Maximizing Agriculture for Economic Growth and Poverty Reduction in Malawi

1. BY Ian Kumwenda Agricultural and Natural Resources Management Consortium

2. Background • Agriculture has a multifunctional role to play in economies • Apart from providing food and fibre, agriculture is the main source of economic growth in Malawi and most of sub Saharan Africa • Growth originating from agriculture is known to be twice as effective in reducing poverty as GDP growth originating from outside agriculture (World Bank, 2008)

3. Background continued • These attributes make agricultural development a vital means of achieving growth & poverty reduction • This presentation will highlight the following: • Trends in economic dev in Malawi and agric investment • Awareness and commitment to using agriculture for economic development • Key lessons in using agriculture for growth and poverty reduction

4. Trends in economic growth and poverty reduction • years registering –ve growth rates such as 1980, 1992, & 1994 & in the early 2000s are characterized by low & erratic rainfall • Confirms growth affected by climatic factors

5. Trends cont’d • Recent statistics show improved performance • Growth rates of 8.6% (2007), 9.7% (2008) and projected 7.9% in 2009 • Attributed to good weather conditions & the improved access to farm inputs • Overall poverty rate has remained the unchanged between 1998 (54.1%) and 2005 (52.4%)

6. Investment in Agriculture • Several agriculture development programmes have been implemented • Starter pack programme 1997-1999 • Target Input Programme between 2000 & 2004, • Input Subsidy from 2005 to date • The main aim of these programmes has been to improve productivity of smallholder agriculture to achieve food security and reduce poverty

7. Investment in Agriculture

8. Figure 3: Annual growth in GDP from 2000 - 2007

9. Evidence of contribution • The annual economic growth in national income appears to respond to increase in agriculture investment • Investment in agriculture has contributed to this good economic performance in two ways • the direct effect on access to seed & fertilizer has increased production & resulted in growth of agriculture GDP.

10. Inflation & public investment in agriculture • Since 2006 overall inflation rate has been going down due to continued fall in food prices

11. Interest rates & public investment in agriculture

12. Impact of investment on poverty reduction • The recent poverty assessment was in 2005 that put the proportion of poor at 52.4%. • However, several direct & indirect benefits accrue to beneficiaries of the program & are more likely to contribute to increased income/reduction in poverty

13. Awareness and commitment to using agriculture • Policy framework • Economic growth & poverty reduction in Malawi is guided by the Malawi Growth &Development Strategy (MGDS) for the next five years, from 2006/07 to 2010/2011 fiscal years. • The growth will emanate from growth in agriculture, manufacturing, mining as well as service sectors. • Agriculture is recognized as a priority sector but only as far as provision of food and not as a lead sector for eonomic growth.

14. Civil society position • Civil society • Civil society advocacy & contribution to economic management in Malawi is spearheaded by the Malawi Economic Justice Network (MEJN). • Agriculture shall be a priority for government budgeting in order to achieve food security • In terms of economic growth & poverty reduction MEJN emphasizes on prudent management of macro-economic variables ( 2004, 2009) • This aims at facilitating the development of the manufacturing sector as a lead sector for growth.

15. National Resource Allocation (Budget) • Agricultural sector was treated as a number 3 priority in late 1990s & early 2000s & entails research & extension. • The recent years show increasing allocation to the agriculture sector. • The major beneficiary of the increased agriculture expenditure in the latter years is the input price subsidy programme.

16. Table 3: Government Priorities based on Budget Statements

17. Awareness cont’d • Individual nations pledged under the CAADP to allocate a minimum of 10% of total national budget to the agriculture sector. • This is recognition of the fact that increasing investments in the agricultural sector is necessary for the sector to contribute substantially to economic growth & meeting the first millennium development goal.

19. However, increase in expenditure is due to the subsidy but other crucial areas such as research and extension receive little funding • This lack of a sustainable approach to agriculture development seems to suggest that agriculture is still being used to meet the short term food requirements of the country and not long term development needs • .

20. Conclusion • There are direct & indirect effects of agriculture growth/investment on national income, inflation, interest rates, exchange rates & other macro economic variables • However, not all investment in agriculture sector will lead to these positive trends; caution must exercised in selecting the strategy for channeling investment in agriculture

21. Conclusion cont’d • Little emphasis has been put on agriculture as a lead sector for growth & poverty reduction by both the public policy framework • However, in terms national budgets, agriculture now a priority receiving the largest share but it is mostly recurrent & not development expenditure

22. RECOMMENDATIONS • Need to investment in less vulnerable means of production such as irrigation. • Dialogue is still necessary to achieve the full recognition of agriculture not only as a vital sector in economic development but its potential to be the lead sector for growth