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Recent Trends in Investments in Agriculture in Africa

Recent Trends in Investments in Agriculture in Africa. Babatunde Omilola ReSAKSS Africa-wide Coordinator, IFPRI CORAF General Assembly May 24-29, 2010 Cotonou, Benin Republic. Outline of Presentation. Introduction Enabling environment CAADP implementation process

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Recent Trends in Investments in Agriculture in Africa

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  1. Recent Trends in Investments in Agriculture in Africa Babatunde Omilola ReSAKSS Africa-wide Coordinator, IFPRI CORAF General Assembly May 24-29, 2010 Cotonou, Benin Republic

  2. Outline of Presentation • Introduction • Enabling environment • CAADP implementation process • Tracking commitments and spending • Agricultural growth performance • Agricultural trade performance • Poverty, hunger and food and nutrition security • Investment-growth-poverty linkages • Conclusions

  3. Introduction: Enabling environment • Agriculture is crucial for development in Africa • Mostly rural, at least 70% of workforce engaged in the sector • Yet over last 20 years, support to the sector has declined • Partly the outcome of SAPs, declining share in aid and government budgets, etc. • Recent developments have recognized agriculture’s role in development • WDR 2008 • Donor pledges made at G8 summit in L’Aquila • Maputo Declaration  CAADP

  4. CAADP Implementation Process • Formulated in 2003 under auspices of AUC and NEPAD • Since initiation, dozens of countries have begun the implementation process and 18 have held Roundtables (RT) and signed country compacts • 2 countries – Rwanda and Togo – have held post-compact investment and review meetings • Primary focus is now shifting from the RTs and compacts to the post-compact implementation process

  5. CAADP Implementation Process: Status (updated April 20, 2010) • Cameroon, DRC, Egypt, Libya, Tanzania • Zimbabwe, Mauritius • Ethiopia, Ghana, Liberia, • Benin, Burundi, Cape Verde, Gambia, Malawi, Mali, Niger, Nigeria, Senegal, Sierra Leone, Swaziland, Uganda • Burkina Faso, Guinea-Bissau, Guinea, Kenya, Zambia • Comoros, Cote d’Ivoire, Djibouti, Madagascar, Seychelles, Sudan • Rwanda, Togo

  6. Public agricultural spending and commitments: Agriculture spending as a share of total spending • CAADP Target = 10% of total expenditures allocated to agriculture sector • Africa as a whole has not met 10% target • Since 1980, the annual average has been between 4 and 6% • 8 countries have met the target • 9 are spending between 5 and 10% • While 28 are spending less than 5 Sources: Based on ReSAKSS data collected from various national government sources and IMF 2009. Notes: 1. Estimate for 2009; 2. 2007; 3. 2006; 4. 2005; 5. 2004

  7. Public agricultural spending and commitments: Agriculture spending as a share of agriculture GDP • An alternative measure that weighs the size of the sector in the overall economy when comparing across countries • Compared to Asia, Africa agricultural spending under this measure is low • Asia spends 8-10% on average compared to 5-7% in Africa • Only 3 countries exceed the 10% mark Sources: Based on ReSAKSS data collected from various national government sources and IMF 2009. Notes: 1. 2007; 2. 2008.

  8. …But the share of countries meeting the 10% target recently been increasing • In 2003, only 5.9% of African countries were spending at least 10% of their total budget allocations on agriculture • This figure increased to 15.2% in 2007 and to 35.7% in 2008 Sources: Based on ReSAKSS data collected from various national government sources and IMF 2009.

  9. Disaggregation of agriculture expenditures: West Africa (WA) • What is the source of most agricultural funding? • In WA, the Sahelian countries (which largely spend on investments rather than recurrent), funding primarily comes from ODA/external sources • Whereas the coastal countries’ agricultural spending mostly comes from internal sources Breakdown of agricultural expenditure by source of funding in selected West African countries (average 2003-2007) Source : ReSAKSS 2010 data collection from various national government sources.

  10. Disaggregation of agriculture expenditures: West Africa (WA) • How are the agricultural expenditures spent? • Subsectors: most countries in WA spend on the crop production subsector rather than livestock or fisheries and forestry • Function: varies by country (see chart) • Only in Burkina Faso and Mali is irrigation heavily favored • R&D spending is limited in all countries Source: ReSAKSS data collection from various national government sources.

  11. Resource efficiency • Resource efficiency can be measured by the investment gap ratio = ratio of actual spending to budgeted spending • Best practice is a maximum of 3% discrepancy between budgeted and actual (=97% investment gap ratio) • From 2000 to 2004/5, Nigeria and Malawi (figure) had poor budget execution, within a range of 48 to 85%. • This means that up to 52% of budgeted resources for agriculture were not being spent. • In contrast, in recent years, both countries have overspent the budgeted amount. Sources: Mogues et al. 2008; Njiwa et al. 2008; Govereh et al. 2009. Note: The PEFA target is considered the threshold below which the investment gap ratio indicates underutilization of funds. It is set at 97 percent.

  12. Donor spending on African agriculture • In Africa as a whole, donor spending for agriculture as a share of total donor spending saw a consistent decline, from an average of 15% between 1980 and 1995 to 12% between 2000 and 2002. • In 2006, the ratio had declined to about 4%. • Total ODA for agriculture in Sub-Saharan Africa has hovered at US$1 billion a year since the 1990s. • In comparison, the share of ODA spent on aid for emergencies has doubled and, in actual dollars, has more than quadrupled during the same period. • Although investment in agriculture has increased in recent years, a large and increasing share is still devoted to short-term food aid interventions Total ODA commitments Chart Source: Organization for Economic Cooperation and Development (OECD) 2009.

  13. Agricultural performance • Although agricultural performance varies within and across African countries, recent trends indicate an increase in agricultural GDP growth at the continental and regional levels • SSA’s agriculture GDP growth rate increased from an annual average of 3.0% in the 1990s and 2000s to 5.3% in 2008 • A similar trend can be observed at the regional level • All regions saw an increase in average agricultural growth rates from approximately 3.0% in the 1990s to 2008, although Southern Africa has seen the most dramatic increase with a current agriculture GDP growth rate of 7.1% • West Africa and East and Central Africa’s recent agriculture growth is also positive at 4.3 and 4.8%, respectively. Source: World Bank 2009. Note: 2009 GDP estimates are from International Monetary Fund (IMF) 2009.

  14. Agriculture GDP growth and CAADP • The CAADP agriculture GDP growth rate target is 6% • In 2008, ten countries met the CAADP’s 6% target: • Angola, Ethiopia, Mali, Mozambique, Namibia, Niger, Rwanda, Senegal, Tanzania, and Uganda. • Nineteen other countries attained moderate agricultural GDP growth rates of between 3 and 6 percent. • In the same year, eight countries experienced negative growth in their agriculture sectors. Source: ReSAKSS calculations based on World Bank 2009.

  15. Agricultural trade performance • Sub-Saharan Africa has been a net food importer since the 1980s. • In 2007, the value of the region’s trade deficit started to increase as a result of higher food prices. Source: FAOSTAT 2010.

  16. Agricultural trade performance by regions: A snapshot of COMESA and ECOWAS COMESA Region ECOWAS Region • Both the imports and exports of agricultural raw materials have increased over time in nominal value for the COMESA region • But, the region has been exporting and importing relatively less agricultural products compared to non-agricultural products • Exports of cash crops (tobacco, tea, coffee, vegetables) have increased in value since 2000 • Imports of wheat, maize and palm oil also increased since 2000 • The coverage rate (ag imports to ag exports) varies for the region from year to year • Agricultural exports account for a large share of total exports in WA countries with low or no mineral resources (e.g., ~80-90% in Benin, Burkina Faso, Gambia…) • Only 1/3 of countries are able to cover their agriculture imports by their agriculture exports • This ratio has been declining due to higher prices of food imports Source: ReSAKSS data collected from various national government sources. Source: COMESA 2010.

  17. Poverty, Hunger and Food and Nutrition Security: MDG1 • The continent as a whole is not on track to achieving the first MDG of halving hunger and poverty by 2015 • ReSAKSS estimates use a simple “business as usual” linear projections based on previous growth rates to estimate current hunger and poverty rates • These are compared to yearly benchmark rates that are required to meet MDG1 (halving the 1990 rates by 2015) to determine if a region/country is “on track” or not • According to these estimations, current child underweight prevalence stands at 29.3% for SSA and current poverty is at 38.6%, both of which are higher than their benchmark rates

  18. Which countries are “on track”? • There are 2 components to MDG1: hunger and poverty • Great progress has been made in many countries that are meeting one or the other, but only one – Ghana – is currently meeting both Burkina Faso Cameroon C. African Rep. Egypt Ethiopia Guinea Kenya Lesotho Mali Senegal Swaziland Tanzania Algeria Angola Benin Botswana Burundi Gambia Guinea Bissau Mauritania Namibia Sao Tome & Principe Ghana Countries on track towards halving hunger by 2015 Countries on track towards halving poverty by 2015 Countries on track towards achieving MDG1

  19. Poverty, Hunger and Food and Nutrition Security: The Global Hunger Index (GHI) • The index is an average of • The percentage of the population that is undernourished • The percentage of children that are underweight • The under-5 mortality rate • Captures intra-household food security • Countries with GHIs higher than 20 are considered to have “alarming” rates of hunger

  20. Poverty, Hunger and Food and Nutrition Security: The Global Hunger Index (GHI) • The majority of countries in Africa have seen a decline in their GHIs from 1990 to 2009 (improvement in hunger) • In the COMESA region, 2/3 of countries saw a decline • In SADC, nearly every country except for DRC and Zimbabwe saw a decline or leveling off of GHIs • In ECOWAS, 10 out of 14 countries saw a decline • Despite these reductions, all regions have multiple countries which remain above the alarming level Source: IFPRI 2010.

  21. Investment-Growth-Poverty Linkages • Does growth, spurred by investment, lead to poverty reduction? • This is the theory behind much of the CAADP agenda (that higher agriculture expenditures will lead to agriculture growth and poverty reduction) • In practice, higher overall economic growth has not always translated into poverty/hunger reduction

  22. Investment-Growth-Poverty Linkages • Of the 13 countries on track for the poverty MDG1 target, 6 are also meeting the 10% spending target, and 4 are meeting the 6% agricultural GDP growth target • 3 of which are meeting both CAADP targets – Ethiopia, Mali and Senegal • Of the 10 countries on track for the hunger MDG1 target, 2 are meeting the 6% agriculture GDP growth target

  23. Investment-Growth-Poverty Linkages • Badiane and Ulimwengu propose 2 measures for tracking this: poverty overhang and growth deficit • They compare the rate of poverty reduction to that of growth • When a country’s growth rate is less than that required for maintaining the pace of poverty reduction the country is said to be experiencing a growth deficit. • Where the rate of poverty reduction is slower than that of GDP growth the country is said to be experiencing a poverty overhang.

  24. Investment-Growth-Poverty Linkages in West Africa This column indicates the increase, in percentage points, which has to occur in GDP growth if the country’s pace of poverty reduction in the 1990-2005 period is to be maintained This column indicates the extent, in percentage, by which the poverty rate should have been lowered given the country’s growth rate in the 1990-2005 period Sources: Badiane and Ulimwengu, forthcoming and IFPRI CAADP analyses (see ReSAKSS WP series).

  25. Investment-Growth-Poverty Linkages in West Africa • Among the West African countries experiencing a poverty overhang, the worst case is found in Niger where the poverty rate should have been lower than half of its current rate given the country’s growth rate between 1990 and 2005. • The countries with the lowest overhang are Senegal and Mali where it has a value of greater than 10 to 20.   • The success of CAADP implementation is particularly critical for countries experiencing poverty overhang in the sense that it can bring about the necessary increase in agriculture funding and agriculture GDP needed to appreciably improve the pace of poverty reduction. • Analysis carried out by IFPRI, ReSAKSS WA and their collaborators indicates that agriculture growth rates ranging from 2.6% (in Cape Verde) to 26% (in Liberia) would be needed to achieve MDG1 by 2015 in 12 countries.

  26. Conclusions • Increased attention to agriculture’s role is evident in donor and government pledges • Yet this has been slow to translate into increased spending (8 countries meeting 10% target) • Agricultural policies and programs must now take into consideration the complex combinations of factors such as more volatile food markets and prices, market distortions, and climate change • The next phase of CAADP (post-compact) will emphasize these factors as investment plans are laid out in more detail

  27. More information… • Is available in the detailed draft of the Comprehensive M&E Report for CAADP • A shorter, summarized version is available in the ReSAKSS 2009 Annual Trends and Outlook Report • online at http://www.resakss.org/index.php?pdf=42774 • All published CAADP analyses, briefs, brochures and signed compacts are available at www.resakss.org

  28. Thank you!

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