
paper studies the development of services over the years in Rwanda’s economy in
detail and empirically estimates its determinants by using an econometric
methodology. The empirical results are based on micro-data collected by 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
service firms. Models are specified and estimated to assess the factors contributing
to sales growth, innovations, and turnovers of service firms. The results show that
the key factors driving the development of service firms in Rwanda include access
to credit, application of ICT, availability of skilled labor, employee development
and acquisition of fixed assets. The results suggest that the government should
uphold the use of ICT in all service firms, promote access to finance to new service
firms and promote on-work training in service firms to speed up Rwanda’s shift
from a low income to a middle-income state.