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Agricultural growth and investment options for poverty reduction in Zambia
September 2008
James Thurlow, Samuel Benin, Xinshen Diao, Henrietta Kalinda, and Thomson Kalinda
International Food Policy Research Institute (IFPRI)

Acknowledgements: FANRPAN acknowledges the IFPRI website as the source of this document: http://www.ifpri.org/pubs/dp/ifpridp00791.asp


Abstract

Zambia has experienced strong economic performance since 1999. However, agriculture has not performed as well as the rest of the economy, and although the incidence of poverty has declined, it still remains high. The Zambian government, within the framework of the Fifth National Development Plan (FNDP), is in the process of implementing the Comprehensive Africa Agriculture Development Programme (CAADP), which provides an integrated framework of development priorities aimed at restoring agricultural growth, rural development and food security. This paper analyzes the agricultural growth and investment options that can support the development of a comprehensive rural development component under Zambia’s FNDP, in alignment with the principles and objectives of the CAADP, which include the achievement of six percent agricultural growth and allocation of at least ten percent of budgetary resources to the sector.

Computable general equilibrium (CGE) model results indicate that it is possible for Zambia to reach the CAADP target of six percent agricultural growth, but this will require additional growth in all crops and sub-sectors. Zambia cannot rely on only maize or higher-value export crops to achieve this growth target; broader-based agricultural growth, including increases in fisheries and livestock, will be important. So, too, is meeting the Maputo declaration of spending at least ten percent of the government’s total budget on agriculture. In order to meet the CAADP target, the Government of Zambia must increase its spending on agriculture in real value terms by about 17-27 percent per year between 2006 and 2015, and spend about 8-18 percent of its total expenditure on the sector by 2015.

Although agriculture has strong linkages to the rest of the economy and its growth will result in substantial overall growth in the economy and the household incomes of rural and urban populations, achieving the CAADP target of six percent agricultural growth will not be sufficient to meet the first Millennium Development Goal (MDG1) of halving poverty by 2015. To achieve this more ambitious target, both agricultural and non-agricultural sectors would need an average annual growth rate of around ten percent per year. These growth requirements are substantial, as are the associated resource requirements. Thus, while the MDG1 target appears to be beyond reach for Zambia, achieving the CAADP target should remain a priority, as its more reasonable growth and expenditure scenarios will still substantially reduce the number of poor people living below the poverty line by 2015, and significantly improve the well-being of both rural and urban households.

Introduction

Zambia has experienced strong economic performance since 1999. However, agriculture has not performed as well as the rest of the economy, and while the incidence of poverty has declined, it still remains high. To accelerate growth and poverty reduction, Zambia’s government recently launched the Fifth National Development Plan (FNDP), which emphasizes the revitalization of agriculture as an engine of growth and development for the national economy. This is not surprising, since agriculture is an important mainstay of a large proportion of the population, contributing about 20 percent of GDP and foreign exchange earnings, and employing two-thirds of the population. In association with the New Partnership for Africa’s Development (NEPAD), the Government of Zambia is in the process of implementing the Comprehensive Africa Agriculture Development Programme (CAADP), which provides an integrated framework of development priorities aimed at restoring agricultural growth, rural development and food security in the African region. The main target of CAADP is achieving six percent agricultural growth per year supported by the allocation of at least ten percent of national budgetary resources to the agricultural sector (AU 2006).

Faced with limited resources, the government must not only decide on how much to allocate for the agricultural sector as a whole, but also across sub-sectors within the agricultural sector, as well as across different non-agricultural sub-sectors, in overall economic development. Many investment and policy interventions will be designed at the sub-sector level, and strong inter-linkages occur across subsectors and between agriculture and the rest of the economy. To understand these linkages and how sectoral growth will contribute to the country’s broad development goals, we need an integrated framework to help synergize the growth projections among different agricultural commodities or subsectors and evaluate their combined effects on economic growth and poverty reduction. Moreover, agricultural production growth is often constrained by demand in both domestic and export markets, and demand, in turn, depends on income growth both in agriculture and in the broader economy. Although agriculture is a dominant economic activity in Zambia and the majority of the population lives in rural areas, both rural and urban sectors need to be included in this framework in order for us to understand the economy-wide impact of agricultural growth.

This study analyzes the agricultural growth and investment options that can support the development of a more comprehensive rural development component under Zambia’s FNDP, in alignment with the principles and objectives collectively defined by African countries as part of the broader NEPAD agenda. In particular, the study seeks to position Zambia’s agricultural sector and rural economy within the FNDP. For these purposes, and to assist policymakers and other stakeholders in making informed long-term decisions, we herein develop an economy-wide, computable general equilibrium (CGE) model for Zambia and use it to analyze the linkages and trade-offs between economic growth and poverty reduction at both the macro- and microeconomic levels. In addition, the study assesses the aggregate public resources required by the agricultural sector for achieving the development goals committed to by the government.

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