ReSAKSS Regional Analysis on Agricultural Expenditures and

Agricultural Policy Bias: Africa Wide

Babatunde Omilola and Melissa LambertApril, 2009

1. Overview of public expenditures across the world

How does Africa’s public spending compare to public spending in other regions?

Public expenditures across world regions, 2000 international dollars, billions

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

SSA (13 countries) N. Africa (3 countries) LAC (16 countries) Asia (11 countries) Total (43 countries)

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inte

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1980 1990 2000 2005

Total spending increased by 6 percent from 1980-2005, the

majority of which was from Asia

Spending in SSA and N. Africa increased by 3.7 percent from 1980-

2005. In SSA alone, spending increased by 4.9 percent

Source: Calculated using data from International Monetary Fund’s (IMF) Government Financial Statistics Yearbook

Public expenditures across world regions, Percentage of GDP (%)

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35

40

45

SSA (13 countries) N. Africa (3 countries) LAC (16 countries) Asia (11 countries) Total (43 countries)

Perc

enta

ge o

f G

DP,

%

1980 1990 2000 2005

Public expenditures as a percentage of GDP is a more useful measure of the amount a country spends relative to the size of its economy

Under this measure, Africa has spent the most, although in SSA

this share has declined since 1980.

Sources: Calculated using data from International Monetary Fund's Government Finance Statistics

How have governments allocated their total spending?

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10%

20%

30%

40%

50%

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100%

1980 1990 2000 2005 1980 1990 2000 2005 1980 1990 2000 2005

Shar

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pen

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g, %

OtherDefense Social Security T&C Health Education Agriculture

SSA Asia LAC

The share of spending on agriculture in SSA increased since 2000 but remains at the 1980 level

and below 10%.

Since 1980, the share of spending on health, education and agriculture in SSA has increased slightly while spending on defense has declined.

Sources: Calculated using data from International Monetary Fund's Government Finance Statistics

Agriculture expenditures across regions

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1980 1990 2000 2005

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Agriculture expenditures by region, 2000 international dollars (billions)

North Africa SSA LAC ASIA TOTAL

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16

1980 1990 2000 2005A

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GD

P, %

Agriculture expenditures by region as share of agriculture GDP

North Africa SSA LAC ASIA

The level of agricultural spending is much higher in Asia than in N. Africa,

SSA and LAC

Yet as a share of agriculture GDP, expenditures on agriculture are highest

in N. Africa – but still lowest in SSA.

Sources: Calculated using data from International Monetary Fund's Government Finance Statistics

Drawing conclusions from the figures

• Although SSA has increased total spending and agricultural spending, the levels are much lower than other regions of the world

• Therefore, SSA, as a region, will need to increase its level of public spending on agriculture in order to experience successful transformation that Asian countries did through the green revolution

2. Agriculture spending in Africa

Country Progress towards the Maputo Declaration target

Progress towards the Maputo Declaration target

• The African continent as a whole has not met the 10% target (current spending at 6-8 percent)

• But, this varies by country

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Agricultural Expenditures as a share of total (%), 2007

CURRENT, 2007 (Unless otherwise noted)

*=2006; **=2005; ***=2004; ****=2008 estimates

Sources: Various, compiled by ReSAKSS.

Only 8 countries have met the 10%

target

Have countries increased their spending in response to the 2003 Maputo Declaration?

• At the continental level, agricultural spending nearly doubled between 2000 and 2005

• In 2003, only 3.2% of countries allocated 10% or more of their budgets to agriculture– This increased to 33.3%

in 2006 before slightly falling to 25% in 2007

• 9 countries increased their allocations from less than 5% spending to 5-10% spending

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70.0%

2002 2003 2004 2005 2006 2007

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Level of agricultural spending as a share of total spending, 2002-2005

Less than 5% 5%-10% More than 10%

Sources: Various, compiled by ReSAKSS.

Agriculture expenditures as a share of agricultural GDP

• Measures government spending on agriculture relative to the size of that country's agriculture sector

• Under this measure, more countries fall into the category of low budget support to agriculture

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20

40

60

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%

Agricultural expenditures as a share of agricultural GDP, 2007

CURRENT, 2007 (Unless otherwise noted)

*=2006; **=2005; ***=2008 estimates

The range is considerable

(1 to 60%)

On aggregate , Africa spends between 5-7% of agricultural GDP on agriculture,

compared to 15% in Asia during its Green Revolution

Sources: Various, compiled by ReSAKSS.

3. Development Assistance to Agriculture in Africa

Development Assistance for African agriculture

Since 1995, official development assistance (ODA) to agriculture in Africa has fallen and has been less than ODA to emergency relief and food aid

Sources: OECD statistical portal, accessed November, 2008.

Agricultural aid to Africa, by country

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9

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Agr

icu

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ral a

id a

s a

shar

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id, %

2002 2003 2004 2005 2006

All countries spent less than 10% of aid

budgets on agriculture

• Agriculture has not been prominent on the donor agenda, perhaps not because of any conscious decisions but due to pressure to broaden the aid agenda• It is crucial for development agencies to also commit to the 10% budgetary allocation to agriculture Source: OECD statistical portal, accessed November, 2008.

4. Reaching the first Millennium Development Goal in Africa

Is it possible at the continental-level and country-level?

MDG1 in Africa

• African agriculture will need to grow at a rapid rate of 7.5 percent annually in order for the continent to meet the MDG1

• At the country level: – Mali, Nigeria, Burkina Faso, Tanzania, Mauritania, Ethiopia, Cameroon,

Uganda, Mozambique, and Ghana, require a growth rate of 6 percent or less

• To achieve the desired growth rates, overall, African countries will need to boost their agricultural spending to $33 to $39 billion annually (in 2000 international dollars) from 2005-2015– This translates into an increase of agricultural spending by 20 to 24

percent annually

• At the country level: – Ethiopia, Ghana, Mozambique, and Uganda can potentially reach MDG1

by increasing agricultural expenditures by up to 10 percent annually– The majority of countries, however, will need to scale up spending by 20

to 30 percent per year

Source: Fan, et al. 2008. ReSAKSS Working Paper No. 25

5. Agricultural Bias in Africa

Policy bias against agriculture – what remains?

Policy bias against agriculture in Africa

• Distortionary policies have been reduced in Africa over time, yet substantial distortions remain and still impose a large tax burden on Africa’s poor

• Distortionary polices worsened following independence, but after the 1970s, various reforms successfully reduced them and now average rates of agricultural taxation are at their pre-1960 levels

• African farmers have become less taxed in part because of the changing trade orientation of African agriculture

Source: Anderson and Masters, 2009.

Nominal Rate of Assistance

• NRA = the percentage by which government policies have raised gross returns to farmers above what they would have been without the government’s intervention

• If NRA is positive, then farmer support is high

• If NRA is negative, farmers are being taxed

Source: Anderson and Masters, 2009.

Nominal Rate of Assistance

• In Africa, NRA were less than 10% in early 1960s, rose sharply in 1960-70, and has since fallen to below the early 1960s level

• At the country level, from 1960 to present:– There were major reductions in farmer taxation in Ghana, Uganda,

Tanzania, Cameroon, Senegal and Madagascar from reforms that occurred between 1975-79 and 2000-04

– There was a shift from taxation of farmers to support of farmers in Mozambique and Kenya

– There was a shift from slight support of farmers to slight taxation in Nigeria

– Continued heavy taxation of farmers in Cote d’Ivoire, Zambia and Zimbabwe

– NRAs favored sugar, rice and milk the most and taxed coffee, cotton, tobacco and cocoa the most

– NRAs favored import-competing products while taxing exportables• In other words, NRAs were in favor of self-sufficiency

Source: Anderson and Masters, 2009.

Consumer tax equivalents

• CTE = the percentage by which policies have raised prices paid by consumers of agricultural outputs

• If CTE is positive, consumers are essentially paying a tax on agricultural goods

• If CTE is negative, consumers are essentially receiving a subsidy for agricultural goods

Source: Anderson and Masters, 2009.

• In Africa, CTE reached -10% immediately following independence, fell to -17% by the early 1970s, and then gradually progressed to zero today

• Historically, (in dollar terms),

– subsidies to consumers were the largest in Ethiopia and Sudan

– tax on consumers has been the largest in Nigeria and South Africa

Consumer tax equivalents

Source: Anderson and Masters, 2009.