Public agricultural investment and rural finance in Africa

Emmanuel TambiFARA Secretariat Accra, Ghana

Outline

• Introduction

• Performance of African economies

• Why public spending is important for agriculture and AR&D

• CAADP and public spending in agriculture

• Relevance to rural finance and conclusion

African economies show good signs of progress

• High-growth economies

• Between 2000 and 2010, GDP grew at 5.6% per year, topping 7% in 2002, 2004 and 2007

Ghana

Zimbabwe

Rwanda

Liberia

Eq. Guinea

Ethiopia

Nigeria

Moza

mbique

DR Congo

Zambia

Gabon

Tanzania

Sierra

Leone

ChinaIndia

Brazil

0

5

10

15

20

25

2011 2012

% R

eal G

DP

grow

th

Source: Data from CIA World Factbook

Agricultural productivity lags behind 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

1971 1981 1991 2001 20080

50

100

150

200

250

300

350

400 Gross agricultural output index

Agric total factor productivity index

• Agricultural total factor productivity increased by 0.75% per year only between 1961 and 2008

Agricultural productivity lags behind other regions of the world

• Negative TFP growth in Central Africa

• Five countries have TFP growth rates > 1%: Benin, Kenya, Malawi, Swaziland, Zambia

Central

Eastern

Southern

Weste

rn

SS Africa

-0.4

-0.2

0

0.2

0.4

0.6

0.8

1

Average TFP growth in Africa, 1961 - 2008 (% per year)

BeninKenya

Malawi

South Africa

Swaziland

Zambia0

0.40.81.21.62

Average TFP growth rates > 1% (1961 – 2008)

Source: ASTI/IFPRI, 2011

o Increase in agricultural output has come from land expansion rather than intensification

Increase in production

‘88 – ‘08

Acreage effect

Yield effect

Interaction effect

Rice 11.8m t 68% 18% 14%

Maize 17.2m t 50% 39% 11%

• Yields of strategic 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

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

0

1

2

3

4

5

6

7 Cereal yields (tons/ha)

Africa Asia EuropeNorth America South America World

• Yields of roots and tubers average 9.2 tons/ha compared to 17.6 tons/ha in Asia

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

0

5

10

15

20

25

30

35

40

45

Yields of roots and tubers (tons/ha)

Africa Asia Europe North America South America World

Several factors are responsible

• Smallholder rain-fed agriculture (economies of scale?)

• Irrigation

• Low input use (fertilizer, seeds, )

• Infrastructure

• Mechanization• Low levels

of spending in agric.

Importance of public spending in agriculture

• Public spending in agriculture and AR&D is critical

o Productivity

o Rural household income

o Rural consumption

o Hunger & poverty reduction

Importance of public spending in agriculture

• Public spending in agriculture, rural roads and rural education has large positive effect on growth and poverty reduction

Ghana Tanzania Uganda China India Thailand-202468

1012141618

Returns to agric Returns to roads Returns to educSource: IFPRI, 2009

LCU

Importance of public spending 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

Importance of public spending 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

Global public and private 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 USAUSA

China

Asia & Pacific less China

India

Brazil

Mid East and N. Africa

Sub-Saharan Africa

Global public food & agricultural R & D spending2009 = 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 USAUSA

China

Asia & Pacific less China

India

Brazil

Mid East and N. Africa

Sub-Saharan Africa

Intensity of investment in AR&D (AR&D spending/AgGDP)

1971-75 1976-80 1981-85 1986-90 1991-95 1996-2000

2001-2005

20080

0.10.20.30.40.50.60.70.8

Source of data: IFPRI, 2011

US$

• Africa spends $0.6 per $100 AgGDP

• Lower than NEPAD target of $1.00 per $100

CAADP and public spending 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

CAADP and public spending in agriculture

1-Mar-0

7

1-Jul-0

7

1-Nov-07

1-Mar-0

8

1-Jul-0

8

1-Nov-08

1-Mar-0

9

1-Jul-0

9

1-Nov-09

1-Mar-1

0

1-Jul-1

0

1-Nov-10

1-Mar-1

1

1-Jul-1

1

1-Nov-11

1-Mar-1

2

1-Jul-1

2

1-Nov-12

0

5

10

15

20

25

30

35

Country Compacts

Investment Plans

Business Meetings

No of

countries

Endorsement of CAADP gained momentum in 2009

CAADP and public spending 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

CAADP and public spending 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

CAADP and public spending in agriculture

Funding support received from GAFSP ranges from US$22m to US$50m per country

Tanzania

Gambia

Burundi

Niger

Togo

Malawi

Senega

l

Liberia

Rwanda

S. Le

one

Ethiopia

0

10

20

30

40

50

60

Funding support received from the GAFSP Trust Fund

US$

mill

ions

CAADP and public spending 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

Relevance to rural finance 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

Thank You