IFPRI INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Growth and Investment Options for Achieving Agricultural Growth in Africa Shenggen Fan International Food Policy Research Institute Presentation at the ReSAKSS Conference: Exploring New Opportunities and Strategic Alternatives to Inform African Agricultural Development, Planning and Policy November 23, 2009, Addis Ababa

IFPRI Outline  Opportunities  Challenges  Role of Agriculture in Africa  Required Public Investment and its Priorities  Governance

IFPRI Opportunities for African Development  Positive signs of steadily rising economic and agricultural growth in Africa starting in the early 1990s Source: ReSAKSS (2009)

IFPRI Improved Governance in Africa Approximately half of the countries have experienced improvements in key dimensions of governance between 1996 and 2007, especially rule of law and political stability and absence of terrorism Source: World Bank (2007)

IFPRI Changing International Landscape  Regional and Global Initiative: Millennium Development Goals and CAADP  South-South Cooperation »Emerging donors like Brazil, China and India »China has become one of the largest investors and donors to Africa  Agricultural development and food security have gained prominent place on global development agenda »Aid commitments for food and agriculture increased (e.g. G8 commitment of $20 billion over the next 3 years)

Challenges for African Development Although the percentage of people living below $1/day in SSA has fallen, the region’s poverty rate is the highest in the world The absolute number of poor in SSA has increased since 1981 Source: World Bank (2009)

IFPRI “Triple Punch” of Global Financial, Fuel and Food Crises  Despite limited links to global financial markets, developing countries not spared from recent turmoil »Decreased demand for SSA products, sharp drop in foreign direct investment and decline in remittances  Increased world food prices and other global shocks have adversely affected the poor, dimming the prospects for significant growth and poverty reduction  Most poor countries lack the fiscal capacity to finance programs to curb the effects of the downturn

World Map of Hunger: 2008 Global Hunger Index (GHI) by Severity Source: von Grebmer et al., IFPRI GHI components: Proportion of undernourished Prevalence of underweight in children Under-five mortality rate

IFPRI Climate Change and Energy Threats  By 2020, million people expected to be exposed to drought (mainly in Africa) - Adverse effect on livelihoods and food security - Exacerbate malnutrition and water-related problems - By 2020, yields could be reduced by up to 50% (rain-fed agriculture) Energy: biofuels - food / biomass competition Higher food prices (scenarios: 30 to 80% + prices) Instabilities increase (new risks for Africa’s poor)

IFPRI Why is Agriculture Important? SSA-1.83 South Asia-1.73 East Asia and Pacific-1.44 Eastern and Central Europe-1.57 Latin America-1.11 Middle East and North Africa-0.92 All Low Income Countries-1.6 Source: Christaensen et al (2005) Low Income Countries Participation effect of agriculture growth on headcount poverty

IFPRI  Despite recent urbanization trends, majority of the world’s poor will continue to live in rural areas for many decades to come Poverty Remains Largely Rural Source: Ravallion et al. (2007) Note: Poverty line is set at $1.08/day Urban and rural share of the poor in SSA (%)

IFPRI Agricultural Growth is Key for Poverty Reduction Business as usual Focus on agricultural growth

IFPRI Agricultural Growth is More Pro-Poor

IFPRI Agricultural Investment Is Critical  Recent increase in attention and financial commitments for agriculture for development »G-8 pledge in 2009, WDR 2008, CAADP and Maputo Declaration  These are positive developments in public sector budget allocation to agriculture, but now more focus needs to shift from quantity to quality of spending  Need for a review of recent spending levels and priorities to identify challenges and opportunities for improvement

IFPRI Agricultural Expenditures by Region Source: ReSAKSS, calculated using data from International Monetary Fund’s (IMF) Government Financial Statistics Yearbook

Progress towards 10% budget allocation across SSA countries  African continent as a whole has not met the 10% target (current spending at 6-8 percent)  But, this varies by country Source: Omilola (2009)

IFPRI Required Ag Spending in Africa for Achieving MDG1 Page Actual Expenditure on Agriculture in 2004, billion USD Annualized Ag Spending Required, billion USD ( ) Source: Fan and Johnson (2009).

IFPRI Sector GhanaUgandaTanzaniaEthiopiaChinaIndiaThailand Returns to agriculture or rural income (local currency/local currency spending) Agriculture Education Health1.30.9n.e.-0.03n.e.0.8n.e. Roads Ranking in returns to poverty reduction Agriculturen.e Educationn.e Healthn.e.4 4 Roadsn.e Notes: “n.e.” indicates not estimated. Public Investment Impact Source: Mogues, Benin, and Fan (2008); Fan and Zhang(2004); Fan, Hazell, and Thorat (2000); and, Fan, Yu, and Jitsuchon,(2008)

IFPRI Setting the Right Priorities  Returns to public spending vary drastically across different types of investment and regions within the same country  Agricultural research, education, and rural infrastructure (especially low cost feeder roads) are the three most effective public spending items in promoting agricultural growth and poverty reduction  Evidence from China and Uganda indicates that it is often the low cost infrastructure that often has highest return in terms of growth and poverty reduction

IFPRI Setting the Right Priorities  “One-size-fits-all” strategies do not work: different spending priorities are needed during different stages of development  During the first phase, spending should focus on reducing widespread poverty through broad- based economic growth that reaches rural areas  In subsequent phases, more direct attention should be focused on lagging sectors/regions and on poverty at the community and household level in order to reduce poverty and income inequalities that arise and persist despite reforms

IFPRI How to Approach Governance Reforms?  Need to strengthen capacity to use resources more efficiently through governance reforms: »Supply-side  Building administrative capacity via civil service reforms  Improving government procurement procedures and auditing systems to root out corruption »Demand-side  Strengthening governments’ accountability to citizens through a system of checks and balances  Empower the participation of citizens and non-state actors through greater decentralization  Institutional and governance reforms need to address governance challenges at local, national, and global level

IFPRI Governance Challenges  Global »Failure of global institutions to predict and coordinate response to emergencies (e.g. food and financial crises) »Failure of trade negotiations  National »Low capacity and will to use agriculture for development »Lack of mechanisms and skills for cross-sectoral coordination  Local »Low empowerment and capacity to set priorities and implement policies »Weak local accountability structures

IFPRI Reforming Governance and Institutions  Reforms in institutions and governance related to public spending  Greater transparency in decisionmaking and more effective monitoring and impact assessment systems  Decentralized, participatory, and evidence-driven governance structure  Improved capacities at the national, local and community level  Creating an enabling environment for private investment