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

Inter-temporal Trends and Patterns in Agricultural
Investment spending in Southern Africa
Research conducted by
Greenwell C Matchaya, PhD, Pius Chilonda, PhD, and Sibusiso Nhlengethwa
Presented by
Greenwell Matchaya (ReSAKSS-SA Project Coordinator)
at

The 2013 Southern Africa Regional Dialogue on Agriculture
05-06 November 2013

Birchwood Hotel Johannesburg, South Africa
Regional Strategic Analysis and Knowledge Support System for Southern Africa (ReSAKSS-SA)

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

SADC
SADC excl SA
SADC-MI
SADC-LI

South Africa
Tanzania

Congo, Dem. Rep.
Mozambique

Agricultural GDP as a share of
total GDP

Madagascar
Angola

The share of agriculture in the
sadc 's Agriculture

Zimbabwe
Zambia
Malawi
Namibia
Mauritius

Swaziland
Botswana
Lesotho
Seychelles
0

20

40

60

80

100

• Low incomeaccount for the
bulk of SADC
Agriculture
• MI income
account for
~30% of SADC
agriculture
• Low-Income
countries-More
agrarian
• MI-countries:
less agrarian

120


Issue: Cereal Productivity in the SADC: lowest
compared to other sub-regions
40000
High income: OECD
35000
East Asia & Pacific (all income
levels)

Cereal yield -kg/ha

30000

Caribbean small states

25000

Europe & Central Asia (all
income levels)
Upper middle income

20000
World
15000

• Cereal
productivitylowest for
Africa and
SADC
• Highest in
OECD &
Eastern Asia

Latin America & Caribbean (all
income levels)
South Asia

10000
Middle East & North Africa (all
income levels)

5000

SADC

2012

2009

2006

2003

2000

1997

1994

1991

1988

1985

1982

1979

1976

1973

1970

1967

1964

1961

0

• The rate of
growth for
SADC is low

Sub-Saharan Africa (all income
levels)


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 use lowest SADC LI and lower than Abuja
and SADC RISDP targets
350.00

300.00

Fertilizer Use kg/ha

250.00

200.00

2003-2010
150.00

2003-2006
2007-10

100.00

SADC RISDP target
Abuja target

50.00

• Fertilizer
consumption
lowest in SADC LI
countries
• Below Abuja and
SADC RISDIP
targets
• More investments
needed

SADC LI

sadc-MI

sadc

Congo, Dem. Rep.

Namibia

Madagascar

Angola

Mozambique

Tanzania

Zimbabwe

Zambia

Seychelles

Malawi

South Africa

World

Mauritius

0.00


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

Theory of Expenditure and Agriculture
Growth
• 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/investment 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

Agriculture Growth
• 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).


Agriculture Growth
• 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


Methodology- Data Sources
• 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)
Low income
$995 or less
Congo, Dem. Rep
Madagascar
Malawi
Mozambique
Tanzania
Zambia
Zimbabwe

Lower middle income
$996-$3945
Angola
Lesotho
Namibia
Swaziland

Upper middle income
$3946-$12195
Botswana
Mauritius
Seychelles
South Africa


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
Malawi
Mozambique
Zambia
Zimbabwe
Madagascar
Namibia
Lesotho
Botswana
Swaziland
SADC
SADC-MI
SADC-LI

0.2
0.5
0.2
0.8
1.1
1.6
0.7
4.6
1.1
0.6
0.7
0.6

1.2
0.3
1.2
3.1
2.1
1.0
9.3
32.2
6.5
3.1
5.0
1.5

Irrigation

0.5
0.1
0.0
1.7
1.2
0.3
0.0
0.0
2.2
0.7
0.6
0.7

Infra- subsid
structur
y

0.0
1.1
0.0
0.9
1.8
0.6
6.2
0.0
2.2
1.4
2.3
0.8

5.6
0.0
2.1
6.4
0.8
0.0
0.0
1.3
0.4
1.7
0.1
3.0

Other

0.0
0.7
0.0
10.3
0.0
1.7
12.4
0.0
0.0
2.7
3.5
2.1

Under
capitalizat
ion of
agricultur
e exists
Subsidies
favoured
in LI
So- low
quality
spending
Favours
pvt goods


SADC countries not financing 100% of their operationsdependence, is prevalent

Proportion of internal to total
revenue (2000-2012)
120

100

80

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

•

60

40

•

SADC-MI: <20% of
budgets externally
financed
Implication: dependence
on aid is persistent in
the SADC
~30% of SADC budget
externally financed

20

0


Low capital spending, high spending on
emoluments, Goods and Services
• SADC-LI

Expenditure as a share of total
agricultural expenditure
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

Shares %

30

35

40

45

– 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?


Spending in agriculture in the SADC is
concentrated on crops
Expenditu Expendit Expendit
Expenditur
re
ure
ure
e crops
livestock fisheries forestry
SADC 2000–
2002
SADC 2003–
2012
SADC-LI 2000–
2002
SADC-LI 2003–
2012
SADC-MI 2003–
2012
SADC-MI 2000–
2002

41.79

20.01

14.31

23.88

52.05

20.36

11.32

16.27

37.37

10.50

14.62

12.94

9.20

15.23

43.95

26.32

12.87

16.86

43.55

25.26

13.17

18.01

•

29.82

62.63

• 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?


Quality of spending-Low: Capital spending
out-stripped by subsidies
Share (%) in total agricualture Expenditure

30
25
20
Irrigation
15

R&D
Subsidies

10

R&D and irrigation

5

2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012

0

Since 2000, share
of spending on
R&D/capital has
declined
Since 2002, share
of subsidies >
share of capital
spending
-undercapitalization of
agric likely
-low quality
spending


Expenditure growth in R&D higher in some SADC MI-e.g
Botswana than in LI countries (Pula- constant 2005
values)
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Annual average
spending
Average annual
growth (%)
Coefficient of
variation

R&D
11 208 318
12 755 108
15 672 883
22 570 770
16 178 185
20 902 756
24 049 084
25 635 272
26 553 119
34 553 237
35 148 325
32 018 088
31 015 458

Extension
105 551 600
111 067 011
137 424 465
171 688 884
149 549 782
160 416 229
165 818 393
179 050 584
158 039 290
179 952 072
218 803 986
208 035 385
248 451 720

Irrigation
83 958
120 273
134 552
166 175
50 384
11 935
61 072
97 805
68 980
136 722
100 752
78 164
96 560

Infrastructure
186 438
162 993
159 648
142 685
73 380
155 146
83 515
141 156
199 919
215 243
183 138
161 218
241 272

Subsidies,
5 218 313
5 784 997
6 378 776
5 293 626
5 922 556
5 437 349
6 446 369
7 397 213
12 227 285
9 858 113
8 024 223
8 024 223
12 104 823

23 712 354.18

168 757 646.35

92 871.58

161 980.98

7 547 528.24

9.4

5.9

-0.2

2.9

6.4

34.21

23.89

44.09

29.00

32.40


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
1 054 113
2001
6 462 742
52 792 710
6 206 821
20 555 619
1 868 302
2002
8 683 684
42 878 157
6 009 431
12 791 617
2 657 818
2003
9 323 824
56 370 607
12 669 518
37 965 708
959 754
2004
12 405 379
69 927 192
8 246 518
43 130 943
792 501
2005
11 199 968
55 860 508
16 164 053
26 449 264
394 752
2006
10 813 756
45 097 492
14 628 797
22 478 028
1 773 178
2007
10 693 162 109 067 942
16 405 308
17 791 859
3 331 492
2008
18 028 624
75 676 692
17 384 947
63 750 259
2 244 943
2009
12 659 999 283 487 956
17 618 891
84 659 613
9 901 391
2010
10 662 681 526 839 361
16 514 969
69 966 273
9 978 902
2011
8 636 592 483 336 237
70 971 237
9 119 584
2012
6 131 298
34 536 315
6 982 564
10 892 683
average
10 163 979 145 072 626
10 609 575
38 011 677
4 228 416
growth (%)
2.0
14.4
13.0
6.0
23.5
variation
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
16.82
2001
86 198 925
848 448 419
6.71
2002
16 513 204
1.085E+09
1.01
2003
3 302 640.8
568 714 744
0.38
2004
3 963 168.9
345 456 227
0.76
2005
3 302 640.8
359 987 846
0.61
2006
5 284 225.3
561 448 935
0.62
2007
11 889 507
5.332E+09
0.15
2008
28 402 711
713 370 411
2.63
2009
34 347 464
3.797E+09
0.60
2010
25 760 598
2.041E+09
0.83
Average
34 077 248
1 478 592 282
2.83
annual growth (%)
-7.2
15.4
-19.5
Coefficient of variation
137.91
110.37
176.90

FDI inflows to Agriculture increasing ,but variable
Zambia

800

2100

400

200
2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

0

Billion ZMK

600

2000

Million Maloti

Lesotho

1600

1100
600
100
2006

2007

2008

2009

2010

2007

2008

2009

2010

2005
2005

2004

2009

2008

2007

2006

2005

2004

2003

2002

2001

0

2003

2000

2002

4000

2001

6000

1400
1200
1000
800
600
400
200
0
2000

Million SZL

8000

2000

2004

Swaziland

10000
Million Namibian $

2006

Namibia

2003

2002

2001

2000

-400


Capital spending favours agricultural Productivity
outcomes

Lowess smoother

2.96
2.94
2.92

1.9

1.92

1.94

labour productivity

2.98

1.96

3

1.98

Lowess smoother

2.9
bandwidth = .8

3

3.1
capital expenditure

3.2

3.3

2.9

3

3.1
capital expenditure

3.2

3.3

bandwidth = .8


Capital spending favours Poverty
reduction

3.0e+06

poverty
4.0e+06

5.0e+06

6.0e+06

Lowess smoother

2.0e+06

2.0e+06

3.0e+06

4.0e+06

5.0e+06

6.0e+06

Lowess smoother

2.9
bandwidth = .8

3

3.1
capital expenditure

3.2

3.3

3

3.1

3.2
goods and services

3.3

3.4

bandwidth = .8


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 povertynot 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


Summary of Major findings
• 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


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


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

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