Inter-temporal Trends and Patterns in Agricultural Investment spending in Southern Africa

Strategic Analysis and Knowledge Support System for Southern Africa (SAKSS-SA)

Research conducted byGreenwell C Matchaya, PhD, Pius Chilonda, PhD, and Sibusiso

Nhlengethwa

Presented by Greenwell Matchaya (ReSAKSS-SA Project Coordinator)

atThe 2013 Southern Africa Regional Dialogue on Agriculture

05-06 November 2013

Birchwood Hotel Johannesburg, South Africa

Inter-temporal Trends and Patterns in Agricultural Investment spending in Southern Africa

Regional Strategic Analysis and Knowledge Support System for Southern Africa (ReSAKSS-SA)


Outline

• Part 1– Selected background issues facing the Southern Africa region

• Low fertilizer use• Low productivity• Low agGDP growth rates• Definitions and Methodology

• Part 2– Agricultural investments and productivity

• Trends• Conclusions


Part One

Background and Methodology


SADC’s Low income countries are more Agrarian and account for the Bulk of SADC agriculture

• Low income-account for the bulk of SADC Agriculture

• MI income account for ~30% of SADC agriculture

• Low-Income countries-More agrarian

• MI-countries: less agrarian

Seychelles

Lesotho

Botswana

Swaziland

Mauritius

Namibia

Malawi

Zambia

Zimbabwe

Angola

Madagascar

Mozambique

Congo, Dem. Rep.

Tanzania

South Africa

SADC-LI

SADC-MI

SADC excl SA

SADC

0 20 40 60 80 100 120

Agricultural GDP as a share of total GDP

The share of agriculture in the sadc 's Agriculture


Issue: Cereal Productivity in the SADC: lowest compared to other sub-regions

• Cereal productivity-lowest for Africa and SADC

• Highest in OECD & Eastern Asia

• The rate of growth for SADC is low

1961

1965

1969

1973

1977

1981

1985

1989

1993

1997

2001

2005

2009

0

5000

10000

15000

20000

25000

30000

35000

40000

High income: OECD

East Asia & Pacific (all income levels)

Caribbean small states

Europe & Central Asia (all income levels)

Upper middle income

World

Latin America & Caribbean (all income levels)

South Asia

Middle East & North Africa (all income levels)

SADC

Sub-Saharan Africa (all income levels)

Cer

eal

yiel

d -

kg/h

a


So, spatially, cereal yields have remained below the SADC Target of 2 tons

• Cereal yields have trailed the 2tonnes per ha target

• SADC-LI countries, lowest yield levels


And, Agricultural GDP Growth has hence trailed the 6% CAADP Target

• -Agricultural Growth Rates < the 6% target

• Except Angola and Mozambique-


Growth rates in labour and land productivity in SADC countries (annual average 2000-2012)

• Labour and land productivity growth more in Angola, SA, Malawi, Zambia

• Productivities lower in Zimbabwe, DRC, Seychelles


• Fertilizer consumption lowest in SADC LI countries

• Below Abuja and SADC RISDIP targets

• More investments needed

Mauriti

us

World

South Afri

ca

Malawi

Zambia

Seych

elles

Zimbab

we

Tanzan

ia

Mozambique

Angola

Madag

ascar

Namibia

Congo, D

em. R

ep.sad

c

sadc-M

I

SADC LI

0.00

50.00

100.00

150.00

200.00

250.00

300.00

350.00

2003-20102003-20062007-10SADC RISDP targetAbuja target

Ferti

lizer

Use

kg/

haFertilizer use lowest SADC LI and lower than Abuja and SADC RISDP targets


Agricultural investments matter for productivity and are the focus of the

present talk.

• Agriculture is an anchor for livelihoods

• Livelihoods meaningfully improved if agriculture improves

• But productivity is low in SADC

• Productivity is a function of a myriad factors

• P =f (K, L, Labour, markets, technology…)

• So, the below, matter – Policy, – Price signals– Investments in factors

of production


Investments and agricultural outcomes

ReSAKSS WP #6


• Investments in agriculture - important for poverty reduction– It is pertinent that we have an appropriate

understanding of what constitutes investment and what does not

• A simplistic approach- all government spending as investment – from the literature, that is too crude for most purposes – it is more useful to separate public consumption from public

investment (Mankiw, 2003).

Theory of Expenditure and Agriculture Growth


• Many definitions of public investment:– refers to expenditures that provides various public goods,

such as R&D, infrastructure, and education (Zhang and Fan, 2004).

– expenditures that generate future fiscal benefits (Easterly, Irwin, and Servén, 2008). Fan and Pardey (1998)

– expenditure that adds to the physical stock and to knowledge (World Bank 2002)

– constitute any goods and services purchased for future use (for example expenditure on research and development (R&D) and extension) (Mankiw, 2003).

Theory of Expenditure/investment and Agriculture Growth


• Investments are likely good for TFP in agriculture• Even the other expenditures complement investments in

raising TFP

• BUT The theory and evidence about public expenditure and growth offers mixed predictions about the importance of public agricultural expenditure (PAE) (Devarajan et al., 1993).

• Moreover there is little empirical work on how public expenditure should be undertaken.

• This is partly a problem of data availability



• Understanding the levels of expenditure, and how different types of expenditure affect agricultural or growth is important

• studies that ignore the composition of public expenditure can’t guide prioritisation of resources across different and, competing public investment options in agriculture and other sectors of the economy (Johnson et al, 2011).



• BUT if mis-targeted, public spending carries with it a crowding-out effect that stifles private investment at the expense of livelihoods (see Sloman, 2006; Mankiw, 2003).– For example public expenditure on private goods eg fertilizers, is likely

to stifle private sector growth.

• (Gemmell, 1996; Moreno-Dodson, 2008), find that ‘productive’ public expenditure stimulates growth

• Barro (1990), finds that public expenditure is important for growth, it is complementary to private investment.

• Kumar et al. (2009) have found a co-integrating relationship between output measures and expenditure



• Most data –Collected by ReSAKSS-SA team from resepective countries -Supplemented by data from WB, FAO, IFPRI

• For analysis, countries grouped according to (WB, 2011)

Methodology- Data Sources

Low income$995 or less

Lower middle income$996-$3945

Upper middle income$3946-$12195

Congo, Dem. Rep Angola BotswanaMadagascar Lesotho MauritiusMalawi Namibia SeychellesMozambique Swaziland South AfricaTanzaniaZambiaZimbabwe


Methodology: Analysis

• Disaggregate expenditure as much as possible during the analysis– Disaggregate by functions, by sector, by type (recurrent versus

capital etc)• To examine the partial relationships between expenditures

and agriculture performance, we use:– Spearman’s correlation, locally weighted scatter plot smoothing,

(Lowess) smoothing, and scatter plots• (Panel) Co-integration techniques (for LR relationships),

regression and VAR etc methods, can also be used


Part Two

Results and Conclusions


Progress towards the CAADP 10 % Agricultural expenditure target

• SADC-LI: allocates just under ~8%

• SADC-MI: ~2%

• Malawi &Zambia achieved 10% in a number of years,

• -More action needed


R&D expenditure as a share of agGDP trails the NEPAD 1% Target

R&D Extension IrrigationInfra-

structursubsid

y Other

Malawi 0.2 1.2 0.5 0.0 5.6 0.0Mozambique 0.5 0.3 0.1 1.1 0.0 0.7Zambia 0.2 1.2 0.0 0.0 2.1 0.0Zimbabwe 0.8 3.1 1.7 0.9 6.4 10.3Madagascar 1.1 2.1 1.2 1.8 0.8 0.0Namibia 1.6 1.0 0.3 0.6 0.0 1.7Lesotho 0.7 9.3 0.0 6.2 0.0 12.4Botswana 4.6 32.2 0.0 0.0 1.3 0.0Swaziland 1.1 6.5 2.2 2.2 0.4 0.0SADC 0.6 3.1 0.7 1.4 1.7 2.7SADC-MI 0.7 5.0 0.6 2.3 0.1 3.5SADC-LI 0.6 1.5 0.7 0.8 3.0 2.1

Under capitalization of agriculture exists

Subsidies favoured in LI

So- low quality spending

Favours pvt goods


SADC countries not financing 100% of their operations- dependence, is prevalent

• SADC-LI: >30% of budgets externally financed

• SADC-MI: <20% of budgets externally financed

• Implication: dependence on aid is persistent in the SADC

• ~30% of SADC budget externally financed

mala

wi

Mad

agas

car

Zimba

bwe

Moz

ambiq

ue

Zambia

Leso

tho

Swazila

Angola

nam

ibia

Botsw

aSA

Mau

ritius

sadc

mi

sadc

sadc

-SA

sadc

li0

20

40

60

80

100

120

Proportion of internal to total revenue (2000-2012)


Also, agricultural budget execution rates are often below 100%

• The general trend is –Actual spending lags behind allocations –reflecting:– Lack of capacity for

execution– Reprioritization /change

of priorities– Donor funding delays– Additional funding after

budgets- leads to actual> allocations

Implications: important to seek ways of increasing spending capacity2000

20012002

20032004

20052006

20072008

20092010

20112012

0

20

40

60

80

100

120

140

Agricultural budget execu-tion rates


Recurrent dominate capital agricultural spending as a share of total spending

• Findings• Recurrent

>capital expenditure

• Capital share declining in SADC-LI

• In SADC: public Capital expenditure in agric declining

1995

-200

2

2002

-201

1

1995

-200

2

2002

-201

1

1995

-200

2

2002

-201

1

1995

-200

2

2002

-201

1

1995

-200

2

2002

-201

1

1995

-200

2

2002

-201

1

1995

-200

2

2002

-201

1

1995

-200

2

2002

-201

1

1995

-200

2

2002

-201

1

1995

-200

2

2002

-201

1

1995

-200

2

2002

-201

1

ZBW MADG MLW MOZA SWAZ BTSW MAURI LESTH SADC SADC-LI SADC-MI

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

agriculture recurrent

agricultures capital


Low capital spending, high spending on emoluments, Goods and Services

• SADC-LI– High shares of ag

subsidies– High (though

declining) shares of Capital spending

– Low shares of spend on G&Services

– And low spend on emoluments

– Question-what would be the optimal sectoral allocation for efficiency?

Emoluments. SADC

Emoluments. SADC-LI

Emoluments. SADC-MI

Goods & services-SADC

Goods &services.-SADC-LI

Goods & services-SADC-MI

Capital-SADC

Capital -SADC-LI

Capital-SADC-MI

Subsidies -SADC

Subsidies SADC-LI

Subsidies -SADC-MI

Others -SADC

Others SADC-LI

Others SADC-MI

0 5 10 15 20 25 30 35 40 45

Expenditure as a share of total agricul-tural expenditure

Shares %


Spending in agriculture in the SADC is concentrated on crops

• Overall: Spend on crops highest

• Spend on crops has increased

• Spend on crops has increased

• Fisheries and forestry spend has declined

• Is this in line with nutritional goals?

Expenditure crops

Expenditure livestock

Expenditure fisheries

Expenditure forestry

SADC 2000–2002

41.79 20.01 14.31 23.88

SADC 2003–2012

52.05 20.36 11.32 16.27

SADC-LI 2000–2002

37.37 10.50 14.62 29.82

SADC-LI 2003–2012

62.63 12.94 9.20 15.23

SADC-MI 2003–2012

43.95 26.32 12.87 16.86

SADC-MI 2000–2002

43.55 25.26 13.17 18.01


Quality of spending-Low: Capital spending out-stripped by subsidies

Since 2000, share of spending on R&D/capital has declined

Since 2002, share of subsidies > share of capital spending

-under-capitalization of agric likely

-low quality spending

20002002

20042006

20082010

20120

5

10

15

20

25

30

Irrigation R&D SubsidiesR&D and irrigation

Shar

e (%

) in

tota

l agr

icua

lture

Exp

endi

ture


R&D Extension Irrigation Infrastructure Subsidies,

2000 11 208 318 105 551 600 83 958 186 438 5 218 313 2001 12 755 108 111 067 011 120 273 162 993 5 784 997 2002 15 672 883 137 424 465 134 552 159 648 6 378 776 2003 22 570 770 171 688 884 166 175 142 685 5 293 626 2004 16 178 185 149 549 782 50 384 73 380 5 922 556 2005 20 902 756 160 416 229 11 935 155 146 5 437 349 2006 24 049 084 165 818 393 61 072 83 515 6 446 369 2007 25 635 272 179 050 584 97 805 141 156 7 397 213 2008 26 553 119 158 039 290 68 980 199 919 12 227 285 2009 34 553 237 179 952 072 136 722 215 243 9 858 113 2010 35 148 325 218 803 986 100 752 183 138 8 024 223 2011 32 018 088 208 035 385 78 164 161 218 8 024 223 2012 31 015 458 248 451 720 96 560 241 272 12 104 823 Annual average spending

23 712 354.18 168 757 646.35 92 871.58 161 980.98 7 547 528.24

Average annual growth (%)

9.4 5.9 -0.2 2.9 6.4

Coefficient of variation 34.21 23.89 44.09 29.00 32.40

Expenditure growth in R&D higher in some SADC MI-e.g Botswana than in LI countries (Pula- constant 2005 values)


Expenditure growth in R&D lower in SADC LI-e.g Swaziland than in MI countries (constant 2005 values-E)

R&D Extension Irrigation Infrastructure Subsidies, …2000 6 430 011 50 072 966 6 075 228 16 658 823 1 054 1132001 6 462 742 52 792 710 6 206 821 20 555 619 1 868 3022002 8 683 684 42 878 157 6 009 431 12 791 617 2 657 8182003 9 323 824 56 370 607 12 669 518 37 965 708 959 7542004 12 405 379 69 927 192 8 246 518 43 130 943 792 5012005 11 199 968 55 860 508 16 164 053 26 449 264 394 7522006 10 813 756 45 097 492 14 628 797 22 478 028 1 773 1782007 10 693 162 109 067 942 16 405 308 17 791 859 3 331 4922008 18 028 624 75 676 692 17 384 947 63 750 259 2 244 9432009 12 659 999 283 487 956 17 618 891 84 659 613 9 901 3912010 10 662 681 526 839 361 16 514 969 69 966 273 9 978 9022011 8 636 592 483 336 237 70 971 237 9 119 5842012 6 131 298 34 536 315 6 982 564 10 892 683average 10 163 979 145 072 626 10 609 575 38 011 677 4 228 416growth (%) 2.0 14.4 13.0 6.0 23.5variation 31.66 118.91 39.11 68.41 96.47


Investment in agriculture expertise, still low for LI countries (absolute numbers)

Year Country Total staffing Staff per million 2012 Botswana 3637 0.19

2011 Botswana 3451 0.17

2011 Madagascar 4758 0.02

2012 Madagascar 4590 0.02

2011 Mozambique 3606 0.02

2012 Mozambique 2243 0.01

2011 Swaziland 954 0.09

2012 Swaziland 913 0.08

2012 Zambia 1809 0.01

2011 Zambia 1553 0.01


Private expenditure on agriculture- variable; BUT Data is scant- (Mozambique- 2005 USD)

Year Infrastructure Total Share in total (%)

2000 155 884 645 612 309 603 16.822001 86 198 925 848 448 419 6.712002 16 513 204 1.085E+09 1.012003 3 302 640.8 568 714 744 0.382004 3 963 168.9 345 456 227 0.762005 3 302 640.8 359 987 846 0.612006 5 284 225.3 561 448 935 0.622007 11 889 507 5.332E+09 0.152008 28 402 711 713 370 411 2.632009 34 347 464 3.797E+09 0.602010 25 760 598 2.041E+09 0.83Average 34 077 248 1 478 592 282 2.83annual growth (%) -7.2 15.4 -19.5Coefficient of variation 137.91 110.37 176.90


2003 2004 2005 2006 2007 2008 2009 2010 20110%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

ZimbabweZambiaTanzaniaSwazilandSouth AfricaSeychellesNamibiaMozambiqueMauritiusMalawiMadagascarLesothoCongo, Dem. Rep.BotswanaAngola

National share of total SADC ODA vary highly over time


Per-capita ODA exhibits variation over time

ODA per capita varies over time

Countries become susceptible to external shocks if too much dependence on external finance

Congo, Dem. R

ep.

Madagasca

r

Malawi

Moza

mbique

Tanzania

Zambia

Zimbabwe

SADC

SADC excl S

. Afri

ca

SADC-MI

SADC LI0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

200320042005200620072008200920102011

2009

US$


FDI inflows to Agriculture increasing ,but variable

0

200

400

600

8002000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Mill

ion

Mal

oti

Lesotho

-400

100

600

1100

1600

2100

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Bill

ion

ZM

K

Zambia

0

2000

4000

6000

8000

10000

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Mill

ion

Nam

ibia

n $

Namibia

0200400600800100012001400

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Mill

ion

SZL

Swaziland


Capital spending favours agricultural Productivity outcomes

1.9

1.92

1.94

1.96

1.98

land

pro

duct

ivity

2.9 3 3.1 3.2 3.3capital expenditure

bandwidth = .8

Lowess smoother

2.92

2.94

2.96

2.98

3la

bour

pro

duct

ivity


bandwidth = .8

Lowess smoother


Capital spending favours Poverty reduction

2.0e

+06

3.0e

+06

4.0e

+06

5.0e

+06

6.0e

+06

pove

rty


bandwidth = .8

Lowess smoother

2.0e

+06

3.0e

+06

4.0e

+06

5.0e

+06

6.0e

+06

pove

rty3 3.1 3.2 3.3 3.4

goods and servicesbandwidth = .8

Lowess smoother


Different kinds of PAE, impact productivity differently- its important to know where to invest more


Expenditure on Irrigation and extension are all agdp enhancing


Enabling environment e.g low interest rates– Key for private investment


Spending, productivity and poverty

• Although increasing, Spending has fallen short of the Maputo declaration

• Important to examine where spending actually occurs

• Capital spending –positively correlated with productivity

• Capital spending positively correlated with poverty head measures

• With no disaggregation, the relationship between spending and productivity and poverty-not clear

• Components of recurrent spending negatively correlated with poverty measures and productivity

• Interest rate are a cost of capital and unsurprisingly, – There is an inverse relationship

between investment and real interest rates

– In SADC real interest rates –high for LI


Summary of Major findings

• Different types of public agricultural investments affect agricultural outcomes differently in the SADC region

• Various countries have tended to invest in their agricultural sectors differently across time

• A bias exists in public agricultural expenditure bias towards crops at the expense of other sectors


• More and better-targeted agricultural growth enhancing investments needed

• So far investments in the agriculture sector have been increasing albeit limited and volatile in the region and the quality of spending has been low

• Significant donor dependence coupled with low budget execution rates calls for improvements in revenue collection and budget processes

Summary of Major findings


Important questions Going forward (post MDGs)

• The 10%• Where to invest • Middle income versus

low income• Agrarian versus

diversified • Data systems

• Analytical ability• Budget systems• Best practices in

spending (?)• There is a need to

embark on detailed work on spending prioritization in agriculture


Thank you

Education

Inter-temporal Trends and Patterns in Agricultural Investment spending in Southern Africa