AGRICULTURAL EXPENDITURE AND ECONOMIC ...

AGRICULTURAL EXPENDITURE AND ECONOMIC PERFORMANCE IN

ZIMBABWE (1980-2005)

Talknice Saungweme

Great Zimbabwe University, Zimbabwe

P. O. Box 1235, Masvingo

E-mail: [email protected]

Mufaro. A. Matandare

BA ISAGO University College, Botswana

Email: [email protected]

ABSTRACT

This paper seeks to test the general notion that agriculture is the backbone of the Zimbabwean economy. In this

respect, the study will look at the effects of central government’s expenditure towards the agricultural sector

and the subsequent effect of this on economic activities. Zimbabwe, like many other world countries, has

supported the agricultural sector given its positive forward and backward linkages with other economic sectors.

When Zimbabwe got its independence in 1980, it inherited a heavily government backed agricultural sector

from the Smith Administration. The results of this study indicate that increased agriculture expenditure before

2000 has boosted production in the sector and strengthened forward and backward economic linkages.

However, the land reform programme of 2000 and subsequent reduction in sound government support to the

sector contributed immensely to the economic crises in Zimbabwe. This paper recommends effective government

support to the agricultural sector through credible productive policies and financial & non-financial resources.

KEY WORDS

Agriculture expenditure, economic performance

1.0 Introduction

Zimbabwe in 1980, when it became

independent from British rule, inherited a

developed and predominantly white

controlled economy. The country was still

under the 1965 economic and political

international sanctions imposed against the

Unilateral Declaration of Independence

(UDI) government, headed by Ian Smith.

The government of Smith had, as such,

instituted policies that promote self

sufficiency and economic independence.

Henceforth, the new black government of

Zimbabwe adopted the previous regime’s

economic policies that supported a

dualistic economy; the agricultural and

industrial sectors. The agricultural sector

was heavily supported by the central

government, financially, investment,

production and marketing of sector output.

It is upon this aforementioned background

that this research paper wishes to

investigate the effects of central

government agricultural expenditure on

economic growth for the period 1980 to

2005.

1.1 Background of this study

In Zimbabwe, and most developing

countries, agriculture is the backbone of

economic growth and development. The

agricultural sector is the main source

livelihood and has got strong forward

linkages with other economic sectors.

More importantly, the agricultural sector

and related activities accounts for over

70% of formal employment in Zimbabwe.

Related agricultural activities include trade

and investment opportunities in processing

of this sector’s output. In addition, the

export of agricultural output constitutes the

major source of export revenue in

Zimbabwe. Major export crops in

Zimbabwe (that is tobacco and cotton) and

horticultural produce (flowers, fruits)

accounted for over 60% of export receipts

annually.

1.2 An overview of the Agricultural

sector performance and economic

contribution in Zimbabwe

The performance of the agricultural sector

in Zimbabwe is closely linked to poverty

alleviation, creation of employment and

Talknice Saungweme, Mufaro. A. Matandare, Int.J.Eco. Res., 2014, v5i5, 50 - 59 ISSN: 2229-6158

IJER SEP - OCT 2014 Available [email protected]

50

mailto:[email protected]

mailto:[email protected]

generation of national income. The sector

employs over seventy percent of the

economically active population and over

60% of its output is absorbed by the

manufacturing sector. The 40% output

balance is either consumed or exported in

its natural form. More so, the sector’s

contribution to export proceeds makes it

key to economic performance and general

livelihood of the Zimbabwe.

Zimbabwe follows a dualistic agricultural

system, which it inherited from the British

rule. That is, it has predominantly

commercial and communal farming. The

commercial sector is pre-dominated by

large and medium-scale farms and the

major driving force is to make profit. In

this sector, land is privately owned, in the

form of leases, and 100% of the output

goes to the market. With communal

farming, land is collectively owned and

much of the production is for family

consumption with surplus sold to generate

income.

Exports of Zimbabwe are largely

commodities; unmanufactured output.

These include unprocessed agriculture

output, raw minerals and low value-added

manufactured goods. The relationship

between the agricultural sector and other

economic sectors, such as, manufacturing,

mining and service sectors is strictly

interwoven. As a result, policies and

factors that affect the agricultural sector

will have a direct bearing on the forward

chain. For instance, the adverse weather

conditions (resulting in droughts) over the

periods 1982, 1992 and 2002 were

reflected in low economic output (measure

by gross domestic product).

Having realized the critical contribution of

the agricultural sector to general economic

growth and human development, the

government of Zimbabwe prioritized the

funding and investment in this sector.

These activities include the formation and

capitalization of agricultural colleges, such

Gwebi Agricultural College; and high

budget allocation to the sector for the

purchase of inputs and equipment. The

irrigation schemes were partially boosted,

a few dams were constructed and

communal farmers were allocated

Extension Agricultural workers. These

measures by the government boosted

agricultural output and the general welfare

of communities until 1999.

By end of 1999, the government of

Zimbabwe embarked on an agrarian

reform program that adversely affected the

sector’s performance. The positive result

of such a move by the government was the

redistribution of land to black

Zimbabweans. Previously peasant farmers

were awarded an opportunity to venture

into profitable commercial and A2 farming

activities. However, the short run effect

was a drastic fall in both agricultural and

industrial output and soaring of

unemployment figures. The success of the

agrarian reform, therefore, is an area that

needs further research. This positive

movement in agricultural performance and

national output in Zimbabwe thus requires

an economic and empirical analysis.

Table 1: Performance of the economy

Year GDP

gro-

wth

rate

Agricul-

ture

growth

rate

Man-

ufact-

uring

growth

rate

Infla

-tion

1980 10.6 19.5 14.7 5.4

1982 2.6 14.9 7.7 10.6

1984 -1.9 9.2 4.5 20.2

1986 2.1 -8.2 3.1 14.3

1988 7.6 3.2 5.3 7.4

1990 7.0 12.1 5.9 17.4

1992 -9.0 -23.2 8.5 42.1

1994 6.8 7.3 10.0 22.3

1996 7.3 21.4 4.0 21.4

1998 -0.9 2.3 3.4 34.5

2000 -6.4 3.2 2.5 55.9

2002 -4.8 -22.7 1.2 133.2

2004 -2.5 7.0 -9.5 382.0

Source: CSO Statistical (Various)

Yearbooks, MCF (2005).



51

The table above shows a decline in

economic performance in Zimbabwe

especially after the turn of the new

millennium. Interesting to note in table 1

above, is the abrupt decline in GDP

growth rate in 2000. From this year, 2000,

unemployment rate increased, production

capacities decreased and inflation soared.

The contribution of agriculture and

forestry to gross domestic product (GDP)

fluctuated between eight and twenty three

percent during the period 1980 and 2005

as can be seen in figure 1 above. These

fluctuations, firstly, are a reflection of

changes in government policies and

activities, coupled with rainfall variations.

Secondly, adverse movements in world

commodity prices, especially agricultural

and mining produce, have negatively

impacted on the sector’s contribution to

the national output.

1.3 A snapshot of Agricultural crops

and regions in Zimbabwe

Table 2 below gives a summary of major

crops grown in Zimbabwe by purpose,

which is food security and export revenue.

Table 2: Summary of crops grown in

Zimbabwe by purpose

Food security Foreign

exchange

Maize Tobacco

Wheat Cotton

Potatoes Fruits and

vegetables

Soya Bananas

Fruits and vegetables Ground nuts

Bananas Paprika

Groundnuts Sugar cane

Sorghum / Millet Citrus

Barley Tea /Coffee

Sugar cane Beef / Chicken

Citrus Flowers

Tea / Coffee Potatoes

Zimbabwe is divided into five natural

regions on the basis of soil type, rainfall

received and other climatic factors. The

first three regions are suitable for intensive

crop and livestock production, whereas the

remaining two offer limited scope for

farming activities. Thus natural regions 4

and 5 are usually associated with cattle

ranching and game1.

2.0 Literature Review

2.1 Theoretical literature review

The Schultz high-payoff input theory

After observing years of poor results from

attempts to transfer the highly productive

agricultural technology of advanced

nations to poor nations based on the

diffusion model, T. W. Schultz (1964)

pointed out that:

There are very few reproducible

agricultural factors in technically

advanced countries that are ready made

for most poor communities. In general,

what is available is a body of useful

knowledge that has made it possible for

the advanced countries to produce, for

their own use, factors that are

technologically superior to those employed

elsewhere. This body of knowledge can be

used to develop similar, and as a rule

superior, new factors appropriate to the

biological and other conditions that are

specific to the agriculture of poor

communities. This can only be possible

through increased agriculture expenditure

that facilitates research and development

especially technological, (p147).

Schultz focused on two central themes,

that is investments in agricultural

technology development and investments

in human capacity. In the former, Schultz

focused on how to create and provide

farmers with new higher-payoff

technology embodied in capital equipment

1 CSO. (2000). Compendium of Statistics,

Zimbabwe.



52

and other inputs, whilst in the latter he was

concerned with labour productivity.

Kuznets’ theory

Kuznets S (1961) summarised the

importance of agriculture expenditure to a

developing nation. According to Kuznets,

agriculture expenditure makes a direct

contribution to growth of national product

by increasing the total product. Kuznets

proposes three interrelated aspects of

economic growth as propelled by

agriculture expenditure. An increase in

total and per capita product, an increase in

domestic and international flow of goods

and services and rapid shifts in the

structure of an economy with prolonged

and sustained economic growth.

The Lewis model

The Lewis model is a structural change

model that explains how labour transfers in

a dual economy from areas with surplus to

where it is needed and describes the

process of industrialisation. For Lewis

growth of the industrial sector drives

economic growth. The Lewis model argues

economic growth requires structural

change in the economy whereby surplus

labour in traditional agriculture sector with

low or zero marginal product, migrate to

the modern industrial sector where there is

high rising marginal product. Transferring

surplus labour from rural to urban areas

has no effect on agricultural productivity

of rural workers is zero.

Fei-Ranis (1961)

The Fei-Ranis model demonstrates that

development of the economy is through

both the industrial sector as well as the

agricultural sector. Initially there is

transfer of surplus labour from the

agricultural to the modern sector, which

would facilitate an economy, to be fully

commercialised. Fei and Ranis assumed

that the level of wages is fixed by

institutional factors. Growth takes place

through reinvestment of profits in both the

industrial and agricultural sector. Beyond

some point the supply curve ceases to be

completely elastic as it begins to rise.

2.2 Empirical literature review

Kawagoe et al (1985) compares estimated

Cobb-Douglas coefficients from studies

that estimated separate equations for

developed countries and developing

countries. Kawagoe, Hayami and Ruttan

investigated effects of investments in

agriculture to agricultural productivity and

economic growth. They split their sample

of forty-three countries into twenty one

developed countries and twenty two less

developed countries. They found all the

convectional variables as well as technical

education to be important in explaining

output levels for the developed countries.

For the less developed countries, land and

fertiliser were not found to be significant

explanatory variables, but livestock was

more important when compared to the

developed countries.

Fan S et al (2000) using state level data for

1970 – 1993, developed a simultaneous

equation model to estimate the direct and

indirect effects of different types of

government expenditure on rural poverty

and growth in India. Agriculture growth

and food price changes were identified as

important contributing factors to the

decline in rural poverty in the areas around

Saith, Ahluwalia, Srinivasan, Ghose,

Gaiha, Bell and Rich. The primary purpose

of the study was to investigate the causes

of the decline rural poverty in India and

particularly to determine the role that

government investment have played, using

a pooled time-series, cross state data set.

Gunning (1997)’s empirical results of

econometric investigation of five Sub-

Saharan African countries showed that

there is statistical evidence of a long-term

relationship between agriculture

expenditure and economic growth.

Gunning concluded that agriculture

expenditure has a positive impact on



53

economic growth and emphasised that for

developing countries to develop and foster

economic growth, there is need for

increasing agriculture expenditure which

facilitates investments on agriculture

technology which would increase

agricultural productivity thus output and

help boost economic growth and

development.

Ajao O. A (2000) of the Agriculture

Economics and Extension Department in

Nigeria carried out a study examining

effects of agricultural productivity, due to

increased agriculture expenditure, on

economic growth for Sub-Saharan African

countries in the context of diverse

institutional arrangements using data

envelopment analysis method. Time series

data for a thirty year period (1970-1999)

which consisted of information on

agriculture production and means of

production such as records of agriculture

production, rural population and number of

tractors in use, fertiliser use, agricultural

areas as well as gross domestic product

was used. A decomposition of total factor

productivity measure revealed that

agriculture expenditure facilitates

technological change and have got a

positive impact on economic growth and

development which leads to reduction of

poverty in Sub-Saharan African countries.

3.0 Methodological framework

Most empirical studies have found

agricultural performance as a key to

economic growth. Other factors that play a

crucial role in economic growth of a

country include exports, money supply,

gross investment, government policies and

external factors, such as global financial

crises. The model to be used in this study

is an extension of the work based on both

the theoretical and empirical literature and

specifically to meet the conditions in

Zimbabwe.

3.1 Model specification:This research will

estimate the following model:

GDP* = *

0 + 1 AGRICEXP* + 2

EXPO* + 3 MSS* + 4 GVTEXP*

+ 5 SUBS* + 6 DD*+

Where; GDP is the Gross Domestic

Product

AGRICEXP is agricultural expenditure

EXPO is agriculture exports

MSS is money supply

GVTEXP represents total government

expenditure (less agriculture expenditure)

µ is the stochastic error term

SUBS is subsidies to the agriculture sector

from the central bank

DD is the dummy for drought

The variables with asterisks are the

transformed logged variables, that is, each

of the above variables are in logarithms (as

captured by *). Logarithms help to solve

the problem of heteroscedasticity and

coefficients obtained in the estimated

results can be readily read as

elasticities. 0 , 1 , 2 , 3 , 4 , 5 and 6

are the coefficients to be estimated.

3.2 Expected signs

0 >0, 1 >0, 2 >0, 3 < 0, 4 >0, 5 > 0

and 6 <0

3.3 Justification of variables in the

model

Gross Domestic Product Gross Domestic Product (GDP) is being

used as a proxy variable for economic

activity between 1980 and 2005. This

variable captures also domestic productive

capacity.

Agriculture Expenditure Agriculture expenditure is the major of

interest in this study and is included to

ascertain between it and GDP. Schultz

(1978) found a positive relationship

between economic performance and

agriculture expenditure, suggesting that

higher agriculture expenditure implies a

brighter prospect in the host economy.



54

Agricultural Exports Agricultural exports seek to measure

external factors to the Zimbabwean

economy. Agricultural exports constitutes

over 60% of Zimbabwean exports, hence,

chances in trade policies, practises and

movements in exchange rates will have a

direct implication on the agricultural sector

and the economy at large.

Money supply Effects of money supply are transmitted to

economic activity through interest rates

and inflation.

Subsidies

Subsidies are included in the model to

capture government intervention activities

in the agricultural sector.

Dummy for drought

Since Zimbabwe experienced several years

of drought for the period under review, a

dummy will be included to take into

consideration such natural adverse

conditions.

The error term

The error term shows the impact of other

variables not included in the model that

affect GDP.

3.4 Sources of data

This research will make use of annual time

series data from the Central Statistical

Office (CSO), Ministry of Finance,

Reserve Bank of Zimbabwe (RBZ), World

Bank country database, and African

Development Bank country statistics.

3.5 Estimations and interpretation of

Results

The data used in this research was first

tested for stationarity using the Augmented

Dickey-Fuller (ADF) and Phillips-Perron

(PP) tests. All econometric tests in this

study were done using E-views 3.1

statistical package. Table 3 below gives

the result output of the estimated model

specified above (in 3.1).

Table 3: Ordinary Least Square Results Dependent Variable: LGDP

Method: Least Squares

Variable Coefficient Std. Error t-Statistic Prob.

C 0.411113 0.172585 2.382088** 0.0029

LAGRICEXP 0.237932 0.036680 6.486057* 0.0091

LEXPO 0.067008 0.110511 0.608969 0.1194

LMSS -0.544951 0.134243 -4.059427* 0.0006

LGVT EXP 0.340108 0.163414 2.081265** 0.0505

LSUBS 0.030919 0.016342 1.891948 0.0731

DD -0.067008 0.073123 -1.916367** 0.1370

R-squared 0.797293 Mean dependent var 11.14480

Adjusted R-squared 0.726616 S.D. dependent var 2.489159

S.E. of regression 0.144805 Akaike info criterion -0.827683

Sum squared resid 0.419370 Schwarz criterion 0.537353

Log likelihood 16.75988 F-statistic 173.4341

Durbin-Watson stat 1.892995 Prob(F-statistic) 0.000000

* Significant at 5% and ** 10% significance level respectively.

In table 3 above, the coefficients of

agriculture expenditure, agriculture

exports, government expenditure and

agriculture subsidies carry positive signs

as predicted by economic theory.

Agriculture expenditure variable is

statistically significant at 1% level of

significance and is positive. Note that, a

1% increase in agriculture expenditure will

boost, ceteris paribus, national output



55

(gross domestic product) by 0.24%. These

results substantiate the existence of a

positive connection between agriculture

expenditure and economic growth in

Zimbabwe. Although agriculture exports

variable has a positive relationship with

economic growth it is not significant. This

outcome calls for further analysis but

quickly suggestions are that of probably

restrictions placed on local agricultural

commodities by other countries and also

the fact that Zimbabwe exports

unmanufactured agricultural output which

fetch lower prices on international

markets.

A money supply variable is negatively

signed and significant at 5% level of

significance implying that money supply,

which in not in tandem with economic

growth, will adversely affect economic

growth. The subsidies coefficient,

although it carries the expected positive

sign, it is marginally insignificant. The

coefficient of dummy for drought variable

is significant at 10% level of significance

and negatively signed indicating the

adverse effects of natural catastrophes on

economic performance. The dummy is also

exposing the depressing impact on output

caused by the government’s fast tract land

reform programme.

Estimation results show that there is no

autocorrelation (Durbin Watson statistic =

1.892995) and that the model is correctly

specified (adjusted R-squared = 0.726616);

that is about 73% of variations in GDP are

captured by the exogenous variables in the

model.

4.0 Conclusion and Recommendations

The main objective of this paper was to

assess the effects of agriculture

expenditure on economic growth in

Zimbabwe. The study supported the

hypothesis that the agriculture sector is

vital in stimulating and promoting

sustainable economic growth in

Zimbabwe. The positive impact of

agriculture expenditure on Zimbabwe’s

economic growth provides a basis for

sound policy formulation and

implementation by responsible authorities.

The support of the government, financial

and otherwise, on the agricultural sector

has a strong economic bearing on the

overall performance of the economy

through forward and backward linkages,

volume and value of exports. Thus, an

increase in agricultural expenditure that is

put into production activities will be

directly transmitted into increased

industrial activities and hence national

output, revenue and employment.

The research also highlighted the influence

of political actions on economic activities,

first to the agricultural sector and second

to other economic sectors. Investment in

the agricultural sector is pertinent to curb

challenges of unforeseen adverse natural

conditions, like droughts.

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