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Dr. Abebe Shimeles,
Director of Research, African Economic Research Consortium (AERC)
Presentation 2– ligning Macroeconomi...
Aligning Macroeconomic Policies for Agricultural
Transformation in Africa
African Economic Research Consortium
November 20...
OurApproachto
CapacityBuilding
• Evidence suggest a wide range of policy distortions practiced in Africa
against the agricultural sector, including biase...
Outline of the presentation
• A snapshot of Africa’s developmental challenge and the role of
agriculture
• Rationale for a...
Africa’s pressing developmental challenge: Extreme Poverty,
hunger and inequality seem to be pervading in Africa
Poverty in Africa originates in the agricultural sector and agricultural
labor productivity is growing slowly
0
20406080
0...
And structural transformation is slow in
many countries
• Agriculture still accounts
for the bulk of employment,
sources o...
• The outcome of the structural transformation is an economy in which well-
functioning factor (e.g., financial and labour...
Urban-biased macroeconomic policy is
evident and replete throughout Africa
• Relative Rate of Assistance to
agriculture ha...
Support to agriculture tends to rise and fall
with budget deficit
Hence urban-bias policies tend to create debt
burden
• Direct fiscal policy, particularly government spending on agricultural
development needs to be revamped to enhance marke...
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2020 ReSAKSS Conference - Plenary Session II—Enabling Environment for Transforming Agrifood Systems

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Presentation on "Aligning Macroeconomic Policies for Agricultural Transformation in Africa" Dr. Abebe Shimeles, Director of Research at African Economic Research Consortium (AERC)

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2020 ReSAKSS Conference - Plenary Session II—Enabling Environment for Transforming Agrifood Systems

  1. 1. Dr. Abebe Shimeles, Director of Research, African Economic Research Consortium (AERC) Presentation 2– ligning Macroeconomic Policies for Agricultural Transformation in Africa (10min) Plenary Session II Enabling Environment for Transforming Agrifood Systems
  2. 2. Aligning Macroeconomic Policies for Agricultural Transformation in Africa African Economic Research Consortium November 2020
  3. 3. OurApproachto CapacityBuilding
  4. 4. • Evidence suggest a wide range of policy distortions practiced in Africa against the agricultural sector, including biases in terms of subsidies, taxes, exchange rate, trade, and monetary policies. The major direct and indirect effects in this case is to affect the appropriability of returns for small holder farmers’ investments. • It is evident therefore agriculture, particularly one managed by smallholder famers will not thrive in Africa under adverse macroeconomic policies which basically offsets the technical and other supports agriculture receives from government and development partners. • There is a need for a purposive, coherent pro-agricultural macroeconomic policy to catalyze the pace of structural transformation in Africa. Key Messages
  5. 5. Outline of the presentation • A snapshot of Africa’s developmental challenge and the role of agriculture • Rationale for aligning macroeconomic policies with agricultural transformation • The evidence: broadly macroeconomic policies in Africa have been biased against the agriculture sector • Conclusion
  6. 6. Africa’s pressing developmental challenge: Extreme Poverty, hunger and inequality seem to be pervading in Africa
  7. 7. Poverty in Africa originates in the agricultural sector and agricultural labor productivity is growing slowly 0 20406080 0 20 40 60 80 Average headcount ratio Agriculture Industry Services
  8. 8. And structural transformation is slow in many countries • Agriculture still accounts for the bulk of employment, sources of foreign exchange revenue and food supply; • Yet its share in GDP declined, indicating lack of structural change.
  9. 9. • The outcome of the structural transformation is an economy in which well- functioning factor (e.g., financial and labour) and output (e.g., food) markets equalize the capital and labour productivity between agriculture and non-farm industry and services, leading to inclusive economic growth • These requires monetary, fiscal and exchange rate policies geared towards aligning incentives across and within sectors. Rationale of aligning macroeconomic policies for structural transformation of African economies
  10. 10. Urban-biased macroeconomic policy is evident and replete throughout Africa • Relative Rate of Assistance to agriculture has been very low (less than zero implies urban-bias policies) • The nominal rate of assistance (NRA) defined as “the percentage by which government policies have raised gross returns to farmers above what they would have been without the government’s intervention” has been negative for over four decades in Africa
  11. 11. Support to agriculture tends to rise and fall with budget deficit
  12. 12. Hence urban-bias policies tend to create debt burden
  13. 13. • Direct fiscal policy, particularly government spending on agricultural development needs to be revamped to enhance market development, technological diffusion and adoption, and overcome structural constraints for small holder farmer, including access to finance, insurance, and other support. Implementing the 10% share agreed by CAADP is a case in point • The investment to support agricultural transformation require physical infrastructure as well as core infrastructure: we need to see road and rail network serving agriculture as well as processing and storage facilities to support appropriate value addition, restructure global value chain and develop adequate marketing avenues • Align real exchange rate, relative domestic prices and wages to keep agricultural sector competitive and productive. In conclusion

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