News Column

Going against the grain

June 8, 2014

Is the agricultural sector the economic answer or a launch pad for more inclusive growth?

Africa's exponential economic growth since 2000 has been well-documented. The region that just 14 years ago was labelled the "hopeless continent" by The Economist has experienced doubled real GDP growth in the last decade, a 10 percentage point drop in the share of the population living below the poverty line, and real consumption growth between 3.4 and 3.7 per cent per year. At the same time, intra-state conflict dropped by nearly half since the 1990s and foreign direct investment rose. By all accounts, the early aughts were a success story for Africa.

Yet at no surprise to many, economic growth has not exactly been inclusive and poverty is still a critical issue across the continent. A string of recent reports by the African Development Bank (AfDB), World Economic Forum (WEF) and Africa Progress Panel (APP) has touted the agriculture sector as the answer—Kofi Annan of the APP went so far to say that it's time for Africa to "unleash its green and blue revolutions" of agriculture and fishery investment.

But while agriculture may be the key to lifting Africans out of poverty, another recent study by the National Bureau of Economic Research (NEBR) argues that Africa's positive economic growth since the turn of the century has actually been due to major structural change resulting a significant decline in agriculture sector employment. How do the two line up?

NEBR reported that from 2000-2011, the labor force in 19 agriculturally-oriented African countries moved away from the agricultural sector at an average of 10.61 per cent, and moved into the manufacturing and services by averages or 2.15 and 8.23 per cent, respectively.

Interestingly, NEBR says that the agricultural employment share is falling faster in countries that started with a higher share of the labor force engaged in agriculture, as well as those countries that have already achieved at least one of the Comprehensive African Agriculture Development Program (CAADP) targets (which, incidentally, are a big part of WEF's recent report).

Some of the biggest declines in agricultural engagement came from countries where both commodity prices and rural schooling have risen. Commodity prices coincided with improved governance, implying that as electoral systems became more competitive, domestic concerns such as infrastructure have been addressed more efficiently. The correlation between rising education and falling agricultural employment indicates two things: rural farmers now have the option of sending their children to school, either indicating more individual revenue or more effective government (or both); and, as rural citizens become more educated, they are less likely to remain in the agricultural sector.

Also significant is the correlation to female engagement in the agricultural sector—while male employment in agriculture did not shift significantly with these structural changes, female employment fell rapidly when improved governance and higher commodity prices were in place.

NEBR goes as far as saying that "movement out of the agricultural sector has been responsible for growth and poverty reduction in Africa."

While it may seem so at face value, these reports far from contradict each other. APP, WEF and the AfDB all argue that the agricultural sector can lift rural Africans out of poverty, and it does contribute greatly to poverty reduction. But at the same time, inefficiency and competition—particularly smallholder struggles—make it difficult for citizens to remain and flourish in the agricultural sector. So the caveat is that the more productive the agricultural sector becomes, the less Africans are working in it.

This isn't necessarily a bad thing. More and more Africans are migrating to urban areas (something also not as easily done in prior decades) and taking jobs in the rapidly rising manufacturing and service sectors. Increased productivity means that while there are less people working in the sector, it's becoming more efficient and globally competitive as a whole, reducing African agricultural imports (which ironically amount to $35 billion a year, despite its own resources).

The issue now is sustainable growth, and that's something all four studies agree on. Though GDP growth has largely sprung off the back of the expanding manufacturing and services sectors, the foundation of African economic power is still green and blue.

"These results are encouraging and point to reasons for the real consumption growth in Sub Saharan Africa…However, they also underscore the fragility of Sub Saharan Africa's recent growth. This is because the services sector in Sub-Saharan Africa is unlikely to be an engine of sustained productivity growth over the long run," NEBR warned. That said, however, "Increasing agricultural productivity in Africa and rising global food and commodity prices coupled with stable macro and political trends have made foreign and local entrepreneurs more willing to invest in Africa."

For more stories on investments and markets, please see HispanicBusiness' Finance Channel

Source: CPI Financial

Story Tools Facebook Linkedin Twitter RSS Feed Email Alerts & Newsletters