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Public agricultural investment and rural finance in Africa
- African economies have seen strong GDP growth in recent decades, but agricultural productivity has lagged behind other regions. This is partly due to low levels of public spending on agriculture. - Public investment in agriculture, agricultural research and development, rural infrastructure, and education have large positive impacts on agricultural growth, poverty reduction, and total factor productivity. - The CAADP framework aims to increase agricultural spending to 10% of national budgets and achieve 6% annual agricultural growth. Several countries have increased agricultural spending, and global support for agriculture is also growing. Increased public spending can enhance agricultural and rural finance.
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Public agricultural investment and rural finance in Africa
- 1. Public agricultural investmentand rural finance in Africa Emmanuel Tambi FARA Secretariat Accra, Ghana
- 2. Outline • Introduction • Performanceof African economies • Why public spending is important for agriculture and AR&D • CAADP and public spending in agriculture • Relevance to rural finance and conclusion
- 3. African economies showgood signs of progress • High-growth economies • Between 2000 and 2010, GDP grew at 5.6% per year, topping 7% in 2002, 2004 and 2007 0 5 10 15 20 25 %RealGDPgrowth 2011 2012 Source: Data from CIA World Factbook
- 4. Agricultural productivity lagsbehind other regions of the world • Most of economic growth not coming from agriculture • Agricultural output increased by 2.5% per year on average in the last 40 years 0 50 100 150 200 250 300 350 400 1971 1981 1991 2001 2008 Gross agricultural output index Agric total factor productivity index • Agricultural total factor productivity increased by 0.75% per year only between 1961 and 2008
- 5. Agricultural productivity lagsbehind other regions of the world • Negative TFP growth in Central Africa • Five countries have TFP growth rates > 1%: Benin, Kenya, Malawi, Swaziland, Zambia -0.4 -0.2 0 0.2 0.4 0.6 0.8 1 Average TFP growth in Africa, 1961 - 2008 (% per year) 0 0.5 1 1.5 2 Average TFP growth rates > 1% (1961 – 2008) Source: ASTI/IFPRI, 2011
- 6. o Increase inagricultural output has come from land expansion rather than intensification Increase in production ‘88 – ‘08 Acreage effect Yield effect Interactio n effect Rice 11.8m t 68% 18% 14% Maize 17.2m t 50% 39% 11%
- 7. • Yields ofstrategic crops are 2 times lower than in other developing regions of the world • Cereal yields average 1.5 tons/ha compared to 3.5 tons/ha in Asia 0 1 2 3 4 5 6 7 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Cereal yields (tons/ha) Africa Asia Europe North America South America World
- 8. • Yields ofroots and tubers average 9.2 tons/ha compared to 17.6 tons/ha in Asia 0 5 10 15 20 25 30 35 40 45 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Yields of roots and tubers (tons/ha) Africa Asia Europe North America South America World
- 9. Several factors areresponsible • Smallholder rain-fed agriculture (economies of scale?) • Irrigation • Low input use (fertilizer, seeds, ) • Infrastructure • Mechanization • Low levels of spending in agric.
- 10. Importance of publicspending in agriculture • Public spending in agriculture and AR&D is critical o Productivity o Rural household income o Rural consumption o Hunger & poverty reduction
- 11. Importance of publicspending in agriculture • Public spending in agriculture, rural roads and rural education has large positive effect on growth and poverty reduction -2 0 2 4 6 8 10 12 14 16 18 Ghana Tanzania Uganda China India Thailand Returns to agric Returns to roads Returns to educSource: IFPRI, 2009 L C U
- 12. Importance of publicspending in agriculture Public spending in agricultural research has positive economic returns • Investment in national & international agricultural research has significant and direct effect on productivity • Research-to-TFP elasticities o National (NAR) = 0.0394 o International (CGIAR) = 0.0403 • Facilitates development, dissemination and uptake of new technologies
- 13. Importance of publicspending in agriculture • Public spending in agricultural research has positive economic returns • One US$ invested in AR&D yields US$3 on average Benefit-cost ratio IRR (NAR) IRR (CGIAR) Sub-Saharan Africa (31 countries) 3.1 23.8 29.3 Large economies (AgGDP > $4b) 4.6 34.0 40.8 Midsize economies (AgGDP $1 – 4b) 2.9 23.6 28.9 Small economies (AgGDP < $1b) Fuglie & Rada, 2011 1.8 12.9 17.0
- 14. Global public andprivate spending on research and development - 2009 = US$1.11 Trillion (Pardey & Beddow, 2013) S-S Africa spends US$11 billion on R and D Developed Countries less USA 46% USA 33% China 13% Brazil 2% India 2% S. Am. & Pacific less Brazil 1% Asia & Pacific less China & India 1% Mid East & N. Africa 1% Sub-Saharan Africa 1% Total 100 Developed Countries less USA USA China Asia & Pacific less China India Brazil Mid East and N. Africa Sub-Saharan Africa
- 15. Global public food& agricultural R & D spending 2009 = US$33.7 billion (Pardey & Beddow, 2013) S-S Africa spends US$2 billion on food and agric R and D Developed Countries less USA 35% USA 13% China 19% India 7% Sub-Saharan Africa 6% Brazil 5% S. Am. & Pacific less Brazil 5% Asia & Pacific less China & India 5% Mid East & N. Africa 5% Total 100% Developed Countries less USA USA China Asia & Pacific less China India Brazil Mid East and N. Africa Sub-Saharan Africa
- 16. Intensity of investmentin AR&D (AR&D spending/AgGDP) 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 Source of data: IFPRI, 2011 US$ • Africa spends $0.6 per $100 AgGDP • Lower than NEPAD target of $1.00 per $100
- 17. CAADP and publicspending in agriculture • Maputo Declaration: o 6% agricultural growth per annum (FAAP: assumes a 4.2% growth in TFP) o Allocation of 10% national budget to agriculture • Number of countries endorsing CAADP framework is increasing o 30 Compacts signed o 26 Investment plans developed o 22 Business meetings organized
- 18. CAADP and publicspending in agriculture 0 5 10 15 20 25 30 35 1-Mar-07 1-Jul-07 1-Nov-07 1-Mar-08 1-Jul-08 1-Nov-08 1-Mar-09 1-Jul-09 1-Nov-09 1-Mar-10 1-Jul-10 1-Nov-10 1-Mar-11 1-Jul-11 1-Nov-11 1-Mar-12 1-Jul-12 1-Nov-12 Country Compacts Investment Plans Business Meetings No of coun tries Endorsement of CAADP gained momentum in 2009
- 19. CAADP and publicspending in agriculture Country support to agriculture is increasing. So far, • 7 countries have surpassed the 10% target • 13 countries allocate 5 – 10% to agriculture • Remaining countries allocate less than 5% > 10% 5 – 10% Burkina Faso Benin Cape Verde Eq. Guinea Chad Gambia Ethiopia Ghana Mali Guinea Malawi Kenya Niger Lesotho Madagascar Mozambique Senegal Sudan Tunisia Zimbabwe
- 20. CAADP and publicspending in agriculture Global support to agriculture is also increasing • L’Aquila (Italy) Joint Statement on Global Food Security, July 2009 G8 Summit • US$22 billion to agriculture • G20 meeting (Pittsburgh) – Scale-up US assistance to agriculture • Feed the Future (FTF) support to 12 countries • GAFSP Trust Fund – support to 11 countries • Joint Africa-EU Strategy support FTF GAFSP Ethiopia Burundi Ghana Ethiopia Kenya Gambia Liberia Liberia Malawi Malawi Mali Niger Mozambique Rwanda Rwanda Senegal Senegal Sierra Leone Tanzania Tanzania Uganda Togo Zambia
- 21. CAADP and publicspending in agriculture Funding support received from GAFSP ranges from US$22m to US$50m per country 0 10 20 30 40 50 60 US$millions Funding support received from the GAFSP Trust Fund
- 22. CAADP and publicspending in agriculture Donor support to AR&D in Africa (CGIAR and CAADP) 2011 • Over US$300 million through CGIAR • About US$100 million through CAADP Pillar IV 0 50 100 150 200 250 300 350 CGIAR CAADP Pillar 4 (FARA&SROs) non-CAADP Pillar 4 aligned non-CAADP Pillar 4 alignable NEPAD CAADP Pillars 1,2,3. IARCs & CB/PPs
- 23. Relevance to ruralfinance and conclusion Increased public spending enhances agricultural and rural finance • Facilitates smallholder farmer access to rural finance • Catalyzes agricultural value chain finance • Promotes financial linkages between agriculture and agribusiness • Mitigates agricultural finance risk • Stimulates growth of other sectors and fosters economic growth • Creates economic opportunities for rural people
- 24.