Continued demand for Africa’s natural resources as well as the recent discoveries of oil, gas and minerals in, among others, Ghana, Uganda, Kenya, Tanzania and Mozambique, together with an improved macro-economic environment, sustain prospects for robust economic growth on the continent.
The pertinent question to be asked however is how more of the new found resource wealth can be converted into fiscal revenues and effective public spending to foster sustainable development, improve human welfare, and generate more rapid income poverty reduction.
In other words, how can we avoid another “resource curse” in Africa.
Increasingly the debate has turned to how institutions and natural resources interact, how institutions and governance can explain policy failure. A useful framework for better understanding the governance challenges in converting resource wealth in human development is the value chain approach.
Three core legs of natural resource management, each embodying their own political dynamics, are highlighted: 1) extraction—transparency regarding terms of contracts; 2) taxation—efficiency in tax collection; and 3) investment of resource rents—careful prioritization of public investment. Some recent initiatives have focused on the first leg.
In particular, under the “Publish What You Pay” and the “Extractive Industries Transparency Initiative” (EITI) mining companies and governments disclose mandatorily or voluntarily (EITI) what they pay and what they earn. Nineteen African countries are now part of the EITI, of which 8 are compliant with all requirements.
The third leg is probably the most important and also the most difficult.
Oil-rich countries in Africa have a poor track record in prioritizing expenditures, implementing projects and getting value for money. Gabon and Equatorial Guinea, with per capita incomes of $10,000 and $20,000 respectively, have among the lowest child immunization rates in Africa. The leakage rate of non-salary expenditures in Chad’s health system is 99 percent. The problem may be due to the fact that oil revenues pass directly from the oil company to the government, without passing through the citizens. As a result, citizens may not know the extent of oil revenues, and have fewer incentives to scrutinize how they are spent. Several people have advocated mechanisms by which African citizens, especially poor citizens, can better share in their country’s mineral wealth.
A second opportunity to enhance the poverty-reducing powers of Africa’s future growth lies in agriculture.
World food prices are high and expected to stay so in the medium term. With urban food markets set to quadruple over the next two decades, domestic and regional markets offer attractive opportunities for Africa’s producers. Agriculture and agribusiness together are projected to be a $1 trillion industry in Sub-Saharan Africa by 2030.
However, many of the opportunities have yet to be captured. In the mid-2000s, Africa switched from being a net exporter of agricultural products to becoming a net importer, with especially many of the mineral dependent economies being large net importers.
Much of the growth in imports concerns staples, especially rice, but also wheat and sugar, for its rapidly expanding urban populations, as well as milk products and poultry, whose imports have exceeded $2 billion in recent years. Except for wheat, which is a temperate-zone crop, these are all products in which Africa should have a comparative advantage, given its abundant land. In addition, just like not all growth is equally poverty reducing, neither is all agricultural growth. Its success in reducing poverty differs across its subsectors as well as the modalities and agrarian structure.
A particularly fruitful area for increasing Africa’s productivity is staple crop production. While agriculture’s growth has picked up during the 1990s and 2000s, it remains largely driven by unsustainable area expansion, which accounts for two-thirds of the growth in agricultural output, with total factor productivity growth and increased input use accounting for the remainder.
Staple crop yields remain way below potential, with maize yields reaching only 20 percent of their potential and cash crops reaching 30-50 percent. More progress appears on the way. In Rwanda, over the past 5 years, cereal yields and the yields of roots/tubers increased by 73 and 52 percent respectively while the poverty headcount dropped by 12 percentage points.
While exports crops typically have higher value and growth potential than food crops, the latter are usually more effective at generating economy-wide growth and reducing national poverty. This follows from their larger multiplier effects and their larger growth elasticities of poverty—one percent growth in agriculture driven by cereal or root/tuber productivity growth generates a larger decline in national poverty than a one percent growth in agriculture driven by growth in export crops.
When smallholders are engaged in growing the export crop, the gaps are usually smaller (such as cotton exports in Zambia and tobacco in Malawi). The results also hold in resource-rich countries such as Zambia and Nigeria, underscoring agriculture as another important and oft-neglected avenue to increase the growth elasticity of poverty in these countries. In sum, while agricultural growth is generally pro-poor, policy should pay attention to growing smallholder staple crop productivity, despite the obvious political appeal of the fast growing agricultural niche markets, such as those of export-oriented horticultural products.
Different countries are pursuing different models to increase staple crop productivity, with varying degrees of success. For example, both Zambia and Rwanda report to have doubled their maize and cereal output respectively between 2006 and 2011, with more than half of the increase coming from yield increases.
The models followed to reach these outcomes were however quite different, including in their effects on poverty—which remained virtually stagnant in Zambia but declining rapidly in Rwanda. Zambia subsidized inputs to farmers and purchased maize at above-market prices, with the bulk of the inputs and benefits going to a small group of larger farmers who also produced the bulk of the marketed surplus. The 42 percent of households cultivating less than one hectare of land, who are also among the poorest of the poor, produced only 7 percent of the expansion in production. Also, while maize output per agricultural household nearly doubled, the mean household net value of total crop production (maize and non-maize) increased by only 20 percent due to substitution away from other high-value crops and higher input costs.
The Rwanda Crop Intensification Program, whereby (subsistence) farmers, who traditionally grow an array of crops on very small fields (on average less than 0.3 ha) are invited to pool their land and specialize in one crop depending on the agro-ecological environment, has been the workhorse of the new agricultural strategy of the government. In addition, they get specialized extension services and are provided with fertilizer.
Decompositions show that almost half (45 percent) of the reduction in poverty in Rwanda between 2001 and 2011 (most of which happened between 2006 and 2011, after the adoption of CIP) has been accounted for by developments in agricultural production (35 percent) and increased marketing of harvests (10 percent).
Yet, no dominant agricultural success model has emerged so far, and adaptation to local circumstances will remain key.