1. CGE Modelling for Sub-saharan Africa: STAGE_DEV model applications
Pierre Boulanger, Hasan Dudu, Emanuele Ferrari, Alfredo Mainar Causapé European Commission – Joint Research Center
The views expressed are purely those of the authors and may not in any circumstances be regarded as stating an official position of the European Commission.

2. JRC: Function and mission
The Joint Research Centre provides EU Institutions and Member States with scientific analysis and advice.
JRC mission is to play a central role in creating, managing and making sense of the collective scientific knowledge for better EU policy.

3. JRC: Quick Facts Established 1957 7 institutes in 5 countries
3000 technical and administrative personnel
1 200 contributions to EU Policy
684 peer-reviewed scientific publications in 2013
Budget: €400 million annually

4. TS4FNS Macro analysis (national and regional economic systems)
Support agricultural data retrieval (DATAM)
Micro analysis (farm models)
Meta-analysis of best-practice for a sustainable agriculture
Drivers of demand for agricultural products
Scientific partnerships and networks
Analysis of CAP impacts on developing countries

5. Macro Analysis Ex ante policy analysis (EU and national):
Agricultural inputs & investments programs
Infrastructure investments
Education & Health
Social protection
Trade (tariffs, non-tariffs, etc.) & Food aid
Rural development programs/policies
Others (national specific)
+ Impact of EU policies on African regions (e.g., CAP)

6. What we do?
Support stakeholders to do CGE analysis for current policy issues
Create a CGE model tailored for developing country context
Create SAM and other data bases required
Make ad-hoc analysis on demand
Two-way knowledge transfer
Funded by: EC-DG Development and Cooperation

7. JRC Current Activities
Kenya
Support for the strategic investment plan (in coop. with FAO/MAFAP)
Senegal
Support for the fiscal policy reform
Support for the new investment programme for «Plan emergent Senegal 2035» (in coop. with FAO/MAFAP)
Knowledge transfer activities
Ethiopia
Cooperataion with EDRI to develop a new SAM with a new IO & CGE model to support Development Plan
Workshop in November on CGE modelling and policy issues in Ethiopia (in cooperation with EEA)

8. STAGE_DEV: What is new?
Home Production for Home Consumption (non-separability) and nested CES/LES (two level utility nesting)
Labour market
un/under-employment with labor supply decision
Migration
Segmentation
Endogenous distribution of factor income
Several types of investments linked to different capital types
Recursive dynamic version with benchmarking to GDP, investment etc…
Human capital
Exclusive population accounting (birth & death rates)
Food Security indicators
Flexible CES Nestining

9. Senegal: Fiscal Policy Reform
Plan Senegal Emergent 2035
The Emerging Senegal Plan (ESP) aims to accelerate growth to 7% to 8% over
Fiscal policy is the main policy tool in order to achieve policy objectives
Mobilization of fiscal resources = Tax reform
The margin for tax revenue growth is 2.8% of GDP (Ba and Diagne, 2016).
Agriculture is a difficult sector to impose VAT (IMF, 2010)

10. Senegal: Governmet Spending
Increasing share of development projects
Significant input subsidies
Transfers to Households

11. Policy options
The Program for Accelerating the Pace of Senegalese Agriculture (PRACAS) – agricultural component of the ESP2035:
Restructure the subsidy policy (accompanying measures)
IMF (2017): agricultural sector is not taxed enough!
income tax (with little exemption, and reasonable thresholds in particular for income from land and high agricultural incomes);
consumption taxes (e.g. VAT).
European Commission (2015): VAT exemptions and input subsidies should be reduced for a sustainable budget

12. Scenarios VAT: Increase to 18% Intermediate input tax: Increase to 18%
All commodities
Agricultural commodities
Intermediate input tax: Increase to 18%
All intermediates
Except chemicals
Income Tax: Increase
Flat rate: Increase by 50%
Progressive: Increase 0 to 100% (according to income & poverty rate in regions)

13. 2014 Social Accounting Matrix
14 regions
54 activities (including 14 accounts of houshold producers),
53 marketed and 9 subsistence commodities
3 types of labor (skilled, semi-skilled and unskilled) in each region + 1 region for rest of the world (foreing workers).
4 capital types (agricultural, non-agricultural, livestock).
1 type of land (will be 2 soon!)
5 tax accounts (direct, indirect, sales, factor and tariffs)
33 types of representative households (rural & urban in regions, income groups in Dakar)
Rest of the accounts follow conventions

14. Production Structure

15. Macroeconomic Indicators
VAT yields better results, income tax also performs good, int inp taxing does not have much effect
Trade weakens when shock is introduced, back to baseline levels over time
Gov’t can increase spending significantly

16. Government Reveneus

17. Welfare: Over time
Better macro performance comes at a cost: Welfare loss is higher under VAT all
But…
Becomes + over time
Welfare gain in 2035
Int inp tax causes slight welfare losses
Flat income tax is less welfare reducing in the long run!
What changes over time?
Capital stock
Migration
Human capital
After a critical treshold, Gov’t spending on health and education makes difference
For other scenarios this treshold cannot be reached

18. Conclusion (?) & Future Research
We can capture main dynamics with the model & SAM we have
More realistic scenario design
What are the actual plans
Better handling of investments
Sensitivity analysis
Better analysis of the results
Regional differences?
What determines that treshold and how can it be reduced?

19. Kenya: Boosting Fertilizer Production
Export subsidy programme: €27 million per year
NewFertilizer factory: €1.1 Billion – private
Government of Kenya (2015): Fertilizer factory will reduce the prices by 40%, solve the accessibility issue for small holder farms, increase food staple production etc…
Stage_DEV Model (2015): No! This will not happen!

20. 2014 Social Accounting Matrix
9 regions
54 activities (including 12 accounts of houshold producers),
52 marketed and 18 subsistence commodities
3 types of labor (skilled, semi-skilled and unskilled) in each region + 1 region for rest of the world (foreing workers).
3 capital types (agricultural, non-agricultural, livestock).
2 type of land
5 tax accounts (direct, indirect, sales, factor and tariffs)
24 types of representative households (rural & urban in regions, income groups in Dakar)
Rest of the accounts follow conventions

21. Main Scenario: Fertilizer
100% increase in fertilizer production
Technical change in fertilizer production: 35% for N, 43% for P and 50% for K
5.15 billion Ksh investment (amortization) per year
80% of the increase => the non-agricultural capital supply
remaining 20% is assumed to be used for transaction costs etc...

22. Sub-Scenarios Subsidies: Remove subsidies on fertilizers (around 5%)
Protection: Impose tariff on fertilizers (impose tariffs to reduce imports by 50%; are 49% for N, 37% for P and 22% for K)
Market :
Extra 4 billion KSh. Investment for infrastructure (funded by government savings)
Reduce trade&transport margins by 30%
Extension :
Extra 4 billion KSh. Investment for 7.5 million farm housholds (funded by government savings)
Increase labor, fertilizer and seed productivity by 3%

23. Results: Fertilizer markets
Base
Fertilizer
Subsidy
Protect
Market
Extension
level
% change from base
% change from fertilizer scenario
Production
7.82
100.0
-4.7
-14.5
2.7
2.9
Consumption
26.45
37.4
-7.5
-44.7
3.9
4.9
Supply Price
1.00
-22.0
-1.3
-4.1
0.7
0.8
Purchaser Price
1.04
-8.0
-0.5
15.2
-0.7
0.3
Export
0.27
224.2
-0.9
-2.8
1.2
0.4
Import
18.90
17.2
-8.7
-57.3
4.5
5.9
Exports/Production
10.07
64.0
9.4
-1.8
Import/Consumption
209.61
-15.8
-1.0
-21.8

24. % change from fertilizer scenario
Base
Fertilizer
Subsidy
Protection
Market
Extension
billion Ksh
% change from base
% change from fertilizer scenario
Total
Agri-Food
0.8
-0.2
-1.2
0.4
1.5
Agriculture
0.9
-1.6
1.7
Crop
1.0
-1.9
0.3
1.8
Export Crops
328.40
2.7
-0.6
-6.3
-1.8
3.5
Food Staples
0.5
-0.1
-0.5
1.1
1.2
Livestock
388.10
-0.4
Food
642.13
-0.3
HPHC
300.41
289.30
219.35
0.7
69.95
1.3
2.2
11.12
Marketed
-1.4
-2.2
785.23
318.15
0.2
631.01

25. Food Security

26. Conclusion
Increasing domestic production of fertilizers do not fully achieve the objectives of reducing rural poverty and increasing agricultural production.
Need to implement complementary policies that help small-holder farmers to overcome the backward technology trap and give them better access to input and output markets.
Increased fertilizer production benefit mostly to the export crops
to help small-holder farmers, Kenyan government should pursue some complementary policies by improving the rural infrastructure or improving the extension services
Government of Kenya (2017): Nobody should expect an immediate fall in fertilizer prices!

27. Contact Info
Dr. Hasan Dudu
Scientific Project Officer
European Commission - DG Joint Research Center
Sustainable Resources Directorate
Seville, Spain Tel:

28. Closure Rules Closure rules: Neoclassical with some modifications
Foreign savings is kept fixed to base year foreign savings plus the new investments for factories); exchange rate adjusts
Government savings are fixed; government spending adjusts
Numeráire: Consumer Price Index; Producer Price Index (PPI) adjusts
All factors are fully employed with fixed supplies and flexible wage rates.
The fixed supply of labour is updated to reflect changes due to migration and movement across labour types.