Poor oversight over agricultural development funds fuels rural poverty

Three out of four people in developing countries live in rural areas, and most depend on agriculture for their livelihoods. In many of these countries, and those in Africa in particular, the agricultural sector employs 80% of the labour force and contributes the lion’s share of the GDP. A third of the world’s poor are rural farmers, and rural areas in many parts of the developing world have come to epitomise hunger and poverty.

Published on 10 December 2010 in ISS Today

Andile Sokomani, Senior Researcher, Corruption & Governance Progamme, ISS Cape Town

Three out of four people in developing countries live in rural areas, and most depend on agriculture for their livelihoods. In many of these countries, and those in Africa in particular, the agricultural sector employs 80% of the labour force and contributes the lion’s share of the GDP. A third of the world’s poor are rural farmers, and rural areas in many parts of the developing world have come to epitomise hunger and poverty.

Approximately 40% of the world’s agricultural land is seriously degraded due to intensive farming methods. The Ghana-based Institute for Natural Resources in Africa estimates that by 2025 Africa may not be able to feed 75% of its population, if current trends of degradation continue.

Rightfully so, many development scholars consider increasing the level of rural agricultural productivity the core of poverty alleviation - along with affording the rural poor access to agricultural land, funding or technical assistance opportunities. Research also indicates that growth generated in agriculture is on average two times more beneficial to the poorest half of a country’s population than non-agricultural economic growth. Investing in basic agricultural technologies such as nitrogen fertilisers, pesticides and modern irrigation methods, has seen drastic reduction in food shortages in the developed world. In light of these developments donor interest in the important role agriculture can play in achieving economic development, poverty reduction and ensuring food security is being renewed.

Despite these realisations, agricultural productivity in many parts of the developing world remains curtailed, if not completely stagnated. Small-scale farmers still have to contend with food insecurity, coupled with the pressure of an increasing population. The poor’s property rights to land remain insecure, and where security of rights exists, it is rarely coterminous with reduced poverty or increased wealth. Traditional urban biases that historically discriminated against rural farmers, and ultimately the poor, are still evident.

The realisation of the potential of agriculture as a tool to alleviate poverty in the developing world clearly faces serious impediments. Chief among these is the poor oversight over funds meant to promote agricultural development, which fosters leakage and dead weight losses. This is at times apparent in the large discrepancies often observed between budget allocations and actual disbursement of funds. If agricultural productivity, and therefore poverty reduction, is truly contingent on investing financial resources in agricultural research and development, then many developing countries will still be developing for many decades to come.

For even before factoring in financial improprieties, calculations of global agricultural research and development spending already indicate that the world is investing less in agriculture than previously thought, with developing countries faring worse than previously estimated. The funding base for research and agricultural development is thus already circumscribed. More than ever, commitment from donor organisations and governments is needed to replenish the dwindling funding base. Donor support in particular has become increasingly important. In Africa, for instance, NEPAD’s Framework for African Agricultural Productivity has recommended doubling the current level of public agricultural research and development funding by 2015.

But what incentives are there for donors to renew their commitment in financing agricultural research and development if efficient and effective use of financial resources cannot be demonstrated? In this sense generating social and economic development through agriculture is not simply a matter of increasing agricultural spending and looking for alternative sources of agricultural funding. Equally important is ensuring that such expenditure proceeds against the backdrop of adequate checks and balances. 

Part of the failure to curb the dead weight loss relates to the fact that in most developing countries, particularly in Africa, government has been responsible for financing the majority of agricultural research and development programmes and projects. On the one hand this is desirable as it is likely to mean that more time is spent on being accountable to the people rather than donors, thus spending more time and money addressing the needs of the rural poor. At the same time government funds in many developing countries often predominate in conditions of reduced accountability, and thus highly vulnerable to abuse. Financial resource inefficiencies are often widespread.

Remedying this problem is not just a matter of swapping the role of government with that of private firms, as seen many times in the past. In fact the private sector currently has no incentive to invest in poor rural areas, as the prospects of returns are minimal. The question that ought be asked rather is whether current governance structures and institutions are sufficient to ensure that agricultural expenditure is transparent and that government officials are highly accountable. In other words, are the existing structures and institutions making it possible to secure much-needed financial resources for investment in agriculture?

While many developing countries have ticked the obligatory boxes of ‘good governance’ by having in place a semblance of transparent laws and rules, the reality on the ground is often quite different. The quality of governance structures and existing institutions tends to leave a lot to be desired. This does not bode well for poverty eradication policies and development strategies as their success depends on the ability of government institutions to exercise effective oversight over public financial resources. Governance reforms in institutions related to public spending in general, and agriculture in particular, are urgently needed before financial resources are further committed to poverty reduction efforts.

The onus is on state officials to ensure that their actions do not impact negatively on the state of governance, public finances, and the condition of the financial system as a whole. The time is now for developing countries to set up effective, efficient, transparent and accountable systems of managing public resources and monitoring their use by governments.

Expenditure on agriculture development is one of the most important instruments at governments’ disposal for promoting growth and alleviating poverty in rural areas. Unfortunately wastage of agricultural development funds through ineffective governance and poor oversight denies agriculture the opportunity to make real impact on rural development and poverty eradication. Continued and persistent hunger among the rural poor is likely to remain a serious development challenge unless this wastage is decisively curbed.