1.
Dr. Abebe Shimeles,
Director of Research, African Economic Research Consortium (AERC)
Presentation 2– ligning Macroeconomic Policies for Agricultural Transformation
in Africa (10min)
Plenary Session II
Enabling Environment for Transforming Agrifood Systems

2.
Aligning Macroeconomic Policies for Agricultural
Transformation in Africa
African Economic Research Consortium
November 2020

3.
OurApproachto
CapacityBuilding

4.
• Evidence suggest a wide range of policy distortions practiced in Africa
against the agricultural sector, including biases in terms of subsidies,
taxes, exchange rate, trade, and monetary policies. The major direct and
indirect effects in this case is to affect the appropriability of returns for
small holder farmers’ investments.
• It is evident therefore agriculture, particularly one managed by
smallholder famers will not thrive in Africa under adverse macroeconomic
policies which basically offsets the technical and other supports agriculture
receives from government and development partners.
• There is a need for a purposive, coherent pro-agricultural macroeconomic
policy to catalyze the pace of structural transformation in Africa.
Key Messages

5.
Outline of the presentation
• A snapshot of Africa’s developmental challenge and the role of
agriculture
• Rationale for aligning macroeconomic policies with agricultural
transformation
• The evidence: broadly macroeconomic policies in Africa have been
biased against the agriculture sector
• Conclusion

6.
Africa’s pressing developmental challenge: Extreme Poverty,
hunger and inequality seem to be pervading in Africa

7.
Poverty in Africa originates in the agricultural sector and agricultural
labor productivity is growing slowly
0
20406080
0 20 40 60 80
Average headcount ratio
Agriculture Industry
Services

8.
And structural transformation is slow in
many countries
• Agriculture still accounts
for the bulk of employment,
sources of foreign exchange
revenue and food supply;
• Yet its share in GDP declined,
indicating lack of structural
change.

9.
• The outcome of the structural transformation is an economy in which well-
functioning factor (e.g., financial and labour) and output (e.g., food) markets
equalize the capital and labour productivity between agriculture and non-farm
industry and services, leading to inclusive economic growth
• These requires monetary, fiscal and exchange rate policies geared towards
aligning incentives across and within sectors.
Rationale of aligning macroeconomic policies for
structural transformation of African economies

10.
Urban-biased macroeconomic policy is
evident and replete throughout Africa
• Relative Rate of Assistance to
agriculture has been very low (less
than zero implies urban-bias
policies)
• The nominal rate of assistance
(NRA) defined as “the percentage
by which government policies have
raised gross returns to farmers
above what they would have been
without the government’s
intervention” has been negative for
over four decades in Africa

11.
Support to agriculture tends to rise and fall
with budget deficit

12.
Hence urban-bias policies tend to create debt
burden

13.
• Direct fiscal policy, particularly government spending on agricultural
development needs to be revamped to enhance market development,
technological diffusion and adoption, and overcome structural constraints
for small holder farmer, including access to finance, insurance, and other
support. Implementing the 10% share agreed by CAADP is a case in point
• The investment to support agricultural transformation require physical
infrastructure as well as core infrastructure: we need to see road and rail
network serving agriculture as well as processing and storage facilities to
support appropriate value addition, restructure global value chain and
develop adequate marketing avenues
• Align real exchange rate, relative domestic prices and wages to keep
agricultural sector competitive and productive.
In conclusion