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Chapter 3

Improving Infrastructure and Trade-related Capacities for Market Access

3.1. Introduction

The African leaders of the New Partnership for Africa's Development (NEPAD) have clearly indicated that among their priorities are infrastructure and agriculture; the two have an interface (see Text Box 5 for the NEPAD link). Adequate and well-functioning infrastructure is essential for agriculture to be competitive due to reduced costs of delivering inputs to it and of taking produce out to markets, including any storage that this may entail; energy infrastructure is essential for development of agro-industries; information infrastructure is vital for timely technological information to farmers and agro-industrialists but also between producers and markets; water infrastructure is a precondition for irrigation and water-based power generation is the key to adequate and affordable power for Africa. In implementing agricultural development programmes, NEPAD will need to take advantage of major transport corridors for location of production and processing if it is to reach distant markets competitively; in turn, in planning major infrastructure projects, NEPAD will need to include agricultural development opportunities among the economic benefits that will make transport, power, and water investments profitable.

The share of Africa in world agricultural exports has dropped steadily, from 8 percent in 1971-80 to some 3.4 percent in 1991-2000, and reversing this decline will require increased efforts by the African countries, with the assistance of the international community, to surmount the hurdles, including domestic supply-side constraints. The latter can broadly be divided into structural constraints, which are particularly prevalent in Sub-Saharan Africa, and policy-induced constraints resulting from trade and macroeconomic policies that have biased the structure of incentives against agriculture and exports. Typical structural constraints are the high dependence on a limited number of export commodities; weak technological capacities; inadequate legal and regulatory institutional frameworks; limited access of farmers to credit; and inadequate transport, storage and marketing infrastructure.

Rural infrastructure is one of several subsets of activities that are essential elements for African rural transformation. The existence of poor quality or inadequate infrastructure will inevitably impact negatively on the competitiveness of African agriculture through increasing internal transport costs, reducing levels of value-added at origin and lowering transaction efficiencies in the marketing chains, be they national or international. The provision of adequate and cost-effective rural infrastructure will clearly, therefore, underpin the development of agriculture in general and, in particular, facilitate lower-cost production and marketing to enable countries in the region to respond to both national and international market demand.

The provision of basic rural infrastructure is also a pre-requisite for enabling African countries to stimulate economic growth and to reach the targets for economic recovery and poverty alleviation by 2015: through increasing and diversifying agricultural output and employment, promoting domestic market activity and market integration, and facilitating and developing access to export markets. In addition, complementary actions will be required to improve the market access conditions facing African agricultural (including livestock and fisheries) exports in developed country markets.

This document builds on a companion FAO paper21, first presented at the 22nd FAO Regional Conference for Africa held in Cairo, in February 2002. The document sets out estimates of complementary investments in rural infrastructure that are required to support the growth in agricultural production due to the land and water developments foreseen. Such infrastructure includes rural roads, storage facilities for crops, livestock and fish products, and related processing and market facilities. Due to the range of country conditions and the lack of precise, up-to-date information regarding the current stock of rural infrastructure in any particular country, the estimates should be viewed as providing preliminary and indicative orders of magnitude only.

Text Box 5: NEPAD Action Programme on Infrastructure: Interface with Agriculture

At the request of NEPAD, the African Development Bank prepared and released in May 2002 the draft document "NEPAD Short-term Action Plan: Infrastructure". The document, which presents a series of programmes and projects of continental or regional significance, covers the fields of energy; water and sanitation; transport; and information and communications technologies (ICT). The NEPAD Infrastructure Action Plan has the overarching goal of reducing poverty. It is driven by the belief that Africa needs to exit from international economic marginalisation through development and that such development cannot occur without trade while trade in turn cannot occur without infrastructure. The leaders of NEPAD believe that regional infrastructure is important because African economies are typically too small to generate the necessary economies of scale to reduce transaction costs and so improve competitiveness.

Energy: Although Africa has 13% of the world's population and produces of the world's energy, it consumes only 3% of global commercial energy. Africa is said to be the continent where residential connections are fewest; in 1991, it is reported that fewer than 22% of African households were connected to [electricity] networks. This state of affairs is a symptom of the low degree of modern economic activity. NEPAD aims to develop fully all forms of Africa's energy resources so as to deliver affordable energy services for development. Of the projects and programmes proposed, only one has potential for direct impact on agriculture, especially on rural industrialisation. It is a US$3 million study (proposed for 2003-2005) on "Co-operation in Rural Energy Networks".

Water: For water, the Action Plan refers to agriculture specifically, viz. "...the available resources have to be harnessed to meet the growing basic needs of water supply... contribute to food security through use of water for irrigation, and also be able to tap the available renewable hydropower potential of the continent." The Action Plan also states: " ... despite widespread and deteriorating food insecurity on the continent, and the fact that agriculture is the main user of water in most African countries, in two-thirds of them, less than 20% of the irrigation potential has been utilised .... To complicate the situation, degradation of water catchments is becoming a widespread environmental hazard with serious ramifications on water quality and on the continent's ability to feed itself." Noting that in the world, about 30-40% of food comes from the irrigated 16% of total cultivated land, the Plan sees this as an area of opportunity and observes that:

  • Africa has large irrigation potential but relatively little land under this use compared to other regions;

  • there have been major problems with irrigation schemes and future success requires reforms;

  • the African sub-regions that use irrigation most are the ones least endowed with water resources.

The Action Plan blames the combined effect of intensive agriculture and deforestation for degradation of river basins and also is concerned at the adverse impacts of drought, desertification and the associated deforestation, over-grazing, soil erosion, and overexploitation of underground water in arid zones such as the Maghreb and the Sahel.

Transport: Africa is the continent with the greatest number of landlocked countries. Consequently, many countries face extraordinary costs in accessing global markets. Indeed, the Action Plan quotes UNCTAD data showing that in a number of countries, the share of transport cost in value of trade is staggering: for example, transport and insurance payments as a percentage of the value of exports is: Malawi (55.5%); Chad (51.8%); Rwanda (48.4%); Mali (35.6%); Uganda (35.5%); CAR (32.8%). Clearly, this level of costs would be particularly damaging for agricultural trade where primary products are often of low value and great bulk. This situation can have many implications for agriculture, including:

  • the need for value-addition to traded products so as to make transport costs more affordable;

  • the advantage of maximising location of agricultural, agro-industry and agro-storage development programmes close to the many transport corridors NEPAD and Regional Economic Organisations have developed or are promoting;

  • the desirability of planning the development of rural roads so as to optimally link to major transport infrastructure of inter-country significance.

Sources: Adapted (with implications for agriculture added) from: a) NEPAD Short-term Action Plan: Infrastructure. May 2002 (prepared in co-operation with the African Development Bank); b) UNCTAD, Document TD/LDC/AC.1/17, 13 June 2001

3.2. Role, Importance and Current Situation

3.2.1. Rural Infrastructure

Rural transport infrastructure consists of the network of rural roads and tracks on which the rural population travels by means of walking or using non-motorised and motorised vehicles. This network includes the intra-village tracks (both informal and formal) as well as local government networks that link the rural population to the rest of the economy and the outside world. Other rural infrastructure elements - storage facilities for crops, livestock and fish products, and related processing and market facilities - are clearly more closely linked to activities in the agricultural sector and have evolved over time in extent, sophistication and modalities of ownership and operation, depending on socio-economic conditions and country policies. In the latter respect, it can be noted that there have been cases of inappropriate, and often uneconomic, investments in Africa in the past. Indeed, in some countries, there is already an abundance of crop storage facilities operated by more-or-less defunct grain marketing boards which is not necessarily being made available to the private sector. A possible exception to this is storage for food security reserves. However, in most cases, there is a need to carry out an inventory of available stores, rehabilitate them and then seek means to involve more the private sector. With regard to post-harvest activities, clearly the days of expensive government involvement in most agro-processing facilities are past, and future emphasis will probably be very much on commercial investment by the private sector.

Rural infrastructure plays a critical role in poverty reduction, economic growth and empowerment for the African rural poor. The lack of adequate and reliable infrastructure touches the life of every rural African family daily; investments in rural infrastructure, particularly rural roads, storage, processing and market facilities, will therefore be required to support the anticipated growth in agricultural production and improve competitiveness. Family efforts to escape poverty and lift themselves above subsistence levels are limited by the present poor access to markets, supplies and vital information. Local roads and tracks are often impassable making it difficult, if not impossible for rural families to access the rural economy.

Apart from North Africa, which is reasonably well endowed, Africa's rural infrastructure is generally inadequate by almost any measure: Africa's people face the longest distances to the nearest large markets; a fifth of Africa's population is landlocked -less than a third of Africans live within 100 km of the sea compared to over 40 percent for other developing regions; rail freight in Africa is under 2 of the world total, marine freight capacity 11 percent and air freight less than 1 percent; and power generation capacity per capita in Africa is less than half of that in either Asia or Latin America. The poor state of Africa's infrastructure reflects neglect of investment. External investment in economic infrastructure22 in the period between 1990 and 1996 for Sub-Saharan Africa was US$26.7 billion, compared to US$41.4 billion for Latin America and the Caribbean and US$101.9 billion for Asia, of which some US$71.9 billion for East Asia alone.

With the exception of the Mahgreb countries in North Africa, Africa's road network is particularly underdeveloped. It is clear that many Sub-Saharan African countries face a significant handicap in terms of rural road infrastructure, and they compare unfavourably with both North Africa and other parts of the world. For example, local road densities in a sample of representative countries in Sub-Saharan Africa show a mean density of 0.86 km per thousand head of population, while the equivalent density in Tunisia is 2.6 km/1 000 persons, and in South Asia is some 1.8 km/1 000 persons; for middle-income countries, the density is 8.5 km/1 000 persons. Africa has the lowest density of paved roads of any of the world's regions, which hinders access to markets. For example, there are an estimated 1.8 million km of roads in Sub-Saharan Africa, of which only 284 000 km (16 percent) are paved (Table 11). Poverty and remoteness are particularly associated in Africa where the combination of scarce and poor roads results in high transport costs and make parts of the economy only semi-open. For example, recent studies in Burkina Faso, Uganda and Zambia have shown that walking is the principal means of transport for 87 percent of rural households23. Table 10 gives details of the current provision of road infrastructure for each of the major Africa sub-regions.

The few available data on rural roads also point to an African handicap relative to other developing regions (Tables 11, 12) which provide comparative data among regions of the world. Table 13 compares data from the early 1990s on the existing rural road network for African countries in the Humid and Sub-humid Tropics with those of India in 1950 (about 15 years before the green revolution period) - adjusted for population density. To the extent that adoption of high-yielding varieties depends on infrastructure, the extent of the handicap of many African countries becomes clear.

Africa is also deficient in port infrastructure, a situation partly associated with the fact that it has very modest international trade that could justify necessary investments, and partly due to the fact that most of them were built during the colonial period. Levels of traffic at many African ports, both marine and air, are quite low in relation to the heavy investments incurred; accordingly they represent outlays with low rates of return and may be a drain on treasuries while failing to be fully productive assets to the economies they serve. World-class ports are only found in South Africa and Egypt, with lesser ones in East Africa. Existing port facilities were often built for broad commercial objectives and failed to take into account the special needs of specific sub-sectors such as fisheries, livestock, forestry etc.

A similar picture prevails for airports that could facilitate exports of high-value perishables. While many airports have runway capacity to handle large cargo craft, there is neither the volume of exports nor the cold storage chain to support their contribution to exports. Notable activity is restricted to a few airports such as Johannesburg, Nairobi, Cairo and one or two other hubs.

Good quality infrastructure is a particularly important contributor to competitiveness and growth in agriculture. Many agricultural commodities are either bulky or perishable (or both), and costs of transporting both inputs and products can account for a high share in the value of final products where infrastructure and physical market access conditions are inadequate (e.g. 40 percent difference between margins for food grains in Kenya and Malawi and those in Bangladesh and Indonesia)24. In these cases, markets may remain effectively insulated, even if all trade barriers are lowered or removed. Current information on market accessibility underscores the importance of good quality infrastructure, with nearly all landlocked countries in the world currently being poor, and regions linked to coasts by ocean-navigable waterways being strongly favoured in development terms relative to their hinterlands. Poor infrastructure provision is detrimental to the vitality of agriculture in the continent and thus to prospects for poverty reduction. High transport costs reduce marketing margins, raising consumer or border prices and effectively closing off more remote regions. High transport costs effectively make much of African agriculture "semi-closed": any efficiency gains in production may be eroded by the high cost of transport and of other related transactions, which create a wedge between commodity prices at the farm-gate and border, and ratchet up prices of imported inputs.

Information on the current state, distribution and availability of livestock infrastructure is very scarce and somewhat anecdotal; there is clearly a need to review at national levels the state of this stock before proceeding with significant investment programmes in support of the sector. A 1996 study25, while underlining the serious problems of inadequate infrastructure in the under-developed communal areas of Southern Africa, observed that - in general terms - the commercial sectors were generally more favourably endowed. In summary, South Africa, Zimbabwe and Mauritius had adequate infrastructure, while other countries of the region had some or serious problems.

The fishery sector in Africa is characterised by a dualistic structure with an industrial sub-sector, composed by large boats operating on a purely commercial basis targeting high quality/high value fish to serve northern markets and a high degree of vertical integration from fishing through storing and processing up to marketing in northern markets. Most value added is therefore kept by the company itself and very little left within the country, as post-harvest infrastructure, where existing, is limited to storage capacity and very little processing. On the other side is the artisanal sub-sector, composed by African fishermen engaged mainly for subsistence and the local market, using labour-intensive technology. Among the major constraints are access roads, appropriate landing facilities, and availability of adequate gear and other inputs. Future developments in the sector, aimed at promoting a locally-owned industrial fleet, and to create conditions for investments in processing infrastructure within the continent, would have to include ports suitable to the needs of the sector, strategically located with respect to the fishing areas and with the required handling facilities.

As of now, markets for artisanal fishery products are also extremely important in the African continent for both coastal communities, whose livelihood strategies are heavily dependent on fisheries, and inland populations, for which fish represents usually a cheap source of protein and nutrition compared to other sources. Improvements to market infrastructure coupled with investments in connecting rural roads would reduce transaction costs with likely beneficial effects on both producer incomes (higher producer prices) and increased accessibility to fish and fish products for consumption by the general population (with lower consumption prices). Being built for general purposes, many African ports fail to meet the needs of artisanal fisheries, where the construction of small fishing jetties and docks could serve the many communities and villages along the African coast, thus creating poles of development that could easily link with national and regional markets.

3.2.2. Trade-related Capacities for Improved Market Access

Africa faces trade challenges at many levels: the farmer faces non0-remunerative markets and loses the incentive to produce; the nation-state fails to find rewarding markets both within the region and globally; Africa as a region is marginalised as well as being often uncompetitive in the international marketplace; furthermore, Africa continues to offer mostly unprocessed produce, for which prices are static or falling. Responses to these issues pose challenges that NEPAD will need to address at the appropriate level.

Domestic/local Markets

In terms of trade and market access, the importance of domestic markets should not be neglected. A strong domestic market is a building block for export markets and there should be broad participation in domestic markets: e.g. small farmers, women, etc. But to tap their potential requires strong institutional capacities and the implementation of relevant policies (e.g. competition, tariff policy, financing, market development, etc.).

Rural people in Africa, especially the poor, often say that one reason they cannot improve their living standards is that they face difficulties of accessing markets where they can obtain agricultural inputs and consumer goods and sell their produce. Until a decade or so ago, for smallholder farmers, major markets were organised by governments, and exchanges were not critically influenced by farmer knowledge and organisation. Nearly everywhere the situation has changed radically. Smallholder farmers no longer face an assured market for their produce at fixed, pan-territorial prices that often represented a large tax on the value of their produce. Similarly, they no longer face a predictable supply situation for inputs and, in today's world, they may not be able to afford to buy what becomes available. A market environment which was far from perfect, but at least offered farmers some degree of security, has been replaced by a new one which is highly uncertain, and in which prices, whether for selling produce or purchasing inputs, are now largely negotiated. New commercial relations must be struck with a myriad of suppliers and buyers.

For some farmers - particularly those producing export crops in areas enjoying good communications, this has created major new opportunities. For others - particularly those trying to produce and market staples at the agricultural margins, it has created major problems. Market access has become a critical determinant of farmers' production systems: those who live close to better roads and have more frequent and direct contact with the market are willing to produce more systematically for the market, while those with poor market access have little incentive to produce crops other than those required for domestic consumption. Put another way, improved market access is a prerequisite to increased farmer incomes.

By and large, smallholder farmers are ill equipped to extract the maximum from the new market relations that they face. They confront not only an uncertain production environment, but also enormous constraints in physically accessing markets - they are typically distant and transportation costs are high, and in many cases, there are few buyers of produce. Poor farmers in Africa are also constrained by lack of information about the markets, lack of business and negotiating experience, and lack of a collective organisation which can give them the power they need to interact on equal terms with other, generally larger and stronger, market intermediaries. The result is poor terms of exchange and little influence over what they are offered. Remunerative markets are an essential element in progressively making African agriculture entrepreneurial; income from well-functioning markets, when combined with credit, can offer the real prospect of sustainable farmer investments needed for productive agriculture in future.

The situation is often no better on the other side of the market equation - that is, for the wholesalers who purchase farm surplus and those who sell technical inputs and provide finance to smallholders. In the wake of a history of limited "space" for the operation of private traders and the absence of adequate sources of investment finance an efficient private sector does not spring up overnight. The lack of basic infrastructure in many areas further discourages the entry of efficient and competitive private sector services and results in high transaction costs, which together translate directly into low prices to farmers. Restrictive or non-supportive government policies - or the local and inappropriate application of policies, further increase the cost of doing business and constrain the development of a new private sector. Neither the poor nor rural economic growth is served by an uncompetitive market structure.

African governments and their development partners have an important role to play in this area of market development, with three objectives in mind: speeding up the rate of market development; removing or reducing barriers to market access, both by special support in places where markets are slow to develop spontaneously and by easing market participation of poorer producers; and establishing a more equitable set of market relations between producers and markets intermediaries. They can make a difference in several ways:

World Markets

The export of agricultural products is essential for African economic growth as agriculture plays a major role in the continent's overall economy. On the world stage, the value of Africa's agricultural exports, which amounted to US$14 billion in 2000 is growing extremely slowly, having been US$12 billion in 1990. The share of Africa in world agricultural exports has dropped steadily, from 8 percent in 1971-80 to some 3.4 percent in 1991-2000, and reversing this decline will require increased efforts by the African countries, with the assistance of the international community, to alleviate their domestic supply-side and other constraints. These can broadly be divided into structural constraints, which are particularly prevalent in Sub-Saharan Africa.

The constraints concern the countries' high dependence on a limited number of export commodities, weak technological capacities, inadequate legal and regulatory institutional frameworks and insufficient transport, storage and marketing infrastructure, and policy-induced constraints resulting from trade and macroeconomic policies that have biased the structure of incentives against agriculture and exports. According to a recent meeting organised by IFAD in relation to NEPAD,26 farmers lack the necessary skills to access markets, the information on market opportunities and prices. Furthermore, physical access to markets is poor, transaction costs are high, and these factors, combined with farmers' lack of organisation, results in low producer prices. On the national and local levels, the withdrawal of governments from direct involvement in marketing has left large gaps which the private sector is not yet able to fill; while the global conditions have created an inherently unfavourable environment for smallholder producers to enter markets - declining prices and heavy industrial country agricultural subsidies among them.

Africa's failure to produce enough domestically has contributed to progressive growth in food imports in the last years of the20th century, with Africa spending an estimated US$ 18.7 billion in 2000 - significantly more than the value of exports. Africa's shares of total agricultural imports in 1998 were 4.6 percent (world), 16.3 percent (developing countries). Agricultural imports account for about 15 percent of total African imports. It is of particular concern that the share of gross export revenues needed for importing food has increased from 12 percent to over 30 percent in East Africa. It is against this background that a major thrust to promote exports and market access is justified for Africa.

Trading opportunities for African agricultural exports are dominated by developed country markets27, and their conditions of access are of critical importance. Despite progress made in the implementation of the Uruguay Round Agreements, support to agriculture in developed countries continues to be high ($311 billion in OECD countries in 2001), tariff peaks still persist in several products (e.g. sugar, meat and horticultural products), and tariff escalation (higher tariff on more processed products which are given greater protection to the processing industry of the importing country) still prevails in several important product chains (e.g. coffee, cocoa, oilseeds, vegetable, fruit and nuts and hides and skins). The new WTO negotiations on agriculture aim to achieve substantial multilateral improvements in market access, the reduction of all forms of export subsidies and in trade-distorting domestic support.

At present, access of African agricultural exports to the developed country markets is governed largely by trade preferences they receive from several developed countries. These include in particular, preferences under the generalised system of preferences (GSP), the EU ACP agreements, the Euro-Mediterranean Free Trade Areas and the US African Growth and Opportunity Act (AGOA). However, the most significant development in trade preferential arrangements is the EU's ("Everything but Arms") initiative of duty-free and quota-free entry for all products (except arms) in favour of LDCs, 34 of which are African countries. This suggests that access to the EU markets for agricultural products may no longer be a major problem for African LDCs. A number of factors, however, may impede the ability of African countries to utilise the preferential access. These include, for example, rules of origin and standards such as sanitary/phytosanitary requirements and other technical barriers to trade.

Globalisation was expected to offer opportunities for growth and development, but in the case of Africa, the hopes and promises attached to rapid liberalisation of trade and finance have not so far been fulfilled. Export patterns continue to be characterised by a small number of primary (often plantation-based) commodities and dependency on preferential access to a few developed-country markets. An important reason for this is the supply-side constraints in the countries themselves. But others have their origins elsewhere. For example, under agricultural and trade policies of industrialised countries in 2001 alone, total subsidies to agriculture by OECD countries were estimated at over US$311 billion (For a topical development on this see Text Box 6). This gives a major competitive edge to the agricultural sectors of these countries (adding to the superiority of technology they already enjoy) that poorer countries cannot match. Expenditure on agricultural subsidies for the few in developed countries dwarfs official development assistance for the many countries in Africa, and the negative impact on the poor is quite clear. It is an irony that many African countries have largely internalised the perspective that a dynamic and sustainable agricultural economy cannot be based on subsidies; yet their agricultural systems continue to be undermined by the subsidies paid out in precisely the developed countries that are the main proponents of liberalisation.

High tariffs and non-tariff barriers continue to be a major obstacle to regional African trade and regional integration will contribute to providing economies of scale and improved international competitiveness. However, the liberalisation of African markets is probably the key to optimising economies and to creating social wealth. The Africa Group has clearly indicated to WTO its commitment to further domestic tariff reduction in agriculture, linked to substantial progressive reduction of both domestic support and the level of export subsidies in developed countries. However, developing countries will need the assurance that improved market access conditions will not be exploited by highly subsidised products from developed countries. A further consideration is that trade and market access can only increase in a conducive environment for investment (infrastructure development, financial structures, strong national regulatory authorities to implement, information, and market development).

The case for reform in agricultural trade is being made ever more strongly; real structural change/reforms are necessary in developed countries to ensure that developing countries can equally participate in international trade and that production takes place in line with comparative advantages and not in accordance with the availability of financial resources to support agricultural production. To this effect, African regional interaction in related international standard setting fora needs to be strengthened - both in Geneva, as well as on a regional basis in Africa, in particular the WTO meetings on SPS and TBT Agreements, and the IPPC, Codex, OIE, etc. The Africa Group has submitted a firm proposal for the second phase of the WTO-mandated negotiations on agriculture and this needs to be concretised and taken forward in the Doha negotiations process. This should lead to increased market access, a substantial reduction in trade and production distorting support, and the elimination of export subsidies. However, differential treatment should be extended to developing countries and should form an integral part of the negotiations.

With export markets that African farmers need so heavily distorted, and prices for many of their products similarly working against them, liberalisation and globalisation are often for them more a poverty trap than a path to development. Small farmers in Africa gain scanty rewards for their efforts and so their progress towards development will remain meagre unless the situation improves.

Only some 31 percent of African agricultural exports are currently shipped to developing countries and a significant potential exists for South-South trade if conditions for market access are improved. Intra-Africa trade may offer particular opportunities, given the political will in this direction. However, there are significant constraints, including: inadequate physical infrastructure, unstable market opportunities related to production variability, relatively small markets, lack of current market information and trading skills, uncertain policy environments, and rapidly changing trade regulations. Solution of these will require countries to develop regional or continent-wide technical standards for various sectors including plant protection and fisheries. A continent-wide approach, starting at regional level, may facilitate both the harmonisation of standards and the improvement of infrastructure and enforcement mechanisms - all in the context of compatibility with international recommendations in order to avoid adoption of norms that would create confusion, distort markets and, potentially, conflict with WTO agreements.

It may be noted that Africa is urbanising and so creating large concentrated markets that may offer a focus for entrepreneurial agriculture in future. IFAD recently observed for Western and Central Africa28 that by 2030 most people in that sub-region will be urban: this may create major opportunities for markets development due to spiralling urban demand.

Text Box 6: Farm Subsidies in Industrial Countries - the Case of the US Farm Bill

The reality that NEPAD market access will face is that it remains uncertain whether developed countries will reduce farm subsidies or, if they will, how fast. The adoption of the US "Farm Security and Rural Investment Act, 2002" is a case in point. A recent review indicated that the Bill:

  • offers support to a declared maximum of US$360 000;

  • raises spending on subsidies by some 70 percent ($15-20 billion/year). This is already more than Africa's total annual agricultural exports);

  • offers fixed payments each year for each eligible crop (including a number of crops currently or potentially important to Africa: cotton, rice, peanuts, other oil seeds, maize, sugar, soybean, sorghum);

  • lowers loan rates and in case of low market prices, could offer direct subsidies;

  • gives counter-cyclical payments when farm income falls below threshold levels;

  • dairy farmers can receive 45 percent (up to a cap) of the difference from a target price specified in the bill;

  • sugar continues to be heavily protected against imports;

  • new supports are offered for wool, mohair, honey, chick peas and lentils;

  • apples, fruit and vegetables are subsidised and their purchase and distribution is also supported.

Source: Questions & Answers - US Farm Bill: (23/05/02).

Meeting technical standards for export products, in the context of the WTO, SPS and TBT Agreements, remains a major challenge for all African countries. The gap in these standards between the African and richer countries is already high, and may grow wider unless a massive effort is undertaken to raise standards. The gaps tend to be higher precisely on those value-added, processed products where global demand is elastic, as against primary agricultural products. Because of their limited capacities in scientific research, testing, conformity and equivalence, they face difficulties in meeting international safety and quality standards. The task is even more daunting when the developed countries, on risk assessment grounds, adopt higher standards than those currently recognised by international standard-setting bodies. Moreover, rising consumer concerns in the affluent countries over food safety and quality compound the difficulty of the African countries in meeting ever-higher standards.

To overcome these handicaps will require large amounts of investment in both facilities and human resources. Overall, African countries face many impediments to spur diversified agricultural growth and to gain from trade, despite the implementation of the Uruguay Round Agreement on Agriculture. But this also means that the scope for reforming the global trading system is immense. However, in order to take advantage of new trading opportunities Africa needs to strengthen supply-side capability.

3.3. Investment Strategy

3.3.1. Rural Infrastructure

Most of the African countries to be included come within the Least Developed Country (LDC) category and, as such, have been exposed to years of fiscal austerity programmes. Austerity explains part of the decline in funding but other contributors include failures to find alternative sources of income to replace declining revenues from weaker terms of trade in their traditional markets; the drop in ODA; and reduction in private finance for infrastructure. With regard to ODA: in 1990, Africa received 30 percent of global agricultural ODA, but its share declined to 21 percent in 1998. Moreover, the total flow of official development assistance to primary agriculture declined over the same period from US$11 billion to only US$7.4 billion. The lack of funding has contributed not only to insufficient infrastructure construction but also to a lack of appropriate maintenance - hence there are also substantial needs for rehabilitation.

Thus, the strategy to address rural infrastructure requirements both to complement the projected expansion in areas benefiting from land and water developments and the requirements of the other major agricultural sub-sectors (particularly livestock and fisheries but in some countries also forestry) will clearly depend on the country concerned and would have the following main elements:

Institutional support will be required for capacity building and training in support of all levels and types of institutions responsible for the planning, design, construction and continuing operation, maintenance and management of rural infrastructure; these would range from central to local level/decentralised government entities, representative bodies, private sector actors, NGOs and CBOs, etc.

Clearly, the way forward will be influenced by the fact that current assets of productive and rural infrastructure differ from country to country not only in terms of scope, extent and coverage, but also in the way that they are owned, managed and financed. In the last decade, such infrastructure has come to be seen not so much as a public asset, but rather as a stream of demand-driven services involving the State, the private sector and, particularly, the users themselves. In the future, in the relative absence of a strong private sector, rural infrastructure in Africa will have to be financed by a larger proportion of concessional loans and grants and be more community-based, provided the appropriate capacity can be built. An appropriate mix of financing from public sources (both domestic resources as well as international loans and grants) and private resources will also have to be considered, in line with the capacity of the existing stock and its conditions, country policies, institutional capacities and private sector interests including the interests of rural communities.

Prospects for export growth in Africa are more promising in new crops and processed products than in traditional primary commodities and several non-traditional agricultural commodities, particularly, but not exclusively, horticultural products, would appear to offer important opportunities for some African countries. The developments in water and land infrastructure, with complementary investments in rural infrastructure would underpin such market diversity.

3.3.2. Trade-related Capacities for Improved Market Access

Actions in support of improving African countries' access to external markets will also include a number of policy and institutional related themes. For example, developed countries could improve access to their own agricultural markets by, inter alia: (i) granting duty-free and quota-free market access, similar to those provided by the EU to LDCs; (ii) easing rules of origin criteria; and (iii) providing assistance to African countries to meet SPS/TBT standards. In addition, technical and financial assistance will be required to help build capacity in African countries to face the challenges and take full advantage of the opportunities flowing from the multilateral trading system, and to participate fully as equal partners in the new WTO negotiations on agriculture. Finally, assistance will be required to help countries address the weaknesses in their food safety and quality control systems, and the associated institutions.

While these actions may improve the trading environment for exports, they will not necessarily result in an expansion. There is a clear need to diversify the production and export base (both horizontally and vertically) from low value-added to high value-added products. The challenge for African countries is to initiate and sustain the momentum of modernisation and diversification of their agriculture in order to realise the considerable potential that exists. This will require substantial investments for upgrading the marketing, transport and communication infrastructure; irrigation improvements and modernisation; improving the efficiency of financial institutions; strengthening research and extension for developing and adopting relevant technology; and establishing a fair and open regulatory framework. A large part of these investments have been incorporated in the section on rural infrastructure. The investment provision under "trade-related capacities for improved market access" therefore focuses on enhancing safety and quality standards, marketing and promotional services, and strengthening trade-related institutional capacities.

3.4. Estimated Investment Requirements

3.4.1. Basis of Estimates

In order to assess in broad terms the requirements for investments in storage, processing, market facilities and rural roads, the following steps have been taken:

The general assumptions used in developing these estimates are as follows:

Data for 1999 from the US Central Intelligence Agency (CIA) sources for total roads (rural and non-rural) have been used for establishing the baseline situation (2001) for the current stock of roads, by country. This stock of rural roads has been derived by assuming that 20 percent of paved roads and 90 percent of unpaved roads are rural. With this baseline, minimum mean targets for 2015 have been applied, equivalent to a level of 5 km/1 000 persons and 25 percent of paved roads, to obtain an estimate, by country, of the requirements for new roads. In addition, it was assumed that 70 percent of existing rural roads require rehabilitation - see below. Rehabilitation would involve regrading and re-forming the road base and gravel surface as well as repairs to cross-drainage structures, as appropriate. Clearly, specifics can only be given after suitable feasibility and design studies have been undertaken.

Average unit costs for rural roads - rehabilitation and construction - have been applied, as follows:

Requirements for annual investment costs of the categories of rural infrastructure are derived, as follows:

Estimates of the rehabilitation and construction requirements for rural roads, by region, are shown in Table 14.

3.4.2. Total Investments

The estimated total investments in rural infrastructure required to support the increases in agricultural crop production arising from the land and water developments foreseen by the year 2015, together with supporting infrastructure for the livestock and fisheries subsectors, amount to some US$91 billion, distributed as follows: crop storage infrastructure 9 percent, crop marketing facilities 7 percent, processing facilities 14 percent, livestock and fisheries infrastructure 3 percent, and rural roads 68 percent. Table 17 provides details of the estimated total investment costs for each category, by region; Table 18 offers the annualised costs for each category, including both investments and operation/maintenance.

The total costs required for improving countries' access to external markets are estimated at some US$2.79 billion. To these totals must be added allocations for maintenance, calculated at nearly US$37 billion. Annual incremental investment requirements during the period 2003 - 2015 would clearly not be uniform but would depend largely on countries' absorption capacity in institutional, financial and technical terms, and their access to additional sources of finance. Over the period, average annual increments would range from some US$5 to 8 billion. Immediate investment requirements (2002-2005) would amount to some US$24 billion, while short-term requirements (2006-2010) would amount to some US$37 billion and medium-term requirements would total some US$33 billion.

In addition, operation and maintenance requirements31 for all categories of rural infrastructure are estimated to reach annually, by the year 2015, some US$3.72 billion; equivalent to an overall expenditure throughout the period of some US$36.9 billion.

These estimates will need to be refined and confirmed, on a country-by-country basis. An overall breakdown, by sub-region, of rural infrastructure investment requirements is shown in Table 17.

Projections for the distribution of public private financing within this overall envelope must remain, at this stage, highly conjectural and will require specific country conditions to be taken into account. However, to facilitate this initial global analysis, a possible scenario is presented in Table 19. This indicates that, overall, the distribution of financing for rural infrastructure could be - public US$60.5 billion, private US$30.4 billion, equivalent to a 2:1 ratio. The likelihood of private sector participation to this degree will need country by country assessment, given that historical involvement has been weak except in a few countries. Regarding the apportionment of investment by external and African sources, Table 20 offers one estimate, which also would eventually need case by case review. In the first place some activities appeal to external partners better than others and in the second place, the specific beneficiary country affects external investor willingness to proceed. Both Tables 19 and 20 reflect significant optimism about private sector participation which may be seen in the context of more conservative expectations of possible progression of all-Africa shares of public and private funding given in Table 3.

3.4.3. Expected Impact

Benefits arising from investments in rural infrastructure and improved market access will clearly need some time to materialise in terms of impact on productivity, agricultural growth and consequent poverty reduction. However, available evidence points to an increase of 1 percent in GDP per caput in developing countries for every one- percent increase in the stock of infrastructure per person. For Africa, this impact is likely to be larger due to the constraints placed on the region's competitiveness by geography and the resulting difficulty of accessing markets. In particular, Sub-Saharan Africa has the highest percentage in the world of land-locked populations and the lowest share of population with access to coast or river. Proper rural infrastructure is therefore necessary to make up for at least part of the region's geographical handicaps, especially in the face of increasingly integrated world markets.

There are also a number of other direct benefits that can arise in the short- and medium-term, which will contribute to stimulate economic growth. First, construction of rural infrastructure directly stimulates output and employment and, in African economies where labour is relatively abundant, increased impact occurs due to the multiplier effect. Second, good quality infrastructure promotes domestic market activity and market integration by lowering both transaction costs and the costs of inputs. In addition, it expands the size of the market for domestically produced goods and services by facilitating access to regional international markets.

3.5. Future International Support

Clearly, the projections of rural infrastructure requirements need to be placed in their specific country-based policy and socio-political frameworks, with consideration also taken of the countries' physical conditions and socio-economic settings. Investments will need to be judged in a strategic manner so that the benefits of diversification and intensification of agricultural production are fully realised and can respond to the changes in market conditions. The proper identification of rehabilitation needs and priority investment requirements will necessitate a broad and multi-sectoral approach, involving several sect oral ministries within each government as well as a range of civil society actors.

After full agreement has been reached on both the strategy and broad content of the national programme, full investment formulation that meets the needs of domestic or external (multilateral and bilateral) funding sources will have to be carried out. Overall, a flexible, participatory approach will be needed, with full national and local involvement and commitment. International partners, including FAO, could initially assist NEPAD in this process in four ways:

21 FAO Support to The New Partnership for Africa's Development: Quantitative Estimates of Investment Potential for Land and Water Development in Africa.

22 Including communications, energy, transport, water, sanitation. Sources: UNCED Secretariat; Euromoney 1997/98 Annual report.

23 Barwell, I. 1996. Transport and the Village. World Bank, Discussion Paper No. 344. 1996.

24 IFAD. 2001. Rural Poverty Report.

25 FAO. 1996. Livestock and Meat Trade in the SADC community.

26 Regional Workshop on Poverty Reduction and Rural Growth in Eastern and Southern Africa. Dar-es-Salaam, 23-24 May 2002. Provisional Summary of Proceedings.

27 Currently receiving more than 70 percent of African agricultural exports.

28 IFAD Strategy for rural poverty reduction in Western and Central Africa.

29 FAO. World Agriculture: Toward 2015/30 (AT 2015/30).

30 Based on 1996 WFS estimates for costs of storage, marketing and processing facilities, adjusted for inflation.

31 Including allowances for both institutional strengthening and the recurrent costs of the organisations responsible for operation and maintenance.

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