Public Expenditures for Agricultural and Rural Development in Africa

Tewodaj Mogues, Samuel Benin, Tewodaj Mogues, Samuel E Benin

• Publisher: Routledge
• Year: 2012
• ISBN:
  9781136445392
• Edition: 1
• Topic: Commerce
• Subtopic: Commerce Général

Whereas there is plenty of work looking at macroeconomic effect of public spending on growth and poverty in Africa as well as studies of the impact of spending or investment in one economic sector on outcomes in that sector or on broader welfare measures, this book fills a much needed gap in the research looking how the composition of public spending affects key development outcomes in the region.

The book brings together recent analysis on the trends in, and returns to, public spending for agricultural growth and rural development in Africa. Case studies of selected African countries provide insights on the contributions of different types of public expenditures for poverty, growth and welfare outcomes, as well as insights into the constraints in gaining development mileage from investments in the agricultural sector.

1 Introduction

Tewodaj Mogues and Samuel Benin

The recognition that agriculture and rural development must play a central role in economic growth, poverty reduction, and food and nutrition security improvement in Africa is widely accepted, as the cost of past disinvestments from the sector during the structural adjustment era and beyond has become all too obvious. The World Bank’s flagship annual World Development Report of 2008 argues that recent improved performance of the agriculture sector holds promise for using agriculture for development, and urges concerted action by the international development community to level the playing field in international agricultural trade, provide global public goods such as technologies for food staples, and help developing countries address climate change and overcome looming health pandemics for plants, animals, and humans (World Bank 2007d). The soaring food price crisis in 2007/08 and the 2010/11 rapid climb of food prices back up to their heights of a few years ago has put at risk the gains from Africa’s income growth during the first decade of this century and starkly focused minds on how raising African agricultural productivity can mitigate these crises, and how public policy can create an enabling environment for such increased productivity to be realized.

There are a range of instruments that governments and donors can use to promote the required agricultural growth and poverty reduction in Africa. Among them, public investment is one of the most direct and effective methods. However, agricultural spending in Africa remains very low when compared with that in other developing regions. For example, over the past three decades Africa spent only 4–7 percent of its total national budget on agriculture (see Chapter 2). This compares unfavorably with Asia, where agricultural public expenditure as a share of the public budget has been 6–15 percent.

Many African countries are intensifying efforts at redirecting resources to agriculture and for rural development as well as making commitments to allocate greater resources to these sectors. In 2003, African leaders came together under the African Union’s New Partnership for Africa’s Development (NEPAD) and adopted the Comprehensive Africa Agriculture Development Programme (CAADP), which called for member countries to increase annual agricultural growth to 6 percent and annual agricultural spending to 10 percent of total expenditures (AU/NEPAD 2003). But African governments and their development partners want to know whether the resources allocated to the agricultural and other sectors are sufficient for achieving development objectives of economic growth and poverty reduction. In particular, how should resources be allocated across different sectors of the economy such as agriculture, infrastructure, health, and education for efficient and equitable outcomes? And within a particular sector, taking agriculture for example, how should the resources be allocated among extension, irrigation, agricultural research and development, input subsidies, and so forth? In some cases, African countries have clear principles on how they should prioritize their scarce public resources. However, the information needed to operationalize the principles is often lacking.

There are as yet few studies that empirically and carefully analyze patterns of, and returns to, government spending for agricultural and rural development in Africa. Most of the studies examining the link between public expenditure and development outcomes in Africa, and in fact in developing countries in general, fall into one of two categories. Studies in the first category take a macro view, exploring how the size of overall public spending or public investment affects growth or poverty. The second category includes studies of the impact of spending in one economic sector on outcomes in that sector, or on broader welfare measures. Both types of studies can provide useful input into policymaking decisions. However, there is a striking lack of research that could be described as belonging to a third category: studies aimed at examining how the composition of public spending affects key development outcomes in the region—a particularly policy-relevant question. Many of the case studies in this volume deliver analysis along the lines of this third category.

1.1 What Determines how Spending Decisions are made? A Brief Look Beyond the Scope of this Volume

There is a considerable need for studies on which types of public investments contribute the most to development goals, as this information may help shape aspects of the budgeting process. While available evidence on the poverty and growth outcomes of alternative public expenditure portfolios likely plays a role in expenditure decisions, it is critical to consider that budget allocation is also inherently a political process in developing and industrialized countries alike, and budget decisions will typically reflect a range of considerations in addition to economic growth or poverty reduction. There is as yet only very limited research that considers what the driving factors of African policymakers’ spending decisions are, and, in particular, why public investments for agriculture and rural areas have historically been so constrained on the continent. This is an important, and we argue fascinating, research topic in its own right. It is also a topic that goes well beyond the scope of this volume.

However, we seek to summarize here a few existing insights from the literature. There have been three relatively recent and extensive reviews of the economics as well as political science literature on the economic and political economy factors that influence agricultural policymaking, and each of these reviews has some elements that are germane to the question posed in the title of this section. Binswanger and Deininger (1997) focus on theories and empirical work relevant to the developing country context, de Gorter and Swinnen (2002) contain a discussion-dedicated section in their literature review to explaining public investments in agricultural research (albeit only with regard to developed regions), and Swinnen (2010) offers a review of the most recent innovations in the political economy literature pertaining to agricultural policymaking. But these reviews also partially discuss the question of how public spending decisions are made in African and other developing countries, as they extend into other topics. The first two of these reviews take a broader view of public policy in agriculture, going beyond expenditure policy, and the latter centers on agricultural trade policy; also, de Gorter and Swinnen (2002) and Swinnen (2010) do not have a central focus on the developing world.

As was stated earlier, this points to plenty of room for future research to examine, or review existing evidence on, how different governance arrangements and political economy factors affect public spending allocation decisions in developing countries in general, and Africa in particular. However, with the above-mentioned studies being among the closest available literature reviews pertaining to the topic at hand, we will highlight those insights from these works which speak most directly to this question.

Longstanding political economy models include as two key elements the clustering of individuals into interest groups to press for their preferred expenditure or other public policies, and political agents who include as one of their objective functions to retain office, either by being reelected in contested systems or by avoiding excessive dissatisfaction that may lead to their being removed from office by non-electoral processes.

The effectiveness with which different interest groups can influence politicians is determined by several factors, and the extent to which they are fulfilled will vary between rural and urban citizens, and within agriculture between large and small farmers. In other words, interest groups can supply an adequate quantity of the local (or group-specific) public good of lobbying for the public resource decisions preferred by their members if they can avoid the collective action problems well known in public goods provision.

One factor facilitating collective action is the spatial concentration of group members, which facilitates coordination and mutual monitoring of actions. Agriculture is strongly characterized by spatial dispersion of farmers, in contrast to the relatively closer physical proximity of urban citizens to each other. Second, and similarly, access to transportation and communication infrastructure, which in Africa (as in most places) is inferior in rural as compared to urban areas, facilitates intragroup coordination and organization.

Third, a critical element in collective action is group size. For any level of spatial concentration and access to transport and communication infrastructure, it is harder to coordinate among larger than among smaller groups. In most developing countries, and throughout nearly all Africa, the agricultural and rural populations are substantially larger than the urban populations, resulting in another inherent disadvantage among the former in organizing to appeal for proagriculture policies. Group size also matters in a second respect, relating to the advantage to be gained by any given member from a certain expenditure diversion toward agriculture-supportive investments. Holding constant the extent to which a given investment constitutes a public good, the same resources allocated to a purpose preferred by a large-sized group as against that preferred by a small group will invariably result in greater gains for any member of the small group than member-level gains for the large group, resulting in greater incentives for members of a smaller group to engage in (and incur the costs of) lobbying for their preferred spending policies. The political outcome of these features of groups which either facilitate or restrain collective action is further reinforced by incentives on the part of politicians, from whom groups seek to extract favorable policies. Politicians’ incentives are to enact those policies that concentrate (e.g. in a small group) the gains from these benefits, and disperse (across the rest of society) their costs.

Aside from factors that facilitate collective action among group members, additional factors related to members’ human capital and financial endowments influence different groups’ ability to exert influence for policies that benefit them. Greater educational endowments and access to information enable a group to assess more accurately the consequences and relative merits of different policies—for example, provision of fertilizer subsidies versus investments in rural roads—and thus make it better equipped to push for those policies that make its members better off. And policy influence through conditional political support for politicians is, among other things, exercised through the provision of financial resources for political agents, which they can employ to improve their chances of remaining in office. Thus, the average income of different groups matters, a factor in which agricultural populations are once again at a relative disadvantage.

After having provided a very brief glimpse to an important but closely related question, albeit one that is outside the scope of this book, we shall turn to describing the stucture of the material covered in this volume.

1.2 Structure of the Book

Usually the main public investment decision facing policymakers is how to allocate an existing pool of public resources across various sectors, rather than merely whether to increase or decrease the public budget. The relative lack of research-based evidence on Africa comparing the effectiveness of different types of public expenditure in contributing to development has prompted international donors and the governments of developing countries to equate pro-poor spending with social-sector investments, leading to corresponding expenditure policies. However, a number of studies have suggested that in many developing countries the greatest contributions to poverty reduction are not necessarily derived from social-sector spending, but rather from investments in “hard” infrastructure such as roads, electrification, and agricultural research systems. In the absence of empirical evidence supporting development returns to public spending, considerations other than economic development may fill the vacuum created by this knowledge gap. Hence, research on the relative returns to different types of public investment may contribute a great deal to improving policy decisions.

Both the recent Africa-wide and country-level developments in the policy arena concerning public investments in agriculture, as well as the scarcity of analytical work on public expenditures in and for agricultural growth in the region, have inspired the creation of this book. The book brings together recent analysis on the trends in, and returns to, public spending for agricultural growth and rural development in Africa.

Case studies of selected African countries provide insights on the contributions of different types of expenditures for poverty, growth, and welfare outcomes, as well as insights into the constraints in gaining development mileage from investments in the agricultural sector. The case studies, including Ethiopia, Ghana, Nigeria, Tanzania, and Uganda, offer an examination of widely diverse countries along many dimensions. These countries stand out in Africa along one or more important factors that are either directly central, or relate, to the themes explored in the analyses of the impacts and implications of public spending in Africa.

For example, Ethiopia is noticeable for its very high relative allocation of public expenditures to the agricultural sector. As the chapter on Nigeria shows, this country’s investments in agriculture contrast with what is found in Ethiopia in that they have been minuscule in relative terms. Nigeria, however, is notable as one of the African countries with substantial natural resource endowments, primarily in the form of oil, a fact that has had major implications for the size as well as the volatility of public budgets. One of Ghana’s striking features on the continent is its sound governance environment, with relative accountability and scrutiny of its budget process by civil society and donors. Uganda has had a history of strong success in economic growth and poverty reduction, partially driven by past high performance in the agricultural sector, which has slowed only recently. While these countries may have one or more features that stand out in Africa (even if they are not necessarily unique to the country), each study country can also be considered “typical” in terms of other factors. Through these diverse case studies, we hope to shed light on how and under what circumstances different types of public investments can be most effectively leveraged to achieve development goals in Africa.

Africa-wide analyses in this book also complement the country-level studies by comparing the performance and scale of public spending in the agricultural sector to those found in other developing regions and by assessing what resources would be needed to meet the first part of the first Millennium Development Goal of halving the 1990 poverty level in the region by 2015.

The next chapter starts this book off by offering a comprehensive discussion of the definitions of “agriculture” and “public spending in agriculture.” Building on the definition, the chapter provides an overview of trends in magnitudes of agricultural public spending in sub-Saharan Africa in comparison with spending in other developing regions, and a similar comparison among countries within Africa. “Magnitude” is examined from various angles, for example considering the monetary volume of spending, the share of agricultural to total spending, and spending relative to the size of the sector.

The subsequent analytical chapters are preceded by a discussion of methodological approaches in assessing the impact of, and returns to, public spending for agricultural and rural development. This third chapter provides an overview of the range of techniques that can be used to undertake such analysis, but also includes discussion interspersed in the chapter of which techniques are more adoptable in—and adaptable to—the African context, as strong data constraints, especially from administrative public expenditure accounts, may require modification of standard empirical approaches for the more modest data landscape.

The five chapters following the one on the methodological approaches constitute the five country case studies of Nigeria, Ghana, Tanzania, Uganda, and Ethiopia. The first of these presents a detailed review of public spending in agriculture in Nigeria by examining the quantity and quality of this expenditure, as well as the budget process, budget execution, and relationship of public expenditures to the country’s public policy formulated for the sector. It does so by dissecting public expenditure data at the federal, state, and local government levels—drawing on secondary data collected in three case-study states, three local governments, and at the federal level—in order to also shed light on the role of the different tiers of government in resource allocation for the agricultural sector.

The subsequent four country case studies compare the returns (in terms of rural welfare, agricultural growth, and/or poverty reduction) to agricultural public investments with public investments in other sectors that are relevant to rural development: health, education, road infrastructure, and electrification. While the analyses in these chapters follow somewhat similar patterns, given that they explore closely related research questions, the type of analysis is not homogeneous across these chapters, owing to differences in the empirical context and in data availability across countries. For example, there is some variation in the case studies’ treatment of the above-mentioned sectors. The study on Tanzania is the only one that includes an analysis of the returns to investment in the electricity sector. The study on Uganda disaggregates public investment in road infrastructure by road type (feeder, murram, and tarmac roads), and the Ghana study looks at returns to agricultural spending separately by capital and recurrent spending. The chapter on Ethiopia assesses returns to agricultural spending in the aggregate, whereas the focus for Uganda and Tanzania is on agricultural research and development (R&D).

In each of these case studies, a spatially disaggregated examination of the returns to different types of public spending on growth, poverty, and welfare outcomes is undertaken, as administrative, agroclimatic, and infrastructural differences across areas may determine the opportunities and costs associated with undertaking public investments in these areas. The key spatial parameter in Ethiopia and Uganda is administrative provinces, and in Ghana and Tanzania it is agroecological zones, whereby each of these zones constitutes a small group of administrative provinces. And indeed in all cases, the results suggest that government spending yields strongly differentiated returns across areas within the same country.

Methodologically, the four chapters draw on techniques developed in Chapter 3 and adhere to a similar structure, however with some important variations, for example in terms of the central outcome indicator of interest, the level of analysis (household level, district level, multiple levels), and in the details of the channels examined through which public investments bear on development outcomes. Three of the four studies first propose a household model of agricultural production, income, and/or poverty, with a focus on the effects that access to public services in the above-mentioned sectors has on household production or welfare. These effects are then linked to public spending in these sectors, to derive the returns to public expenditures in terms of agricultural productivity and household welfare. In the case of one chapter (that on Uganda), all analysis takes place at the district level, rather than at the household or at multiple levels. The empirical strategy in all but one chapter (here the exception is Tanzania) relies on a simultaneous-equations framework, as detailed in Chapter 3.

While the questions central to the previous six chapters (Chapters 3–8) are the magnitude, trends, and effect of agricultural and other public investments in Africa, the penultimate chapter und...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright
• Contents
• List of figures
• List of tables
• List of contributors
• Preface
• List of abbreviations
• 1. Introduction
• 2. Public spending for agriculture in Africa: definition, measures, and trends
• 3. Agricultural growth and poverty reduction impacts of public investments: concepts and techniques for undertaking assessments
• 4. Agricultural public spending in Nigeria
• 5. Public expenditures and agricultural productivity growth in Ghana
• 6. Public investment and poverty reduction in Tanzania: evidence from household survey data
• 7. Public expenditure, growth, and poverty reduction in rural Uganda
• 8. The bang for the birr: public spending and rural welfare in Ethiopia
• 9. Investing in African agriculture to halve poverty by 2015
• 10. Agricultural and rural public spending in Africa: conclusions and implications
• References
• Index