The aim of this report is to identify how commercial businesses can generate employment opportunities in rural areas through inclusive business models.
This case study provides a comparative analysis of two different initiatives designed to promote the smallholder sector in metropolitan Cape Town.
The City of Cape Town has developed an urban agriculture policy and initiated a joint venture between itself, the Provincial Department of Agriculture and private sector partners to put in place a fresh produce market in the Philippi area. The objective of the market is to provide the “suction force to enable the establishment of more than 2 500 emerging farmers and the development of more than 5 000 hectares of farmland over a five-year period in the Philippi and Cape Flats area” (Provincial Government of the Western Cape, 2006).
Abalimi Bezekhaya is an NGO with over 20 years of experience in supporting homestead growers and group gardens. It has focused on developing a comprehensive range of services to promote and ‘push’ small farmers to find their place in a production continuum encompassing survivalist, subsistence, livelihood and commercial scales and modes of production. Abalimi supplies small farmers with inputs and infrastructure, provides technical advice and institutional support, and recently introduced a planned production and marketing process known as the Harvest of Hope.
We examine what is involved in these different initiatives which aim to pull or push small growers into production and the market place. We profile the Philippi fresh produce market initiative and the services provided by Abalimi. We examine the three groups which Abalimi characterise as their most successful. In the process we assess what must be put in place to develop an enabling environment for a more vibrant and sustainable urban agriculture sector which enhances household food security and generates livelihood opportunities at different points along the value chain and identify lessons for improved policy and practice.
Within the ambit of the Accelerated and Shared Growth Initiative of South Africa, government is leading a process to define a Second Economy Strategy. One of the opportunities that has been identified is the agricultural sector, in particular fostering a larger number of smallholder agriculturalists. The study seeks to identify the key elements of an implementable programme to support the smallholder sector. The core of the exercise entailed identifying successful South African smallholders active in different settings, and examining the factors that contribute to their success, whether these are personal, contextual, institutional, etc. Although the study was not designed as an evaluation of interventions as such, in the process of conducting the smallholder case studies (and in combination with an extensive literature review), the efficacy and relevance of different intervention and support strategies also came into focus.
For purposes of the study, we assumed a broad definition of agricultural smallholders, including those who operate independently, those who farm in groups, those for whom farming is mainly for subsistence purposes and those whose orientation is mainly or purely commercial. (We therefore employ the flawed but useful distinction between ‘subsistence’ and ‘commercial’ smallholders.)
Ultimately, we conceptualise ‘supporting the smallholder sector’ as consisting of four distinct strands, namely the prospects and measures for:
Agriculture plays a unique and multifaceted role in the South African economy. While it contributes less than three percent to the country’s GDP, it provides almost 10 percent of the country’s formal sector employment. The sector has, according to all measures, relatively large linkage effects with the rest of the economy, and is a major earner of foreign exchange: currently more than 8 percent of the country’s merchandised non-gold exports are primary agricultural products. The sector also plays an important safety-net role in the lives of poor South Africans. A survey conducted in 2007 found that more than 14 percent of the labour force had participated in some form of agricultural production in the preceding year (General Household Survey 2007).
Despite this positive contribution, the general consensus amongst policy makers and development practioners is that the South African agricultural sector can, and should, play a bigger role in placing the economy on a higher growth trajectory, reducing poverty and halving unemployment by 2014. However, this pro-poor growth potential has been undermined by the dualistic structure of South Africa’s agricultural economy that comprises both a commercial and a small-scale, subsistence sector.
The large-scale commercial sector is made up of an estimated 4 818 farming units, covers a production area of approximately 82 million hectares and is responsible for more than 99 percent of South Africa’s marketed agricultural output (StatsSA 2002; StatsSA and NDA, 2002). The emerging or small-scale sector, in contrast, consists of 1,3 million farming households with access to an estimated 14 million hectares of agricultural land principally concentrated in the former homeland areas of the country (NDA 2006). Typically, these farmers achieve low levels of production efficiency and engage in agricultural production to supplement household food requirements.
Over the past 15 years, the post-apartheid South African government has struggled to narrow the development gap between the country’s two agricultural systems. In part, this can be explained by the nature of the agriculture that relies on land as a core factor of production. Land represents a high capital barrier to entry and the agricultural investment cycle is long and beset with both market and production risk. This has been further exacerbated by the changing nature of agribusiness that is becoming increasingly competitive and complex in terms of product offering and management requirements. Climate change, supermarket procurement practices, biotechnology and commodity price volatility are just some of the issues farmers have to contend with and larger producers have been better placed to internalize these issues.
The number of policy levers that the South African government has been able to use to tackle this inequality has also been limited. The agricultural deregulation and liberalisation policies that were introduced in the 1990s abolished single channel marketing systems and price controls. While they strengthened the competitiveness of the commercial sector, they also transferred risk to all categories of agricultural producers and eliminated the policy space to shield smaller producers and new industry entrants from the vagaries of market forces.
Consequently, much of South African agricultural policy in the post-apartheid period has centred on land reform and strengthening small-holder development through project support. In the case of land reform, despite a well-formulated policy framework, slow implementation has meant that less than five percent of commercial farm land has been transferred to Black South Africans since 1994. Furthermore, there is evidence to suggest that only 50 percent of these land reform beneficiaries have been able use the land productively (Bosman 2007).
In terms of project support for small-holder development, a broad range of ad-hoc initiatives has been implemented by the nine provincial departments of agriculture tasked with this responsibility. Business development support through the formation of cooperatives, onfarm infrastructure investment and niche-commodity schemes are examples of the types of projects that have been undertaken by government in an attempt to strengthen small-holder development. By and large these initiatives have not been successful: their narrow focus together with weak implementation and oversight have contributed to the high failure rate.
The case-study presented here – the Siyakhula/Massive Maize Production Programme – outlines the design and implementation of a government small-holder development project in the Eastern Cape Province. What makes this case study significant is that it was an attempt on the part of the provincial government to move beyond the narrow, project paradigm and restructure the way in which small-holders engage in crop production. From the outset, the Siyakhula/Massive programme was intended to form the foundation of the Province’s agrarian reform strategy and strove to induce systemic change in the structure and performance of the Eastern Cape agricultural economy.
The aims of Siyakhula/Massive were ambitious. At the most basic level, the programme focused on strengthening food security in the Eastern Cape through increasing maize production. However, promoting black economic empowerment in the agricultural sector, stimulating private sector development and markets in rural areas, as well as promoting environmental sustainability through encouraging conservation farming were also core programme objectives. In addition, the Siyakhula/Massive programme was designed to have an immediate, tangible impact and therefore it required a large budget to implement the five-year programme to scale. The crop production component of the programme was allocated R250 million and a further R250 million was set aside for the mechanization component. This investment was expected to deliver significant results which the architects of the programme quantified as follows:
“When fully implemented there will be 800 tractors with the associated equipment, which will yield 160 000 tonnes (40 000ha) of maize providing food for over 1,2 million people per annum, valued at R352 million.”
The objective of the case study presented here is, firstly, to describe the role-out and implementation of the Siyakhula/Massive programme and, secondly, to assess the extent to which this initiative was successful in achieving its stated aims and objectives. The impact of the programme on the macro, meso and micro level of the Eastern Cape economy will also be examined and special emphasis will be placed on the extent to which the Siyakhula/Massive programme as able to catalyse systemic changes in the broader Eastern Cape maize marketing and production system .The key lessons that can be distilled from the programme will also be presented. This analysis is especially timely in light of the ANC’s Polokwane Manifesto that reaffirmed government’s commitment “to embark on an integrated programme of rural development, land reform and agrarian change”.
About 70-75 percent of Botswana beef exports are consumed in the European Union (EU) beef market. In 1997, the EU introduced a directive which made it mandatory for beef exported to the EU to be identifiable and traceable from farm to fork through a computerized system. Botswana then introduced the livestock identification and trace-back system (LITS) in 1999 to fulfill the EU export requirements and maintain the much needed EU market access.
We believe the EU-imposed LITS may pose as a non-tariff barrier to Botswana beef trade with the EU. We use a two-period causal comparative approach to examine the effects of the EU-imposed LITS on Botswana's beef exports, revenue and poverty. The EU-imported de-boned meat requirement of individual identification of cattle and traceability of beef products has imposed an extra financial burden on government almost the size of the current budget for social safety net programmes in Botswana. Both fresh or chilled boneless beef and frozen beef exports to the EU and the real value of total boneless bovine meat exports have declined significantly over the study period.
The incidence of poverty in the rural areas was more than double that experienced in urban areas. However, the majority of cattle were owned by poorer rural households. Cattle income constituted 62 percent of gross income for poorer cattle-owning households. Thus, an increase (decrease) in income from cattle is likely to have a positive (negative) impact on the incidence of poverty in the country. Any circumstance that negatively (positively) impacts trade in the cattle industry will have a negative (positive) impact on poverty in Botswana. Livestock development support programmes that target cattle-owning households to improve cattle off-take in the rural areas will positively and significantly contribute towards poverty reduction in the country.
We conducted a partial sectoral analysis of the market for ecosystem goods and services in SouthAfrica by doing the following:
The development of markets for ecosystems goods and services is an increasingly important issue in the face of environmental degradation and increasing pressures on remaining natural capital. What are the implications of natural capital being increasingly scarce? Firstly, the value increases. The value of land and natural resources and the production of ecosystem goods and services are becoming precious commodities implying that those w ho currently have access or tenure over them are holders of an asset of which the value is set to rise. This has an impact on the political economy of managing natural resources. But, as w ill be show n, those w ho stand to gain from this new economy, though it w ill require a concerted and focussed effort, are the marginalised and the poor. As the value of natural capital increases, so will the value of the land and the ability of the landowners/users to seek environmental and economic justice also increase, for instance. Secondly, as the value of natural capital increases, so does the need to invest in natural capital, the limiting factor, to protect the capital base and compensate the owners of the resource for their custodianship. Thirdly, this unique juncture in time, with natural capital becoming increasingly the limiting factor and therefore the valuable asset, implies the opportunity for the development of new markets - markets for commodities that never before existed. These new markets are likely to give rise to new social constructs, a new vocabulary and a new paradigm concerning development. Sustainable development is no longer a nice-to-have, it is now essential for progress. Fourthly, the establishment of these new markets carry in and with it the opportunity, if well-conceived, to address poverty and stimulate economic development and growth in ways unknow n before. We have to, how ever, caution that if this process is n ot w ell-managed, as financial capital follow s value - i.e. natural capital - so does the opportunities to further exploit and marginalise the poor and economically vulnerable. While the impending increase in value ofland and natural resources can be the greatest single factor in catapulting the poor from oblivion to a position of meaningful participation in the economy, one should guard against this blessing becoming a curse.
We identified large parts of the Eastern Cape, KwaZulu-Natal, Mpumalanga and the Limpopo Province as priority areas for the development of markets for ecosystems. It is in these areas where ecosystem productivity is high and poverty rife. While it was not a consideration in this study, it is interesting to note the high degree of overlap between the areas of high priority from a market for ecosystem goods and services perspective and those of biodiversity importance.
Is the development of such a market viable and does it offer sufficient scale to justify further consideration and investigation? While the supply of the services originates mainly from those municipalities that offer significant ecosystem services and which are generally poor, the demand for ecosystem services is in the cities. Those on the demand-side and those on the supply-side are therefore geographically apart, yet it is in this that the market for ecosystem services can act as a bridge to enable the development of new market opportunities for those w ho are currently "un- marketed" - those operating in the second economy. While there is evidence of such an emerging market at various places, it is very far from its potential and it is highly unlikely that the market w ill achieve its full potential without a concerted effort. If one only focuses on energy, water and carbon, it is clear that the potential market size is substantial, as can be seen in Table I. We focus on energy, water and carbon since they could be considered umbrella services. They are easily understood, in high demand, does have market prices associated with them, and by effectively managing them one is likely to address a range of other conservation and economic objectives simultaneously.
AIDS has had its most devastating impacts in Africa and the prevalence of the disease continues to rise in most African countries. With a feasible vaccine still years away, reduction in risk behaviors remains the only way to reverse the epidemic. An obvious prerequisite for behavior change is that people have an understanding of the disease and how infection can be averted. Several studies have looked at the determinants of HIV risk behaviors in Africa (Filmer 1998, Blanc 2000), but analysis of the factors determining knowledge of means of HIV prevention is less common.
Further, the studies that have been carried out to date have been cross sectional analyses. In this paper in contrast we consider the all important issue of changes over time in HIV prevention knowledge as well as in HIV testing behavior and attitudes toward testing. We do this by taking advantage of the fact that there are now a number of African countries in which more than one round of Demographic and Health Surveys (DHSs) with comparable HIV-related information has been carried out. We examine changes in these outcomes in Burkina Faso, Kenya, Tanzania, Uganda, and Zambia over periods of 3 to 6 years during the mid to late 90s and early 00s, as dictated by the survey years. In addition we ask how changes in knowledge and testing behavior are distributed across the distributions of schooling and household income as well as by gender and rural vs. urban location. We address this question descriptively and econometrically, the latter by estimating and comparing statistically HIV knowledge ‘returns’ to schooling, wealth, and age in early and later survey years.
During the nineties Rwandan households faced severe shocks of war and genocide. In addition, the structural problem of land scarcity remains unsolved. How did Rwandan households manage? This is an important question from a development perspective, but also from a security perspective, because uneven development raises the risk of renewed conflict. To find an answer, we study welfare gains and losses in a sample of 189 rural households in two Rwandan provinces over the period 1990-2002. In our sample, many households were severely affected by the genocide. In addition, poverty and inequality increased. Moreover, we observe a lot of income mobility. Only one quarter of the households remained in the same income quintile over time. Especially the households headed by widows and prisoner's wives moved downward in the income distribution. Households who reduced their dependence on subsistence agriculture moved upward.
Poverty in South Africa is severe. Zero-rating food can possibly reduce poverty as poor households spend the largest proportion of their income on food. Zero-rating food can also reduce the regressiveness of Value Added Tax (VAT) for the same reason. However, zero-rating food will results in a loss in revenue for government. Zero-rating food should be considered in conjuction with alternative sources of revenue, such as increasing direct taxes proportionately or increasing VAT on all other commodities, or alternatively increasing VAT on commodity or services used mostly by high-income households. A Computable General Equilibrium (CGE) model is used to analyze the combined effect on zero-rating food and using alternative revenue sources to compensate for the loss in revenue. The results indicate that zero-rating food, while increasing VAT on either business or financial services could turn a regressive VAT into a progressive VAT. However, this would require excessive high increases in the statutory VAT rates of these services. More realistic options investigated are increasing direct taxes, or alternatively increasing VAT on all other commodities to 16 percent. Increasing direct taxes is most successful in creating a more progressive tax structure, and still generating a positive impact on GDP. The results indicate that zero-rating food combined with a proportional percentage increase in direct taxes can improve the welfare of poor households, without impacting negatively on other households.
This paper assesses the economy-wide impact of implementing and financing a universal or basic income grant (BIG) in South Africa. The various financing scenarios suggested by the proponents of the grant are presented, and these are compared using an applied general equilibrium model for the South African economy. The results indicate that the required changes in direct and indirect tax rates needed to finance the grant without increasing the government deficit are substantially higher than currently predicted. Furthermore, the alternative of reducing government recurrent expenditure to finance the BIG will undoubtedly undermine other government policy objectives. The paper therefore proposes a shift in the current debate, away from determining which of the individual financing options is preferable, towards an acknowledgement that a 'balanced' approach is likely to provide the only feasible scenario. Furthermore, the impact of the grant on economic growth is found to hinge on its ability to enhance factor productivity. These results suggest that the possibility of South Africa becoming the continent's first welfare state is as likely to rest with the macroeconomic impacts of financing the grant, as with the ability of the grant to address the country's prevailing poverty.
The paper puts forward a workable rural development strategy. It shows on which principles, which historical realities and which statistical facts such a strategy should be based. It looks at what the government is doing to promote rural development and suggests ways in which current policies could be improved, expanded and refined.
The paper starts by reviewing the statistical literature on rural poverty to demonstrate how desperate the situation is and how urgent the need for action. In order to provide a greater sense of process and of detail the paper then looks at some of the dynamics that have shaped and are shaping different parts of rural South Africa. In this section the paper covers agricultural transformation, changing labour markets, rural differentiation, patterns of urbanisation, levels of education, institutional changes and gender discrimination. In the third part of the paper government programmes such as land reform, agricultural development policies, integrated rural development programmes, the education policy and the welfare policy are reviewed. We offer constructive criticisms and ways to add to these policies in order to make our vision of rural development a reality. We also suggest that government should focus more attention on strengthening
the organisational capacity of rural people.
Our key findings are, first, that rural deprivation was extreme and that the majority of rural South Africans exist in desperate circumstances. These circumstances make it very difficult for them to take initiatives on their own that would reduce their deprivation in relation to urban areas. Second, we find that agriculture in previous ‘homeland’ areas has all but been destroyed while employment opportunities within white agriculture have become extremely limited. Nevertheless, rural areas have become increasingly differentiated with rural residents becoming divided into at least four categories of income earners, ranging from those with access to highly-paid local jobs to those with no income at all. Third, we find that urbanisation is an ongoing trend that cannot be ignored, but, at the same time, there are still various factors that keep some people from leaving their rural homes. Fourth, school attendance has been increasing steadily among rural youths for the past twenty years, but the levels and quality of schooling attained is often poor, which makes it difficult for rural school-leavers to find jobs. Fifth, there is much institutional confusion and weakness in the rural areas, which undermine projects launched at the local level. Lastly, we find that gender discrimination is an ongoing problem in the rural areas.
The paper comes to the following policy conclusions:
Explaining the Growth Absence: reviewing the evidence that can account for the poor growth performance of the South African economy
South Africa's democratic transition now lies close to a decade in the past. The transition carried with it much by way of hopes in terms of a greater access by its population not only to an improved rights environment. It was envisaged that the political self-realization of all South African citizens would bring with it access to improved economic well-being also. Employment as well as rising per-capita income are obvious indicators of progressive development for the population of a country.
In this paper we review evidence that has emerged over the past four years that can provide some insight into the growth and employment creation performance of the South African economy. The emphasis is explicitly on why limitations in the growth performance of the South African economy may have emerged. As such, the tone will have a tendency toward the gloomy. So let me start at the outset by reminding ourselves that the past decade has seen much by way of achievement on the policy front. Success particularly with regard to macroeconomic stabilization policy is notable, and should not be obscured behind the veil of woe that is the topic of the present discussion. But enough of optimism - and to the task in hand.
We begin with a consideration of some evidence on the long run growth performance of the economy, as well as the track record of employment creation in the economy. Growth in the South African economy is decomposed into its primary sources, in order to identify any fundamental structural changes in the source of economic development. The evidence will indicate that not only has growth and employment creation in South Africa been subject to long term structural decline, but the source of economic growth has also shifted from capital accumulation to TFP growth over time.
Section 2 of the paper is concerned with an analysis of the determinants of perhaps the most fundamental driver of long term growth: investment in physical capital stock. The evidence suggests that rates of return on capital and the user cost of capital are fundamental to the determination of investment in fixed capital stock, but exercise their influence subject to a powerful impact exercised by uncertainty. What is more, the evidence reviewed demonstrates that uncertainty is crucial not only for investment in physical capital stock, but also for the determination of the capital flows that are required to finance the short-fall of savings relative to investment expenditure in South Africa.
In the case of South Africa, uncertainty has strong institutional underpinnings, which section 3 elaborates on. The evidence reviewed in section 3 points to a number of crucial institutional dimensions that exercise an influence not only on capital accumulation, but on employment creation, international trade flows, and the efficiency of output markets in South Africa.
Finally, in section 4 of the paper we consider evidence on the importance of the factors identified by modern (endogenous) growth theory in determining South Africa's growth performance. While a number of different determinants are considered, the discussion focuses on the contribution of investment in human capital. The evidence suggests that what counts is quality of human capital investment rather than quantity. In an extensive review of published evidence we establish that in generating quality human capital, South Africa still leaves much to be desired.