Is an Agriculture Centered Development Strategy a Viable Strategy for Africa? Questions From the Ethiopian Experience.

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Is an Agriculture Centered Development Strategy
a Viable Strategy for Africa? Questions From the
Ethiopian Experience.

• Berhanu Nega and Berhanu Adenew

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Introduction

• I would first like to thank the organizers for
  inviting me to participate in this conference. I
  would also like to welcome all of you to Ethiopia
  for the conference. I hope you enjoy your stay
• I also like to apologize (to the organizers and
  particularly to the discussant) for not having
  the paper ready for the discussant. My life has
  taken a sudden turn since I agreed to present the
  paper
• So, rather than present a full paper with all its
  merits, I will attempt to raise some issues
  relevant to the broad topic I agreed to discuss
  that are becoming important policy issues in
  Ethiopia and to ask our colleagues from other
  countries to comment on them based on their own
  country experiences
• I am not an agricultural economist by training
  and I am looking at the issue from a broader
  perspective of development. Therefore, I am
  going to speak in broad strokes, obviously
  missing the fine details

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What are the issues?

• What is the nature of agriculture as an economic
  activity?
• What is the nature of the agricultural sector in
  Sub Saharan Africa in general and Ethiopia in
  particular?
• Can the lessons of the green revolution in Asia
  in the 70s be replicated in Africa today?
• Given this structure, can agriculture as a sector
  be the center (main driver) for the growth of
  economies such as Ethiopia?
• What are the possible alternatives for poverty
  reduction and growth?

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The case for an Agriculture Led growth strategy!

• This is a strategy currently followed by the
  Ethiopian government and supported by important
  institutions such as the World Bank largely based
  on current endowment and comparative advantage
  arguments
• More fertilizers and improved seeds
• Leads to high levels of land productivity
• Leads to high levels of income of the peasant
  masses
• Leads to increased demand for industrial goods
• Leads to industrializationprosperityNirvana

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Some points about agriculture in general

• Two important characteristics of agriculture as
  distinct from other industries (Cramer et.al,
  2001)
• First, it is characterized by the cyclical nature
  of production caused primarily by physical and
  biological factors
• Second, the sector faces serious price
  instability (owing to Engels law and other
  factors internal and external to the sector)
• Therefore, a very risky business

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What Characterizes the Agricultural Sector in
Africa today?

• declining real output prices (declined by about
  2.6 between 1996-2001)
• rising input prices (esp. fertilizer, increased
  by 37.5 during the same time)
• limited national markets (seven farmer to one
  urban consumer in Ethiopia)
• high price instability in liberalised markets
• high climatic and market risk
• absence of rural financial markets
• declining farm sizes (farm sub-division) from 2.2
  ha. Per hh in 1978 to 1 ha in 2001 with no
  irrigation.

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Implications to Economic Growth and Rural
Poverty The Case of Ethiopia

• GDP growth followed the pattern of the growth of
  value-added in the agricultural sector.
• The agricultural sector has long been susceptible
  to the fragility of nature, particularly
  rainfall.

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Growth in GDP follows the pattern of growth in
agriculture
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Trend in GDP Moderate and irregular
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Per capita value-added in the agriculture has
been declining
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Per capita value-added in the non-agricultural
sector has been rising
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Source MOFED and CSA( Statistical Abstract, Various Issues)
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Annual Average Per-Capita Income, In Birr, Constant 1980/81 Prices
Source MOFED and CSA( Statistical Abstract, Various Issues)
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Agriculture During the Green Revolution in Asia
in the 1970s Can Africa Emulate that today?

• The answer is no because the international
  environment has changed so much today compared
  with the 70s
• big deficit markets, lower use of trade
• rising or stable output prices
• comprehensive agric support policies
• fixed prices, floor prices
• buffer stocks stabilisation operations
• substantial fertilizer subsidies
• huge subsidies to large-scale irrigation

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So, what are the alternative options for Africa?

• While trying to increase productivity in
  agriculture is a valid policy to increase income
  it is a questionable strategy at best to think of
  the sector as the lead sector
• In fact, the development of other sectors around
  agriculture, particularly the process of
  urbanization seem to help the development of the
  agricultural sector
• In general economic diversification seems to be a
  better strategy both for poverty alleviation in
  rural areas and for overall economic growth

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Benefits of Diversification ?

• helps overcome seasonality
• helps ameliorate risk
• increases knowledge, skills, adaptability
• generates financial resources
• yield growth arises from non-farm earnings
• poverty vulnerability most intractable with
  high agric subsistence reliance

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Diversification Leads to Mobility Migration

• diversification one facet of human mobility
• mobility essential to economic dynamism
• ceaseless circulation the norm in growing
  economies
• longer duration and more permanent movements
  migration, urbanisation, international migration
• importance of remittances
• good for the poor and for agriculture

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Agriculture Benefits from Diversification (Ellis,
2004)

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Urbanisation holds the key to Poverty Reduction
and growth in SSA

• provides growing markets for agric output
• Helps in the transformation of agriculture
  through the production of high value crops
  (horticultureetc.)
• benefits from agglomeration economies
• encourages economic specialisation
• provides employment upward mobility
• reduces unit cost of service provision
• creates low-cost labour-intensive services

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The Value of Urbanization for Ethiopian
Agriculture

• empirical projections using a preliminary Demo
  Economic Model that Jean Marie Cour developed for
  Ethiopia illustrate exactly this point. (The
  model was originally done for Seven West African
  Countries with similar results)
• a faster urbanization implies not only higher
  levels of GDP overall compared with a slower pace
  of urbanization, but more interestingly, rural
  incomes will be much higher under a faster
  urbanization scenario compared with the
  alternative.
• A projection for the year 2025 using two
  urbanization scenarios (20 and 40 urbanization)
  show that national per capita GDP would be US
  468 under the 40 scenario compared with US 288
  for the 20 scenario while rural GDP per capita
  will be higher by US79 under a faster
  urbanization.
• Equally interestingly, the productivity
  differentials between urban and rural areas will
  reduce from 4.1 to 3.1 under a faster
  urbanization scenario

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So, what does this mean for Policy Priorities in
SSA? In Ethiopia?

• poverty reduction requires human mobility
• mobility needs to be facilitated, not disabled
  (Implications for land policy in Ethiopia?)
• In general, policy should support

• exchange, mobility, communication, information,
  infrastructure
• Social and economic protection of people on the
  move
• removal of constraints on urban growth dynamism
• Provision of services in urban areas
• resist enforced relocations out of urban areas
• pursue growth where it is observed to occur

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• I Think I Should Stop there!!!
• Thank You