This document summarizes a presentation on trends and patterns in agricultural investment spending in Southern Africa. It outlines background issues like low cereal productivity and GDP growth in the region compared to targets. It then discusses definitions and methodology, including data sources and analytical approaches. The results section finds that agricultural spending as a share of GDP and R&D spending trail targets in most countries. Recurrent spending dominates capital spending, and spending is concentrated on crops. Capital spending is correlated with higher productivity and lower poverty levels.

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A water-secure world
www.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 by
Greenwell C Matchaya, PhD, Pius Chilonda, PhD,
and Sibusiso Nhlengethwa
Presented by
Greenwell Matchaya (ReSAKSS-SA Project
Coordinator)

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Outline
• Part 1
– Selected background issues facing the Southern Africa region
•
•
•
•
Low
Low
Low
fertilizer use
productivity
agGDP 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 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
SADC
SADC excl SA
SADC-MI
SADC-LI
•South Africa
Tanzania
Congo, Dem. Rep.
Mozambique
Madagascar
Angola
Zimbabwe
Zambia
Malawi
Namibia
Mauritius
Swaziland
Botswana
Lesotho
Seychelles
Agricultural GDP as a share of
total 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: lowest
compared to other sub-regions
• Cereal
productivity-
lowest for
Africa and
SADC
Highest in
OECD &
Eastern Asia
40000
High income: OECD
35000
East Asia & Pacific (all income
levels)
Caribbean small states30000
Europe & Central Asia (all
income levels)
Upper middle income
25000
•
20000
World
Latin America & Caribbean (all
income levels)
South Asia
15000
• The rate of
growth for
SADC is low
10000
Middle East & North Africa (all
income levels)
SADC5000
Sub-Saharan Africa (all income
levels)0
Cerealyield-kg/ha

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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

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And, Agricultural GDP Growth has hence trailed
the 6% CAADP Target
• -Agricultural
Growth Rates <
the 6% target
Except Angola
and
Mozambique-
•

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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
•

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

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Agricultural investments matter for
productivity and are the focus of the
present talk.
• Productivity is a function
of a myriad factors
P =f (K, L, Labour,
markets, technology…)
So, the below, matter
• Agriculture is an
anchor for livelihoods
•
• Livelihoods
meaningfully
improved if agriculture
improves
But productivity is low
in SADC
•
–
–
–
Policy,
Price signals
Investments in factors
of production•

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Investments and agricultural outcomes
ReSAKSS WP #6 2010

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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).
•

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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).
–
–
–

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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

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Theory of Expenditure/investment and
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).

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Theory of Expenditure/investment and
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

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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)•

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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

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Part Two
Results and Conclusions

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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
•
•
•

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

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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
Proportion of internal to total
revenue (2000-2012)
120
•
100
80
•
60
•40
20
0

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Also, agricultural budget execution rates are often below
100%
140
• The general trend is –
Actual spending lags
behind allocations –
reflecting:
120
100
– Lack of capacity for
execution
Reprioritization /change
of priorities
Donor funding delays
Additional funding after
budgets- leads to
actual> allocations
80
Agricultural
budget
execution
rates
–
60
–
–40
20
Implications: important to
seek ways of increasing
spending capacity
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012

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Recurrent dominate capital agricultural
spending as a share of total spending
•
•
Findings
Recurrent
>capital
expenditur
e
Capital
share
declining
in SADC-
LI
In SADC:
public
Capital
expenditur
e in agric
declining
9.0
8.0
7.0
6.0
5.0
•
4.0
3.0
agriculture
recurrent
2.0
1.0
agricultures
capital •0.0
1995-2002
2002-2011
1995-2002
2002-2011
1995-2002
2002-2011
1995-2002
2002-2011
1995-2002
2002-2011
1995-2002
2002-2011
1995-2002
2002-2011
1995-2002
2002-2011
1995-2002
2002-2011
1995-2002
2002-2011
1995-2002
2002-2011
ZBW MADG MLW MOZA SWAZ BTSW MAURI LESTH SADC SADC-
LI
SADC-
MI

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Low capital spending, high spending on
emoluments, Goods and Services
• SADC-LIExpenditure as a share of total
agricultural expenditure – 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?
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 45
Shares %

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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?

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Quality of spending-Low: Capital spending
out-stripped by subsidies
30 Since 2000, share
of spending on
R&D/capital
declined
Since 2002,
of subsidies
has25
share
>
20
Irrigation
R&D
Subsidies
R&D and
irrigation
share of capital
spending
-under-
capitalization of
agric likely
-low quality
spending
15
10
5
0
Share(%)intotalagricualtureExpenditure
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.g
Botswana
values)
than in LI countries (Pula- constant 2005

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

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

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

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National share of total SADC ODA vary
highly 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 exhibits
time
variation over
160.0
140.0
120.0
100.0
80.0
60.0
40.0
20.0
0.0
ODA per
capita varies
over time2003
2004
2005
2006
2007
2008
2009
2010
2011
Countries
become
susceptible to
external
shocks if too
much
dependence
on external
finance
2009US$

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Capital spending favours agricultural
outcomes
Productivity
capital
expenditure
landproduc
tivity
1.94
1.91.921.961.98
labourproduc
tivity2.922.942.962.983
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 favours
reduction
Poverty
goods and
services
poverty
3.0e+064.0e+
06
2.0e+0
6
5.0e+0
6
6.0e+0
6
poverty
3.0e+064.0e
+06
2.0e+0
6
5.0e+0
6
6.0e+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 productivity
differently- its important to know where to
invest more

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Expenditure on Irrigation and extension
are 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, 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
•
–
•

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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

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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

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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
• •
•

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Thank you