inter-temporal trends and patterns in agricultural investment spending in southern africa

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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


Part One

Background and Methodology


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


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


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

• Cereal yieldshave trailed the2tonnes per ha target

• SADC-LIcountries, lowest yield levels


And, Agricultural GDP Growth has hence trailedthe 6% CAADP Target

• -AgriculturalGrowth Rates <the 6% targetExcept Angola and Mozambique-

•


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

•


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

•

•


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•


Investments and agricultural outcomes

ReSAKSS WP #6 2010


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).

•


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).

–

–

–


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



• 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).



• 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


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)•


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


Part Two

Results and Conclusions


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

•

•

•


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


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


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


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


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 %


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?


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


Expenditure growth in R&D higher in some SADC MI-e.gBotswanavalues)

than in LI countries (Pula- constant 2005


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


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


Private expenditure on agriculture-scant- (Mozambique- 2005

variable; BUTUSD)Data is


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%


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$


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


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


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


Expenditure on Irrigation and extensionare all agdp enhancing


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


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

•

–•


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


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


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

• •

•


Thank you

inter-temporal trends and patterns in agricultural investment spending in southern africa

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