Playing to strength: Growth strategy for small agrarian economies in Africa
With urban industrialization on the scale achieved by East Asian economies looking increasingly less plausible, small economies in Africa need an alternative strategic approach to long-term growth. The purpose of this paper is to identify a growth strategy with the greatest potential for small, landlocked economies in East Africa.
The paper uses Malawi, Rwanda, and Uganda as case studies to explore the potential for growth in agriculture, manufacturing, and tourism in these countries. The paper marshals extensive reasoning that while the manufacturing sector and exports of light labor or resource intensive manufactures could contribute a fraction of aggregate growth, it is agriculture, agribusiness, and services that will contribute the lion’s share because of an unprecedented convergence of technologies.
Industrialized agriculture and agri-business could enable these countries to sustain rapid growth even in the face of climate change. Malawi, Rwanda, and Uganda, with some trying, can accelerate their convergence to the technological frontier to take full advantage of this promise.
Achieving agriculture’s potential through modernization, adoption of new technological advances and enhanced resilience to climate change
The Green Revolution in South Asia is frequently referred to as an example for Africa to emulate. Are there lessons for the three East African countries and how do these need to be updated to take account of technological developments and learning since? The Green Revolution in South Asia was enabled by the availability and adoption of high-yielding varieties of seeds, intensification of inputs including fertilizer and water, mechanization, and extension services. There is some good news on the availability of high-yielding varieties for East Africa, but there are considerable other bottlenecks to emulating the Green Revolution in East Africa that need to be resolved. In all three countries, the insufficient application of modern inputs – fertilizers, improved seeds, pesticides, and farm machinery – results in low yields.
The further improved dwarf rice strains that have delivered good results in South Asia and Latin America are suitable for Rwanda and Uganda where rice is one of the staples. Hybrid strains of maize and sorghum have also been developed that are adapted to African conditions and the brightly colored seeds are becoming widely available. The issue for Africa is that consumption includes multiple staples and other crops. There is nothing comparable to the stranglehold that wheat and rice have on diets in South Asia. Hence, the research needed to improve yields must be more extensive in its coverage of crops and microclimates. This crop diversity poses a challenge; at the same time, it mitigates risks and opens multiple pathways to increasing production and exports.
Higher yielding varieties of maize have been available for some time but their diffusion has fallen short of expectations. Hybrid seeds need to be purchased anew prior to each planting season because maize is an open pollinating species, and hybrids deliver the sought after yields only if they are adequately fertilized. Because agriculture is almost exclusively rain-fed and drought poses an omnipresent risk, borrowing to finance the cultivation of hybrids, even when subsidized credit is available, remains unattractive to many. Only 7 percent of the cultivated acreage in Africa is under hybrid varieties.
Superior strains of food crops are a necessary but by no means a sufficient condition for an eventual transition to modern agriculture. In the three countries, farmers use remarkably little mechanical equipment partly because labor is cheap, and partly also because capital costs and the expenses incurred on fuel discourage the use of machinery that would ease the workload and circumvent seasonal labor shortages. Furthermore, the incentive to upgrade agricultural practices is inhibited by difficulties encountered in processing, storing, transporting, and marketing surplus output.
Infrastructure constraints to modernization are several. First and foremost are the transport and energy infrastructures. All three East African countries are deficient in these. The lack of easily accessible all-weather feeder roads, maintained in good condition, greatly increases the ton/km cost of transporting agricultural produce and discourages yield-enhancing improvements and production for the market (e.g. the availability of fertilizer at affordable prices). In fact, only a third of Uganda’s agricultural output reaches the market and many farmers have been discouraged from growing the high yielding NERICA rice for just this reason. Rural transport bottlenecks hamper the processing and marketing of food grains, dairy products and cash crops such as coffee and cut flowers. A crippling shortage of electric power compounds the problem caused by transport constraints because – and this is looking ahead – an increasingly industrialized agriculture that harnesses digital technologies to raise yields and enlarge rural value adding activities, cannot gain traction without an adequate supply of power. As McKinsey Global (2015, Brighter Africa) note, there is potential for developing both fossil-based and renewable sources of power such as solar powered micro grids but until governments step up their efforts to mobilize resources and deepen the capacity to plan and implement, the power supply will increase in small doses when a Big Push is the need of the day.
Rainfed agriculture is hostage to the vagaries of nature and with climate change likely to magnify the variability of precipitation, conserving and efficiently allocating water will require investment in irrigation, the creation of institutions and the use of pricing policies. In addition, farmers would benefit from improved weather forecasting now feasible with the help of advanced computing technologies and models as well as the data provided by satellites and ground-based sensors. These initiatives will need to be combined with other measures such as greater mechanization aimed at industrializing agriculture. As observed by Fuglie and Rada (2013), irrigation can close to double crop yields, however, the best and most costeffective results come from providing plants with the exact amount of water needed at each stage of the growing cycle regarding soil and environmental conditions. To do that calls for the kind of water distribution and application technologies (e.g. drip irrigation using polyethylene tubing and micro spray heads) that delivers a metered amount of water to the root system with the minimum losses from evaporation and overwatering. How much water is needed at any time depends on the information collected by the imaging and sensing techniques that are diffusing in advanced countries.
Water management would go hand in hand with the optimal application of fertilizer using the appropriate mix. Too much is not only wasteful, it pollutes watercourses as well. One promising approach is the so-called deep placement technique that inserts a briquette of fertilizer some centimeters under the soil to slow the release of nitrogen, loss through leaching (if excess water is applied) and surface volatilization as nitrous oxide or ammonia gas. East Africa can also potentially benefit from the advances in digital and imaging technologies, in the crop sciences and in genetic recombination in modernizing its agriculture.
The technology to increase yields and the quality of production in the medium term and in the more distant and climatically less favorable environment (see discussion on climate resilient agriculture later) is available for the three countries to adapt. These technologies are systematizing and making agricultural production more akin to manufacturing. If the industrializing of agriculture and the switch to precision farming are followed through, a sustained increase in supply would be assured.
Is adoption of high-tech for industrialization of agriculture too much of a stretch for landlocked East Africa? There are many obstacles to transferring these technologies wholesale to East Africa but their eventual assimilation is a must and it is the removal of the hurdles that needs to be addressed. To do this the countries will need to invest in RD&E capabilities and in the hard infrastructures that will provide essential services to farmers – principally transport, energy and water. If more of the growth is to be derived from an industrialized precision agriculture, then this is the time to begin planning for the transformation of the agricultural economy because the building of the soft and hard infrastructures and the skills that will make agriculture a sustainable success far into the future will not be accomplished overnight.
Foremost is the need to shift the current focus of development away from growth that is driven by urban industrialization. Upgrading agriculture technologically can generate higher returns for many more people and ease the burden of migration on urban centers. The development of urban manufacturing and services will still be a necessity to support agriculture. However, a strategy that assigns more weight to agriculture in the medium term could be superior (because it builds on current comparative advantage) while at the same time generating the spillovers that spur activity in other sectors of the economy.
Shahid Yusuf is Chief Economist, The Growth Dialogue. Praveen Kumar is Lead Economist, Macroeconomics, Trade and Investment Global Practice at the World Bank. This paper was prepared as a background document for the pdf Malawi Country Economic Memorandum, 2017: From falling behind to catching up (2.33 MB) .