Adrian Hewitt introduced the Chair of today’s meeting, Colin Bradford, a Fellow of the Brookings Institution, and formerly (in the period that Colin and Adrian had worked together on this subject) Chief Economist of USAID. He recalled how at that time “States and Markets in Tropical Africa” by Robert Bates had strongly influenced policy, especially of the World Bank and the IMF, as well as bilateral donors, for the succeeding decade.

Now the pendulum had swung back, we have learned more over the recent period, and there was a deeper and more African-focused vision about what the private sector could effectively do, and its limits, as well as where governments needed support. The speakers were then presented, with Dorward introducing the broad states–and-markets vision and Thom concentrating on donor support.

Andrew Dorward, after outlining the now familiar role of agricultural development in economic growth and poverty alleviation, stressed that farmers, and small farmers in particular, need access to low-cost services and means of exchange if they are to play such a role in pro-poor growth. This needs local coordination, which is often absent owing to lack of resources, incentives and other factors.

Moreover the challenges for African farmers are greater, Africa not having had its Green revolution, suffering greater agro-climatic vulnerability, weaker governance, poorer infrastructure, and smaller firms as well as smaller, more landlocked economies (see also Paul Collier’s diagnosis in the first meeting of the series). These factors combined with weak service delivery (public goods failures), access to extension provisions (exclusion and discrimination), and high transaction costs (or outright failures) led to a graphic agriculture and market development poverty trap, involving farmers in considerable risk if they opted for change and what seemed to the outside world as the “necessary” transformation of their production.

The various phases of state-led agricultural and rural development (demise circa 1980) and the over-corrective market-led agricultural development of the era of liberalisation were then considered. Both had their successes and failures, but the failure of the market-led approach was particularly pertinent to staple crops. Here there remained a strong case for intervention, if only because it would be naïve to expect market entrepreneurs to take over consistently. In fact, instead of dwelling on the history of failures, Dorward enjoined us to identify and build on the successes in both state-led and liberalisation measures.

He posed as the key question, “what is necessary to escape from the poverty trap?” – the answer being not just basic profitability of production and marketing but also complementary coordinated service provision and access, for which some non-market coordination mechanisms were still needed. This was akin to the analysis made and the services intended to be provided in the 1960s, although of course the world economy which post-independence Africa faced was somewhat different.

Nowadays the prescriptions would vary for different categories of crops. For the traditional African export crops like tropical beverages and cotton, the private sector can and does provide the necessary coordination. For high value or specialist products, the incentives may not however exist to support smallholders at the same quality level, or at least to do this remuneratively. Staple food crops however were really the problem for small farmers in Africa particularly; liberalisation had largely failed to create agricultural intensification and yet there was evidence of state failure and neglect too.

Successes and failures need to be recognised pragmatically. Inconsistencies needed to be avoided, eg between the short and the long term policies; food security, poverty reduction and growth goals need to be “nested”; and transitions need to be actively managed - there were lessons for donors here too. There was a strong case for state support for a mixed economy (though the sate itself needs to be “pro-development” beforehand), within recognised limits (and the voice of producers needed to be heard); monopolies could sometimes be managed benevolently and so justified, but there were also roles for larger firms and farmer/trader organisations to play.

Thom Jayne’s presentation focused on the form of donor support. After a preamble on the enormous needs to address poverty alleviation in Africa, he outlined the now dominant donor approach – which he qualified also as substantial – which was predominantly to give “untied” budget support to national treasuries in Africa, citing figures as high as 85 per cent of the aid provided to Niger and 70 per cent to Mozambique in the case of the World Bank and certain bilateral donors.

A survey of the literature of what was needed for long-term agricultural and rural productivity growth which he presented however indicated that it was agronomic research, education, good extension systems availability, infrastructure and irrigation – mostly requiring public-good investments. However African governments not only devoted small shares of the budgets to agriculture, when they did they rarely addressed these fundamentals; instead they liked to pour money into fertiliser subsidy and maize (staple food) marketing because of its short-term political payoff. While 20 % of their budgets may go on salaries, only 4% would go on extension services, etc. The question was: “should donors be supporting such a perversion of policy with unconditional budgetary aid if it leads to misallocation of resources for poverty alleviation?” How could government be otherwise forced to invest in political pay-offs five to ten years down the line instead, critical for sustained poverty reduction in the rural sector; thus how can the “social trap” of short-term incentivisation be avoided?

(see: 'Does General Budget Support Work? Evidence from Tanzania' by Andrew Lawson, David Booth, Meleki Msuya, Samuel Wangwe and Tim Williamson, July 2005)

The solution was to oblige governments to allocate more of their resources (and present donor resources) into productive investments which will help make markets work. To assist this, Jayne advocated reallocating donor assistance away from what he called “untied” budget support into funding specific productive investments like crop science, extension services improvement, basic education, irrigation and basic rural or rural-to-urban or to-port infrastructure.

Unless donor budgets were so allocated, he claimed, massive poverty problems would be stored up for the future and we would see more “failed states” in Africa. Donors should, he felt revert exercising more influence over how their support is used.

There were six questions from the floor. Not everybody was convinced that the short run wasn’t important for farm families living at the margins of existence, as well as for their votes. Farmers themselves have acute knowledge of the need for risk avoidance and should be consulted. Similarly we need to learn more from the small successes of market-led development. Credit and appropriate inputs ranked highly among these. Food aid was still pernicious in destroying markets for farm staple production, without careful management. There were appeals not to write off fertiliser subsidies in circumstances of poor soil and even poorer farm families, and to reconsider abandoning donor budget support, since the a priori assumption needed to be that African governments, having the responsibility to spend their own budgets, might know what is best for their people with external funds too, having a stronger vested interest than donors. Arguably too, African governments have longer-term time horizons than many donor governments. A Somali questioner congratulated both presenters on an impressive presentation and asserted that before independence, Africa fed itself and so should be enabled to solve its problems holistically now, especially now that the Cold War interlude was over; one essential ingredient to be added to the lists deployed by the speakers was good governance itself.

For further information, contact: Adrian Hewitt, Research Adviser to the Group: Overseas Development Institute, 111 Westminster Bridge Road, London SE1 7JD