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Phot
o: D
avid
Bra
zier/
IWM
IPh
oto
:Tom
van
Cak
enbe
rghe
/IW
MI
Phot
o : D
avid
Bra
zier/
IWM
IPh
oto:
Dav
id B
razie
r/IW
MI
A water-secure worldwww.iwmi.org
Inter-temporal Trends and Patterns in Agricultural Investment spending
in Southern Africa
The 2013 Southern Africa Regional Dialogue on Agriculture
05-06 November 2013
Birchwood Hotel Johannesburg, South Africa
Research conducted byGreenwell C Matchaya, PhD, Pius Chilonda, PhD,
and Sibusiso Nhlengethwa
Presented byGreenwell Matchaya (ReSAKSS-SA Project
Coordinator)
www.iwmi.orgA water-secure world
Outline
• Part 1– Selected background issues facing the Southern
Africa region••••
LowLowLow
fertilizer useproductivityagGDP growth rates
Definitions and Methodology
• Part 2– Agricultural investments and productivity
• Trends• Conclusions
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Part One
Background and Methodology
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SADC’s Low income countries are more Agrarian andaccount for the Bulk of SADC agriculture
• Low income-account for the bulk of SADC AgricultureMI income account for~30% of SADCagricultureLow-Income countries-More agrarianMI-countries:less agrarian
SADC
SADC excl SA SADC-MI SADC-LI
•South AfricaTanzania
Congo, Dem. Rep.Mozambique Madagascar
Angola Zimbabwe
Zambia Malawi
Namibia Mauritius
Swaziland Botswana
LesothoSeychelles
Agricultural GDP as a share oftotal GDP
The share of agriculture in the sadc 's Agriculture
•
•
0 20 40 60 80 100 120
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Issue: Cereal Productivity in the SADC: lowestcompared to other sub-regions
• Cerealproductivity- lowest for Africa and SADCHighest in OECD & Eastern Asia
40000
High income: OECD
35000East Asia & Pacific (all incomelevels)
Caribbean small states30000
Europe & Central Asia (allincome levels)
Upper middle income
25000 •20000 World
Latin America & Caribbean (allincome levels)
South Asia
15000
• The rate ofgrowth forSADC is low
10000Middle East & North Africa (allincome levels)
SADC5000
Sub-Saharan Africa (all incomelevels)0
Cer
eal y
ield
-kg/
ha
1961
1964
1967
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
2012
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So, spatially, cereal yields have remained belowthe SADC Target of 2 tons
• Cereal yieldshave trailed the2tonnes per ha target
• SADC-LIcountries, lowest yield levels
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And, Agricultural GDP Growth has hence trailedthe 6% CAADP Target
• -AgriculturalGrowth Rates <the 6% targetExcept Angola and Mozambique-
•
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Growth rates in labour and land productivity in SADCcountries (annual average 2000-2012)
• Labour andland productivity growth more in Angola, SA, Malawi, ZambiaProductivities lower in Zimbabwe, DRC, Seychelles
•
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Fertilizer use lowest SADC LI and lower than Abujaand SADC RISDP targets
• Fertilizerconsumption lowest in SADC LI countriesBelow Abuja and SADC RISDIP targetsMore investments needed
•
•
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Agricultural investments matter forproductivity and are the focus of
the present talk.• Productivity is a function
of a myriad factorsP =f (K, L, Labour, markets, technology…)So, the below, matter
• Agriculture is ananchor for livelihoods
•
• Livelihoodsmeaningfullyimproved if agriculture improvesBut productivity is low in SADC
•–––
Policy,Price signalsInvestments in factors of production•
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Investments and agricultural outcomes
ReSAKSS WP #6 2010
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Theory of Expenditure and AgricultureGrowth
• Investments in agriculture - important for povertyreduction– 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).
•
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Theory of Expenditure/investment andAgriculture Growth
• Many definitions of public investment:– refers to expenditures that provides various public goods,
such as R&D, infrastructure, and education (Zhang andFan, 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).
–
–
–
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Theory of Expenditure/investmentand Agriculture Growth
••
Investments are likely good for TFP in agricultureEven the other expenditures complement investments in raising TFP
• BUT The theory and evidence about public expenditure andgrowth offers mixed predictions about the importance ofpublic agricultural expenditure (PAE) (Devarajan et al.,1993).
• Moreover there is little empirical work on how publicexpenditure should be undertaken.
• This is partly a problem of data availability
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Theory of Expenditure/investment andAgriculture Growth
• Understanding the levels of expenditure, and howdifferent types of expenditure affect agricultural or growth is important
• studies that ignore the composition of publicexpenditure 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).
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Theory of Expenditure/investment andAgriculture Growth
• BUT if mis-targeted, public spending carries with it acrowding-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 growthBarro (1990), finds that public expenditure is important for growth, it is complementary to private investment.
•
• Kumar et al. (2009) have found a co-integratingrelationship between output measures and expenditure
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Methodology- Data Sources
• Most data –Collected by ReSAKSS-SA team from resepectivecountries -Supplemented by data from WB, FAO, IFPRIFor analysis, countries grouped according to (WB, 2011)•
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Methodology: Analysis
• Disaggregate expenditure as much as possible during theanalysis– 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
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Part Two
Results and Conclusions
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Progress towards the CAADP 10 % Agriculturalexpenditure target
• SADC-LI:allocates just under~8% SADC-MI:~2%
Malawi&Zambia achieved10% in a number of years,-More action needed
•
•
•
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R&D expenditure as a share of agGDP trails theNEPAD 1% Target
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SADC countries not financing 100% of their operations-dependence, is prevalent
• SADC-LI: >30% ofbudgets externally financedSADC-MI: <20% of budgets externally financedImplication: dependence on aid is persistent inthe SADC~30% of SADC budget externally financed
Proportion of internal to totalrevenue (2000-2012)
120
•100
80•
60
•40
20
0
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Also, agricultural budget execution rates are often below100%
140 • The general trend is –Actual spending lags behind allocations – reflecting:
120
100
– Lack of capacity forexecutionReprioritization /change of prioritiesDonor funding delaysAdditional funding after budgets- leads to actual> allocations
80Agriculturalbudget execution rates
–60
––40
20
Implications: important toseek ways of increasing spending capacity
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
www.iwmi.orgA water-secure world
Recurrent dominate capital agriculturalspending as a share of total spending
••
FindingsRecurrent>capital expenditur eCapital share declining in SADC- LIIn SADC: public Capital expenditur e in agric declining
9.0
8.0
7.0
6.0
5.0•
4.0
3.0agriculturerecurrent2.0
1.0agriculturescapital •0.0
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
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Low capital spending, high spending onemoluments, Goods and Services
• SADC-LIExpenditure as a share of totalagricultural expenditure – High shares of ag
subsidiesHigh (though declining) shares of Capital spendingLow shares of spend on G&ServicesAnd low spend on emolumentsQuestion-what would be the optimal sectoral allocation for efficiency?
Others SADC-MI
Others SADC-LI
Others -SADC
Subsidies -SADC-MI
Subsidies SADC-LI
Subsidies -SADC
Capital-SADC-MI
Capital -SADC-LI
Capital-SADC
Goods & services-SADC-MI
Goods &services.-SADC-LI
Goods & services-SADC
Emoluments. SADC-MI
Emoluments. SADC-LI
Emoluments. SADC
–
–
–
–
0 5 10 15 20 25 30 35 40 45Shares %
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Spending in agriculture in the SADC isconcentrated on crops
• Overall:Spend on crops highestSpend on crops has increasedSpend on crops has increasedFisheries and forestry spend has declined
•
•
•
• Is this in linewith nutritional goals?
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Quality of spending-Low: Capital spendingout-stripped by subsidies
30 Since 2000, shareof spending onR&D/capitaldeclinedSince 2002, of subsidies
has25
share>
20
IrrigationR&D SubsidiesR&D and irrigation
share of capitalspending-under- capitalization of agric likely-low quality spending
15
10
5
0
Shar
e (%
) in
tota
l ag
ricua
lture
Exp
endi
ture
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
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Expenditure growth in R&D higher in some SADC MI-e.gBotswanavalues)
than in LI countries (Pula- constant 2005
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Expenditure growth in R&D lower in SADC LI-e.gSwaziland than in MI countries (constant 2005 values-E)
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Investment in agriculture expertise, still lowfor LI countries (absolute numbers)
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Private expenditure on agriculture-scant- (Mozambique- 2005
variable; BUTUSD)Data is
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National share of total SADC ODA varyhighly over time
100%
Zimbabwe
Zambia
Tanzania
Swaziland
South Africa
Seychelles
Namibia
Mozambique
Mauritius
Malawi
Madagascar
Lesotho
Congo, Dem. Rep.
Botswana
Angola
80%
60%
40%
20%
0%2003 2004 2005 2006 2007 2008 2009 2010 2011
-20%
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Per-capita ODA exhibitstime
variation over
160.0140.0120.0100.080.060.040.020.0
0.0
ODA percapita varies over time2003
20042005200620072008200920102011
Countriesbecome susceptible to external shocks if too much dependence on external finance
2009
US$
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Capital spending favours agriculturaloutcomes
Productivity
capital expenditure
la n
d p
r o
d u
c tiv
ity 1 .9
4
1 .9
1 .9
2
1 . 9
6
1 .9
8
la b
o u
r p
ro d
u
c tiv
ity
2 .9
2
2 .9
4
2 .9
6
2 .9
8
3
Lowess smoother
2.9 3 3.1 3.2 3.3
bandwidth = .8
Lowess smoother
2.9 3 3.1 3.2 3.3 capital expenditure
bandwidth = .8
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Capital spending favoursreduction
Poverty
goods and services
p o
v e
r t y
3 .0
e +
0 6
4
. 0
e +
0 6
2 .0
e +
0
65
. 0 e
+
0 6
6 .0
e +
0
6
p o
v e
r t y
3 .0
e +
0 6
4
. 0
e +
0 6
2 .0
e +
0
65
. 0 e
+
0 6
6 .0
e +
0
6
Lowess smoother
2.9 3 3.1 3.2 3.3 capital expenditure
bandwidth = .8
Lowess smoother
3 3.1 3.2 3.3 3.4
bandwidth = .8
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Different kinds of PAE, impact productivitydifferently- its important to know where to invest more
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Expenditure on Irrigation and extensionare all agdp enhancing
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Enabling environment e.g low interest rates–Key for private investment
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Spending, productivity and poverty
• Although increasing, Spendinghas fallen short of the Maputo declarationImportant to examine where spending actually occursCapital spending –positively correlated with productivityCapital spending positively correlated with poverty head measuresWith no disaggregation, the relationship between spending and productivity and poverty- not clear
• Components of recurrentspending negatively correlated with poverty measures and productivity•
• • Interest rate are a cost ofcapital and unsurprisingly,
– There is an inverse relationshipbetween investment and real interest ratesIn SADC real interest rates –high for LI
•
–•
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Summary of Major findings
• Different types of public agricultural investmentsaffect agricultural outcomes differently in the SADCregion
• Various countries have tended to invest in theiragricultural sectors differently across time
• A bias exists in public agricultural expenditure biastowards crops at the expense of other sectors
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Summary of Major findings
• More and better-targeted agricultural growthenhancing investments needed
• So far investments in the agriculture sector havebeen increasing albeit limited and volatile in the region and the quality of spending has been low
• Significant donor dependence coupled with lowbudget execution rates calls for improvements in revenue collection and budget processes
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Important questions Going forward(post MDGs)
•••
The 10%Where to investMiddle income versus low incomeAgrarian versus diversifiedData systems
•••
Analytical abilityBudget systemsBest practices in spending (?)There is a need to embark on detailed work on spending prioritization in agriculture
• •
•
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Thank you