We should invest more in agriculture to fight poverty
Posted Friday, September 27 2013 at 01:00
Notwithstanding Uganda’s remarkable record of rapid economic growth with stable macroeconomic policies over several years, recent agricultural sector performance indicate that going forward, the country faces major economic challenges that could hamper growth and policy coordination.
Without addressing the underlying weaknesses in the agricultural sector, the sector will continue to drag overall economic growth and efforts to create employment, food security and diversify exports. Moreover, delayed corrective action, will add to serious upward pressure on domestic inflation, further impeding efforts to reduce poverty.
Early in September, the Bank of Uganda (BoU) announced an increase in the Central Bank rate from 11 per cent to 12 per cent, citing a supply shock to agriculture, which had raised food prices. BoU also noted that the supply shock and its response with tighter monetary policy may also impede real growth in 2013/14.
The implications are clear; without urgent means to expand agricultural production on a sustainable basis to meet the rapid domestic and regional food, demand management policies will not be able to contain inflation without exerting significant downward pressure on overall economic growth. We have to strike a balance between supply expanding and demand policies to maintain a sustainable balance of economic management.
On a broader front, the agricultural sector has been a drag on overall GDP growth. The sector grew by 1.4 per cent in 2012/13, showing an improvement over a growth rate of 0.8 per cent in the previous year.
More significantly, over the past five years, overall GDP growth has averaged 5.7 percent while agriculture growth has averaged 1.4 per cent. Solving Uganda’s need for enhanced growth would require agriculture to be the leading sector.
Moreover, low agricultural growth is exacerbated by one of the highest population growth in the world of about 3.2 percent and the rapidly growing regional demand from Uganda’s agricultural production. The neighbouring countries already plan on meeting their food needs from Uganda and have set up policies to this effect. Uganda should welcome this development but redouble efforts to boost agriculture.
Also thanks to the regional and Uganda’s efforts to enhance transport infrastructure, access to Uganda’s produce is rapidly improving but, at the same time, are inadvertently fueling further demand for such agricultural products.
Against a background of relatively sluggish agricultural performance but rapidly growing demand for the sector’s products, the resulting imbalances are having a magnified impact on upswings in prices originating from adverse supply factors such as drought and man-made problems (exacerbated by increasing population pressures) such as soil erosion, deforestation and encroachment on wetlands.
Moreover, the country is facing major crop diseases such as coffee, banana and cassava wilt disease not to mention inadequately developed land policies, which all constrain the performance of the agricultural sector. Significant resources to support well-articulated agricultural programme such as training, provision of extension services, storage, financing, research, and demonstration farms, together with and engaging other stake holders like local universities, donors, and non-government organisations, is necessary.
Another emerging problem relates to the likely onset of oil production. The inflow of petro-dollars will tend to appreciate the exchange rate, which will make agricultural exports less competitive while the resulting cheaper food imports will discourage domestic food production. To address this so-called “Dutch Disease” will require significant additional investment resources into agriculture - even some well-targeted subsidies - to ensure Uganda’s agriculture maintains a healthy growth to turn the country into a bread basket for the region.
Under this scenario, and to take account of regional demand, it is clear that there is a need to fund agriculture even in excess of the 2003 Maputo Declaration target (10 per cent of budget resources); perhaps, in the range of 15 to 20 per cent.
In summary, going ahead and given the emerging limits to demand management policies, Uganda must redouble its efforts not only in providing more budget/investment resources but in developing further and effectively implementing agriculture reforms and programmes to accelerate the growth rate of the sector.
It is critical that the government “bails in” the private sector, donors and NGOs into this effort. In part, this will require the government to leverage some of its enhanced resource allocation to the sector to bring in other players.
It is only through such efforts that the country can realise its agricultural potential to become truly the regional bread basket and thus ensure that agricultural supply policies can work harmoniously with demand management polices to support balanced macroeconomic management.
Dr Kibuka is the chairman, Standard Chartered Bank Uganda Ltd. firstname.lastname@example.org