Growth and structural change in East Africa : domestic policies, agricultural performance and World Bank assistance, 1963-1986

MADIA DISCUSSION PAPER 3 8295 I _ MANAGING = AGRICULTURAL ___ DEVELOPMENT ___ IN AamA_ AFRICA 'M N _~ Aw rF~7 n _ rHnw L rC t \1l ~~~~~~It 1\ > l 1  FOREWORD The MADIA study and the papers comprising this MADIA Discussion Paper Series are important both for their content and the process of diagnosis and analysis that was used in the conduct of the study. The MADIA research project has been consultative, nonideological, and based on the collection and analysis of a substantial amount of concrete information on specific topics to draw policy lessons; it represents a unique blend of country-oriented analysis with a cross-country perspective. The conclusions of the studies emphasize the fundamental importance of a sound macroeconomic environment for ensuring the broad-based development of agriculture, and at the same time stress the need for achieving several difficult balances: among macroeconomic, sectoral, and location-specific factors that determine the growth of agricultural output; between the development of food and export crops; and between the immediate impact and long-run development of human and institutional capital. The papers also highlight the complementarity of and the need to maintain a balance between the private and public sectors; and further the need to recognize that both price and nonprice incentives are critical to achieving sustainable growth in output. The findings of the MADIA study presented in the papers were discussed at a symposium of senior African and donor policymakers and analysts funded by USAID in June 1989 at Annapolis, Maryland. The participants recommended that donors and African governments should move expeditiously to implement many of the study's valuable lessons. The symposium also concluded that the process used in carrying out the MADIA study must continue if a stronger, more effective consensus among donors and governments is to be achieved on the ways to proceed in resuming broad-based growth in African agriculture. The World Bank is committed to assisting African countries in developing long-term strategies of agricultural development and in translating the MADIA findings into the Bank's operational programs. Stanley Fischer Edward V K. jaycox Vice President Development Economics Vice President and Chief Economist Africa Regional Office  MADIA DISCUSSION PAPER 3 GROWTH AND STRUCTURAL CHANGE IN EAST AFRICA DOMESTIC POLICIEs, AGRICULTURAL PERFORMANCE, AND WORLD BANK ASSISTANCE, 1963-86 PARTS I AND II UMA LELE L. RICHARD MEYERS U ~ ~ ~ THE WORLD BANK _ WASHINGTON, D.C. = -  Copynght (.'3 1989 All rights reserved The lnternational Bank for Reconstruction Manufactured in the United States of America and Development/THE WORLD BANK First printing November 1989 1818 H Street. N.W. Washington, D.C. 20433. U.S.A. MADIA Discussion Papers are circulated to encourage discussion and ment, at the address shown in the copyright notice above. The World Bank comment and to comnmunicate the results of the Bank's work quickly to the encourages dissemination of its work and will normally give permission developmient community, citation and the use of these papers should take promptly and, when the reproduction is for noncommercial purposes with- account of their provisional character Because of the informality and to out asking a fee. Permission to photocopy portions for cla;sroom use is not present the results of research with the least possible delay, the manuscript required. though notification of such use having been made will be has nor beer, prepared in accordance with the procedures appropriate to appreciated. formal printed texts, and the World Bank accepts no responsibility for The complete backlist of puiblications from the World Bank is shown in errors rlhe findings, interpretations, and conclusions expressed in this the annual index of Publications, which contains an alphabetical title list and paper are, entirely those of the authoris) and should not be attributed in any indexes of subjects, authors, and countries and regions. The latest edition is marnrer to tne World Bank. to its affiliated organizations, or to members of available free of charge from the Publications Sales Unit. Department F. The its Boaro of Executive Directors or the countries they represent. World Bank. 1818 H Street, N.W. Washington. D.C. 20433. U.S.A., or from The material in this publication is copyrighted. Requests for permission Publications, The World Bank, 66. avenue d'1ena. 751 16 Paris. France to reproduce portions of it should be sent to Director, Publications Depart- Uma Lele Is the manager of Agricultural Policy in the Africa Technical Department at the World Bank. L Richard Meyers is a rural sociologist in the Agriculture and Rural Development Department at the World Bank. Library of Congress Cataloging-in-Publication Data Lele, Uma J. Growth and structural change in East Africa: domestic policies, agricultural performance, and World Bank assistance, 1963-86. (MADIA discussion paper; 3) Includes bibliographical references. 1. Agriculture-Economic aspects-Africa, Eastern. 2. Agriculture and state-Africa, Eastern. 3. Managing Agricultural Development in Africa (Organization) I. Title. II. Series. HD2126.L44 1989 338.1'8676 89-22728 ISBN 0-8213-1319-3  Contents Overview ....................................... 5 Part Il-Activities of the World Bank in Kenya, Malawi, The Role of the World Bank ................... 6 and Tanzania ................................... 34 Introduction .8 Bank Economic and Sectoral Analysis and Policy Organization of the Paper .................. 8 Advice .................................... 34 Policy Advice to Kenya .......................... 35 Part I-A Comparative Overview of the Three Countries 9 Policy Advice to Tanzania .41 Structure and Performance of the Agricultural Sectors Policy Advice to Malawi .43 of Kenya, Malawi, and Tanzanla.Bank Lending to Kenya, Malawi, and Tanzania. 46 Initial Conditions at Independence.Overall Lending Patterns ......................... 46 Agriculture's Role in Overall Economic Development Lending to Kenya.50 Patterns .................. : 4 and the Process of Structural Transformation ....... 9 Lending to Tanzania .............. 54 Agricultural Performance ......................... 11 Lendmg to Malawi ............... 5 Agriculture and GDP Growth ................... .. 13 Lending to Malawi.56 Macroeconomic Environment .................... 14 Conclusion ....................................... 58 Levels of Foreign Assistance .23 Country Policies and Performance .58 The Role of the World Bank ...................... 58 Agricultural Policies .25 Natural Resource Endowments and Policy Choices 25 Annex.61 Small Versus Large-Scale (or Estate) Production . 25 Notes .69 Land Policies .30 Policies Affecting Labor Markets .30 Bibliography 71 Stability of Agricultural Service Institutions .30 Agricultural Research .31 Fertilizer Policies .31 Concluding Comment .33 Note This volume was originally completed in 1987 and was issued at that time as a DRD Discussion Paper by the Development Research Department of the World Bank. Other MADIA publications completed since then provide more current detail of the recent developments in each of these countries including information on the adjustment experience. See, for example, the following MADIA papers and journal articles: Uma Lele, "Structural Adjustment, Agricultural Development, and the Poor: Some Lessons from the Malawian Experience'; Uma Lele, Robert E. Christiansen, and Kundhavi Kadiresan, "Issues in Fertilizer Policy in Africa: Lessons from Development Programs and Adjustment Lending, 1970-87"; Uma Lele and Robert E. Christiansen, "Markets, Marketing Boards, and Cooperatives in Africa: Issues in Adjustment Policy"; Uma Lele, "Managing Agricultural Development in Africa" Finance and Development 26 (March 1989): 45-48; Uma Lele, "Sources of Growth in East African Agriculture" World Bank Economic Review 3 (January): 119-144. Acknowledgment We are grateful to Henry Russell, Lien Tran, Natasha Mukherjee, Linda Nunes-Schrag, Ian Sundgren, Pierre Seka, Narendra Rustagi, Robert Geraci, and Maria Cancian for research assistance and computer work and to Kim Than and Estela Zamora for tireless typing of drafts.  Illustrations Tables 1. Employment shares by sector ..................................... 9 2. GDP decomposition by sectors .................................... 9 3. Trade shares in GDP ............................................ 10 4. Composition of trade ........................................... 10 5. Structural change and growth: Agricultural performance in Kenya, Malawi, and Tanzania, 1970-85 ........................................... 12 6. Real GDP growth rates .......................................... 14 7. Indicators of average economic performance ....................... 15 8. Composition of government financial operations .................... 16 9. Decomposition of external shocks and policies ..................... 18 10. Social indicators for Kenya, Malawi, and Tanzania ..... .............. 22 II. Population and agricultural land .................................. 25 12. Availability of land in Malawi ..................................... 26 13. ADMARC's profits (losses) on crop trading for 1971/72-1983/84 ........ 27 14. Malawi: Average tobacco prices paid to estate and smallholder growers and ratios of average producer prices to export unit values by nomenclatures .............................................. 28 15. Details of ADMARC's investment and loan portfolio 1972, 1983, and 1984 ...................................................... 28 16. Ratios of producer prices to international prices for major smallholder crops in East Africa, 1970-85 ..................................... 29 17. Trends in ratios of export to food crop prices in Kenya, Tanzania, and Malawi ................................. ..................... 29 18. Nutrient price/maize price ratios for Malawian, Kenyan, and Tanzanian smaliholders, and for selected Indian states ........................ 32 19. Comparative maize and nutrient prices for smaliholders in Malawi, Kenya, and Tanzania .................................................. 32 20. Lending to agriculture ........... ............................... 46 21. Combined IBRD and IDA cumulative lending operations by sector and region as of June 30, 1986 ........................................ 47 22. World Bank categorization of African countries by region ..... ........ 47 23. Combined IBRD and IDA cumulative lending operations by sector as of June 30, 1986 .................................................. 48 24. MADIA: World Bank lending operations by sector ..... .............. 48 25. IBRD and IDA cumulative lending operations by sector and region as of June 30, 1986 ........................ 49 26. East African MADIA countries: World Bank lending operations by sector 49 27. Projects' rates of return ............................. 52 Figures 1. Terms of trade index ...........................I 1 2. Income terms of trade ...........................I 1 3. Real effective exchange rates index ............................. 14 4. Budgetary deficit ............................. 17 5. Overall budget deficit ............................. 17 6. Inflation rates ........................... 17 7. Development, recurrent, and total expenditures, Kenya, Malawi, Tanzania .19-21 8. Total and per capita ODA: 1970-84 .23 9. ODA and TRN, 1970-84, Kenya, Malawi, Tanzania .................... 24  Overview Comparisons between Kenya, Tanzania, and Malawi are of with an evolving but equally narrow indigenous estate interest because all three countries started with somewhat sector in which growth appears to have occurred at the cost similar initial conditions at independence but have fol- of incentives and investment opportunities for the small- lowed quite different policy paths with very different holder sector. Tanzania pursued policies aimed at disman- economic outcomes. Agriculture is nonetheless the most tling its historical institutional base, and experimented with important source of employment, income, and exports in all many new institutional arrangements, which greatly desta- three countries. Not surprisingly, the performance of the bilized the environment for smallholder production. agricultural sector and the agricultural policies pursued The structure of agricultural production and its growth is, have been closely related to each country's overall eco- however, not simply determined by institutional and nomic performance and policies. microeconomic factors, but by the quality and the stability Kenya and Malawi have both done quite well in terms of of the macropolicy environment within which agricultural growth of export crop production, but Kenya's performance production is carried out. Kenya's macroeconomic and has been far superior in reconciling growth with equity. sectoral policies were far more conducive to growth than Tanzania has done least well on growth of export crops, Tanzania's throughout the 1970s. Depending on the partic- including those produced by smallholders. Tanzania's ular policy under examination, Kenya and Malawi exchange efforts to sustain policies to achieve equity have been places in terms of demonstrating superior macroeconomic hampered by the lack of growth of the economy. Malawi's management-if the interaction of structural (estate- strong export growth has until recently diverted the oriented) policies with macroeconomic policies is consid- attention of many observers, including the Bank, from the ered, Kenya was certainly superior to Malawi. Both Kenya sources of that growth, including examination of the basic and Malawi have provided a more stable institutional structural policies the government has pursued as well as environment for development than has Tanzania. Also, the technological constraints that have adversely affected external shocks were more adverse in the case of Kenya Malawi's smallholder sector performance. and Malawi than of Tanzania. The relative performance of each country in the food Tanzania's resource base is far more diversified and sector is more difficult to compare due to weak data. Again, favorable for growth than that of Malawi and perhaps even however, Kenya appears to be more advanced in promoting Kenya. Land availability, as reflected in land person ratios, the process of technical change in the smallholder sector, is much greater in Tanzania compared to Kenya or Malawi, especially in maize production. although a small proportion of Kenya's land (4 percent) is The breadth of participation in growth has had a pro- of very high quality. found impact on the process of economic development in Per capita ODA levels have, however, been substantially each country. Achieving equitable growth requires the higher in 'Tanzania than in Kenya and Malawi. While they development of a sophisticated network of institutions to began to decline from their 1981 peak due to Tanzania's service the needs of a large number of small, geographically tardiness in adjusting its macroeconomic and sectoral dispersed producers with diverse resource endowments. policies, they were still higher than in Malawi and Kenya in Kenya, which admittedly started out with the most favor- 1984 as donors were slow to recognize the adverse effects able institutional base at independence, derived from its created by Tanzania's domestic policy environment. large (European) farm structure, used this base and greatly The above arguments lead to the conclusion that policy broadened small farmer access to institutional services. variables explain much of the growth or stagnation that has Malawi's historical institutions serving a modern European occurred in the three countries. Similarly, they help to agriculture were fewer than Kenya's. Subsequent growth has explain how the benefits of growth have, or have not, been maintained this narrow European estate sector base along distributed. 5  The Role of the World Bank rates of return; ten had ERRs equal to or exceeding 10 percent. Not all these poor realized returns were the result With the exception of smaliholder tea, coffee, and dairying of unanticipated problems. Many marginal investments in Kenya, there appears to be relatively little connection were approved in support of political objectives of the between where growth has occurred in the agricultural governments, especially ones concerning interregional sectors of the three countries and where the Bank has income distribution. While taking these concerns into provided about $994.1 million worth of agricultural project account, it can nonetheless be argued that the projects assistance as of 1986. In addition the Bank provided $440.9 financed were often not necessarily the most cost effective million of assistance in the form of sectoral or structural way of addressing such concerns. This and other evidence adjustment lending in the three countries during the 1980 suggests that the countries would have been better-off if to 1986 period. The fungibility of resources diverted to the they had not borrowed from the Bank for many of the estate sector explains this phenomenon in Malawi, where activities funded. This is more true for Kenya and Tanzania the Bank concentrated its resources in the smallholder than for Malawi where ERRs for a larger number of projects sector but with little growth. Growth in smaliholder tea and suggest a more positive impact. However, economic evalua- coffee in Kenya-the main source of its agricultural tions are done immediately upon the completion of growth-occurred contrary to the Bank's worldwide advice projects. More recent data on Malawian smallholder agricul- on tea and coffee expansion to countries producing these ture raise questions about the long-term effects of projects commodities (although, paradoxically, the Bank's lending for initially regarded as favorable. agroprocessing was crucial for expansion of smallholder Another noteworthy feature is that until quite recently production in Kenya). the Bank's assistance (as well as aid levels) was not In Tanzania the Bank's 1973 Agricultural Sector Report positively related to the conduciveness of policies or the correctly identified the constraints to growth and stressed level of performance of the three countries. Pressure to the need for a sequential approach to the development of lend in the 1970s resulted in indiscriminate growth in smallholder agriculture that could capture the most obvious lending and weak project portfolios that did not clearly sources of growth. However, this approach conflicted with reflect the positive features of the Bank's macroeconomic Tanzania's policies. The Bank's policy analysis after that was and sector analysis. very constrained by the Bank's reluctance to directly The early 1980s ushered in an era of greater appreciation question Tanzanian policies. Its project portfolio was, until within the Bank concerning the nature of the interactions about 1981, very conditioned by Tanzanian policies that between macroeconomic, sector, and micro constraints to were not growth-oriented. growth and the need to more directly relate the level and By the early 1980s macroeconomic difficulties were- the composition of lending to the macroeconomic and reinforced by external shocks in all three countries. These sectoral policy environment. This realization had three were combined with severe project implementation difficul- consequences: (II attempts by the Bank to seek macroeco- ties, especially in Kenya and Tanzania, but also in Malawi. nomic and sectoral policy and institutional reforms in each This was partly a result of the rapid expansion of Bank of the three countries;' (2) cancellation of poorly performing lending, as well as that of other donors, to the agricultural projects; and (3) development of new projects that were sectors of these countries, often for quite marginal activities geared to improving the capacity of the governments to under conditions of weak planning and institutional more effectively deliver basic agricultural services, e.g., capacity. research, extension, and input supply. The World Bank financed a total of 68 agricultural project Policy distortions in the three countries have been the operations in Kenya, Malawi, and Tanzania between 1965 least in Kenya although some difficult institutional prob, and 1986-26 operations in Kenya with commitments of lems remain with regard to land tenure and the role of the $500.50 million; 18 in Malawi with commitments of $172.69 private sector in agroprocessing and marketing. The Bank, million and 24 in Tanzania with commitments of $320.95 however, was slow to appreciate the complexity of these million. Of 24 World Bank agricultural project operations issues. This led to an untimely effort at grain marketing completed in the three countries between 1965 and 1986, liberalization attempted through the second SAL in a involving investments of $266 million, only 14 had positive period culminating in a severe drought. By 1985, the Bank's 6  policy and project dialogue in Kenya had returned to a process and several new projects in agricultural research more balanced effort to address the problem of priorities and fertilizer distribution, has since the early 1980s helped in the sector as well as a number of institutional issues of the government to correct some of the more important a long-standing nature that had repeatedly been con- policy distortions-those that favored estates at the cost of fronted in the course of project lending. smallholders in the 1970s. On other sectoral policy issues The past and future sources of growth in Kenya center on that will have profound long-term effects on development, the issue of intensification in tea, coffee, maize, and e.g., the land issue, the speed of removal of fertilizer dairying. The Bank would appear to be on the right track subsidies, and the restructuring of ADMARC (the agricul- now in Kenya by concentrating on improving agricultural tural marketing parastatal), the Bank needs to go further in research and extension, credit, and marketing in order to analyzing the basic sources of Malawi's structural problems achieve intensification. Nevertheless, the relatively limited and needs to help develop a long-term strategy of devel- diagnosis, through primary data collection and analysis, of opment that will address the question of how to better the precise constraints to achieving growth, as well as the reconcile growth with equity. In this analysis the political speed of reform may continue to be problems unless the economy aspects of policy reform need far greater empha- balance of resources devoted to lending versus analysis sis than is true of the more narrowly defined economic changes. Secondly, the Bank needs to seriously reconsider analysis usually conducted by the Bank. its policy advice to Kenya concerning the development of The most important conclusions of this research concern coffee and tea. The policy has been prompted by concerns the recognition of the Bank's obvious comparative advan- about limited world market prospects for tea and coffee tage in policy analysis and in the articulation of long-term and the collective good of beverage producing countries country specific development strategies in support of which whose interests are served by limiting production. However, donor assistance and domestic resource mobilization can this advice has not served Kenya well and has been be organized through aid coordination. However, there is a inconsistent with the realization of a dynamic comparative pattern in the Bank's operations of insufficient analysis of advantage. Equally important, the treatment of risks has specific constraints to long-term development, including been quite weak-including those related to the nonreal- consideration of the implications for sequencing and ization of the Bank's price forecasts in the estimation of phasing of policy reforms and investments, before reform economic benefits. At a more general level the prospects packages are put in place. This has been accompanied by for primary commodities produced in Africa and the the lack of a long-term view of development, one that in implications for country and project specific advice needs particular places greater emphasis on human capital/ serious review by the Bank. institutional development in the recipient countries relative The effects of macro and sectoral distortions on agricul- to the emphasis placed on financial resource transfers. tural performance and on the Bank's portfolio have been There is also inadequate effort at aid coordination in which the greatest in Tanzania. The Bank was tardy in taking into the comparative advantages of other donors to undertake consideration the importance of the policy environment for specific activities in support of a long-term strategy are the size and the content of its lending program and in explicitly recognized. several ways reinforced the government's worst tendencies The issues of donor comparative advantage and lack of through project assistance, i.e., support for the govern- analysis of specific constraints are closely related. Lack of ment's import substitution industrialization strategy and its attention to critical constraints is due in part to the excessive focus on equity. These problems were identified insufficient attention paid to micro-level factors that poten- in the Bank's 1983 Agricultural Sector Report, which tially inhibit the success of investments. This in turn stems repeated many of the themes of the 1973 report. Once from limited analytical capacity in recipient countries with recognized, the difficulties of the large project portfolio which to undertake the necessary microanalysis. Thus, combined with the government's slowness in responding to donors need to devote greater attention to building up these problems, brought the Bank's agricultural lending such analytical capacity. While this is an area where the activity to a virtual standstill from about 1983 to 1986 when Bank does not have a particular comparative advantage, it the government began to reconsider structural reform. needs to both recognize and encourage the efforts of those In Malawi, on the other hand, the Bank, through the SAL donors who do possess such comparative strengths. 7  Intrduction This paper on three East African countries, Kenya, Malawi World Bank to the process of agricultural growth in each of and Tanzania, draws upon the results of a wider study of the the three countries. role of foreign assistance in African agricultural develop- The process of agricultural growth is examined from a ment, which is in turn a component of a major World Bank specific point of view, derived from the work of a number research project, "Managing Agricultural Development in of agricultural economists who have been concerned with Africa" (MADIA). The focus of the MADIA study on agricul- the process of structural transformation.3 These economists ture is the result of the wide recognition among donors and have explored patterns of agricultural growth that simul- African governments of agriculture's central importance in taneously created increased employment and incomes overall economic development and their acknowledgment while expanding output. They recognized that at the early that past failures in Africa have been largely a result of the stages of development there are diminishing returns in failure of the agricultural sector. agriculture under traditional techriologies. They point out, The foreign assistance component of MADIA consists of however, that efficiency-increasing reallocation of resources case studies that examine the experience of eight donors, in agriculture favoring the increased use of labor in including the World Bank, in providing assistance to agricultural output growth shifts effective demand outwards, agriculture in six African countries since their indepen- while at the same time achieving rapid growth in employ- dence. This synthesis paper summarizes the World Bank's ment and incomes. Further, this increased effective experience in Kenya, Malawi, and Tanzania, drawing on demand has important growth linkage effects that make the detailed reviews of the Bank's activities in each. It draws on process of development self-sustaining. This study there- the World Bank's Tanzania Agricultural Sector Report fore examines the policies and performance of the three prepared under Uma Lele's direction in 1981-83, and East African countries in their postindependence period subsequent comparative work on Tanzania, as well as from the viewpoint of the extent to which they have reports prepared for the MADIA study on the World Bank's achieved equitable growth and have created growth role in Kenya and Malawi's agricultural development (Lele linkages. and Meyers 1986; Kydd and Spooner 1987). The process of agricultural growth has also been consid- The data on macroeconomic structure and performance ered from the viewpoint of intensification, which is defined were developed by Yaw Ansu. Those on agricultural perfor- in three different and inter-related ways: (I) a shift from low mance and policies for Kenya were developed by Michael to high value crops on any given land, (2) increase in yields Westlake and Kevin Cleaver, Chandra Ranade for Malawi, per hectare of any given crop, and (3) a geographical shift and Uma Lele and Ellen Hanak for Tanzania. in production of crops from areas of poor land quality to The analysis of the Bank's role has involved a detailed those of higher land quality. The policies affecting agricul- review of the Bank's formal and informal economic and ture in each country are evaluated from this perspective. sector work as reflected in Basic Economic Reports, Annual Lastly, it is hard to review relationships between donors Economic Memoranda, Agricultural Sector Reports, and and the recipients of aid without seeming to be second various project related documents, including Staff Appraisal guessing the protagonists with the benefit of hindsight. To Reports (SARs), Supervision Reports, Project Completion some extent this is unavoidable if lessons are to be learned Reports (PCRs), and Project Performance and Audit Reports for the future. Nevertheless, the study devoted consider- (PPARs). Consultation with the concerned Bank's operational able effort to identifying the information that was available at the staff has also been an equally important independent time decisions were made. It discusses how this information was source of data and analysis. (or was not) applied, and uses decisions and outcomes to Field investigations were carried out by Uma Lele in suggest policy, analytical, procedural, staffing, and manage- April 1985, January 1986, and July 1986, involving discussions ment implications for Bank/government interactions in the with cofinancers of Bank projects (in particular CDC, ODA, future. and USAID) and interviews with Kenyan and Malawian government officials and farmers. Lele's investigations in Tanzania extended from 1972 to 1974 and from 1977 to 1982. Organization of the Paper The study also draws on other research on each of the Part I provides a comparative overview of key macroeco- countries by Bank staff and outside researchers.2 The study nomic indicators as well as the postindependence structure would not have been possible without the cooperation and and performance of agriculture in the three countries. It encouraging support of the Bank's operational staff and the also briefly summarizes the effects of external factors, governments concerned. including terms of trade effects, on economic growth. The While the analysis presented here is necessarily historical cumulative effects of overall foreign aid levels are briefly in approach, it is intended to be more than just a reviewed, with particular attention to the relative contribu- retrospective treatment of the Bank's involvement in the tion of the World Bank. Lastly, the domestic agricultural agricultural sectors of the three countries. Its objective in policies of the three countries that have contributed to the tracing past developments is to try to understand the agricultural performance of each are discussed. relative roles of domestic policies and the Bank in the Part 11 describes the evolution of the Bank's assessment agricultural development of the three countries over the of the agricultural potential, performance, and policies of past two decades, and then to explore priorities for future each country. It then reviews the nature of the Bank's policy government policies and donor (especially World Bank) advice to each country. A description of the Bank's agricul- assistance. Thus, the monograph examines in detail the tural lending by subsector follows, in which lessons learned nature and patterns of agricultural growth in Kenya, Malawi, by the Bank and the governments are identified as well as and Tanzania and then reviews the contribution of the some that might still be learned.4 8  Part I A Comparative Overview of the Three Countries Structure and Performance of the Agricultural Sectors of Kenya, Malawi, and Thnzania Initial Conditions at Independence tends to be high early in the development process and to All three countries are former British colonies (or protecto- fall during later stages. Surprisingly, during the 1967-73 rates), have relatively similar ecological conditions, and grow period, agriculture already contributed a relatively low 34.3 many of the same crops. At independence they inherited percent to Kenya's GDP, compared to 44.4 percent in similar agricultural structures, consisting of a large number Malawi, and 40.8 percent in Tanzania (Table 2), once again of small African farms and a modern agricultural sector reflecting Kenya's more advanced stage of structural trans- operated by colonial settlers. Of the three countries, Kenya had the most favorable conditions in terms of the size and Table 2 development of its modern, largely European agricultural GDP decomposition by sectors (percent of GDP) sector, and of its economy, physical infrastructure, and institutions. Both Kenya and Tanzania enjoy good ports, Year Kenya Malawi Tanzania while Malawi is landlocked and has faced serious transpor- 1967-73 tation difficulties since the late 1970s, In 1965 Kenya's per Agriculture 34.3 44.4 40.8 capita income of $103 in 1965 was the highest followed by Industrya 12.2 11.0 11.5 Tanzania's $77 and Malawi's $63. Kenya and Tanzania had (Manufacturing) 11.8 11.0 99 similar size populations (9.5 and 11.7 million in 1965, (Mining) 0.4 0.0 1.6 respectively) compared to Malawi's 3.9 million. Infrastructureb 15.0 11.6 14.5 Public Administration Agriculture's Role in Overall Economic and Defense 14.9 11.7 11.3 Development and the Process of Othersc 23.6 21.3 21.9 Structural Transformation 1974-78 Agriculture 37.3 40.8 45.7 Agriculture accounted for quite similar employment shares Industry 12.1 11.4 11.1 (84 to 91 percent) in the three economies at independence (Manufacturing) 11.9 11.4 10.5 in the mid-1960s (Table I) and by 1980 the percentages were (Mining) 0.3 0.0 0.6 still quite high (78 percent in Kenya, 86 percent in Malawi, Infrastructure 12.8 12.6 12.1 and 83 percent in Tanzania). In a Kuznetzian "normal" Public Administration pattern of growth, agriculture's share in a country's GDP and Defense 14.3 8.7 11.4 Others 23.5 26.5 19.7 Table 1 1979-81 Employment shares by sector (percent) Agriculture 33.0 38.0 51.5 Industry 13.3 11.8 11.0 Year Kenya Malawi Tanzania (Manufacturing) 13.0 11.8 10.4 (Mining) 0.2 0.0 0.5 Agrnculture Infrastructure 14.2 13.4 10.5 1960 86.0 92.0 89.0 Public Administration 1965 84.1 90.6 87.6 and Defense 14.8 9.8 9.9 1970 82.0 89.0 86.0 Others 24.7 27.0 17.1 1975 80. 1 87.6 84.6 1980 78.0 86.0 83.0 1982-84 Agriculture 32.6 39.8 51.6 1960 5.0 3.0 4.0 Industry 15.6 11.8 9.7 1975 5.9 3.5 4.5 (Manufacturing) 15.4 11.8 9.3 1970 7.0 4.0 5.0 (Mining) 0.2 0.0 0.4 1975 8.4 4.5 55 PInfrastructure 9.1 12.0 10.2 1980 10.0 5.0 6.0 Public Administration 1980______________ 10.0_____________ 5.0___________ 6.0_______ and Defense 9.9 11.0 11.3 Other Sectors Others 32.8 25.4 17.2 1960 9.0 5.0 7.0 a Industry is defined as mining (fuel and other metals) and manufacturing. 1965 10.0 5.9 7.9 b Infrastructure is defined as construction and transport and 1970 11.0 7.0 9.0 communication. 1975 11.5 7.9 9.9 c Others includes trades, bank/insurance/real estate services and 1980 12.0 9.0 11.0 unspecified. Sources: World Bank, (IEC) for data up to 1983 for Kenya and Malawi, to Note: Industry is defined here as manufacturing, mining and quarrying, 1982 for Tanzania. World Bank, "Country Economic Memorandum" construction, and public utilities (electricity, water, gas, sanitary for Kenya and Malawi 1984 data. Unpublished data obtained from services). the Bank of Tanzania and other Tanzanian authorities tor 1983-84 Source: World Bank, World Tables, Vol. 11, 1983. data. 9  formation. By the 1982-84 period, however, agriculture's Table 4 share had fallen slightly to 32.6 percent in Kenya and 39.8 Composition of trade (percent) percent in Mala,w'i, but had risen to 51.6 percent in lTnzania. Kenya Malawi Tanzania Meanwhile, industry's share in GDP, which was around 12 percent during 1967-73 in each country, had risen by 1982- A. EXPORTS 84 to 15.6 percent in Kenya and 11.8 percent in Malawi, 1967-73 while falling to 9.7 percent in Tanzania. Tanzania's Basic Agrcufture 74.7 97.0 78.2 Industrial Strategy of the 1970s (which strongly discrimi- (Food) 60.0 91.7 48.2 nated against agriculture) actually had the reverse of its Manufacture 12.5 2.7 13.2 intended effect: it raised agriculture's share in GDP and Fuels 12.0 0.1 7.8 reduced industry's. Metals and Minerals 0.7 0.2 0.8 The share of trade in GDP was initially also similar in the 1974-78 three countries (Table 3), in which agricultural exports I Agriculture 66.1 95.5 84.3 dominated. Trade shares amounted to 58.5 percent in' (Food) 54.5 93.5 58.0 Kenya, 51.2 percent in Malawi, and 53.8 percent in Tbnzania Manufacture 13.1 4.4 11.1 for 1967-73 with agriculture's share in trade being over 90 Fuels 19.9 - 4.1 percent in Malawi, and about 80 percent in Tanzania (Table Metals and Minerals 0.9 0.1 0.5 4). In Kenya, however, it had fallen over time, from 74.7 1979-81 percent during 1967-73 to 56.6 percent in 1979-81. By 1974- Agriculture 56.6 93.8 79.5 78, trade shares had risen to 67.5 percent and 56.9 percent (Food) 48.8 92.2 60.7 in Kenya and Malawi, respectively, reflecting increases in Manufacture 12.5 6.2 14.1 agricultural export volumes as well as prices. In Tanzania, Fuels 28.5 - 2.7 however, trade shares had declined to 48.5 percent despite Metals and Minerals 2.4 - 3.7 the relatively more favorable movements in its barter terms 1982-84b of trade compared to Kenya and Malawi (Figure I). Tbnza- Agriculture 61.9 nia's stagnancy or decline in exports is reflected in its much (Food) 55.4 poorer income terms of trade (Figure 2). All three countries Manufacture 11.8 registered falling trade shares in the 1982-84 period. For Fuels 24.0 Kenya and Malawi the terms of trade declines were far Metals and Minerals 2.3 greater relative to the 1972 base than for Tanzania, and B. IMPORTS indeed during the 1983 and 1984 period Tanzania's terms of 1967-73 trade had recovered from a low of 1982, whereas in Kenya Agriculture 9.5 15.3 9.3 (Food) 7.4 14.2 8.4 Manufacture 78.4 76.3 79.8 Fuels 10.8 7.1 9.4 Table 3 Metals and Minerals 1.3 1.3 1.6 Trade shares in GDP, (percent of current values) 1974-78 Kenya Malawi Tanzania Agriculture 8.8 9.9 15.2 (Food) 6.7 9.1 14.0 Share of Exportsb Manufacture 66.3 76.8 68.4 1967-73 28.5 19.7 25.6 Fuels 23.5 11.8 14.4 1974-78 32.0 22.8 19.5 Metals and Minerals 1.4 1.5 2.0 1979-81 26.8 25.2 14.9 1979-81 1982-84 26.5 20.2 10.9 Agriculture 8.2 9.1 9.3 Importsb (Food) 2.0 8.3 8.3 1967-73 30.0 31.5 28.2 Manufacture 58.8 73.9 67.3 1974-78 35.5 34.1 29.0 Fuels 31.7 15.6 21.9 1979-81 35.6 39.1 26.2 Metals and Minerals 1.3 1.4 1.5 1982-84 29.3 27.3 22.7 1982-84b Agriculture 10.5 Share of Trade (Food) 8.6 1967-73 58.5 51.2 53.8 Manufacture 51.5 1974-78 67.5 56.9 48.5 Fuels 6.7 1979-81 62.4 64.3 41.1 Metals and Minerals 1.3 1982-84 55.8 47.5 33.6 1982-84 55.8 47.5 33.6 Food Imports per capita (in constant 1967 USS) Share of Net Exports 1967-73 2.3 2.5 1.5 1967-73 -1.5 -11.8 -2.6 1974-83 2.6 1.7 (74-81) 2.3 (74-81) 1974-78 -3.5 -11.3 -9.5 a Legend: The Standard intemational Trade Classification (SITC) code 1979-B1 -8.8 -13.9 -11.3 has been used: Agriculture: SITC (0+1+2+4-27-28); (Food): SITC 1982-84 -2.8 -7.1 -11.8 (0+1 +22+4); Manufacture: SITC (5+6+7+8+9-68); Fuels: SITC 3; Metals and Minerals SITC (27+28+68). Total Merchandise Exports, a Both expoits andmarke imports ncludegoodandnonactorservices. Imports - Agriculture+Manufacture+Fuels+Metals and Minerals. Source: World Bank (iEm) for datianudpto1od983forKenfactan servicesM b 1982-84 figures are for 1982-83 for Kenya and are not available for 1982 for Tanzania. World Bank, 'Country Economic Memorandum"aaianTaai. for Kenya and Malawi 1984 data. Unpublished data obtained from Sources: The World Bank Trade System (EPI) for trade data. IMF, the Bank of Tanzania and other Tanzanian authorities for 1983-84 Interational Financial Statistics Yearbook, 1985, for population. data. 10  and Malawi they continued to remain depressed. Tanzania's Agriciltural Performance trade share had fallen to 33.6 percent by 1982-84, over 20 Export Crops points below its 1967-73 level, as volumes for a number of Coffee and tea are the two major export eamers in Kenya. its agricultural exports (sisal, cashews, tobacco) stagnated or The share of coffee ranged between one-quarter to one-half declined, of agricultural exports, depending on international prices, Table 3 also shows that Kenya has had the best record for and averaged 20-28 percent of total exports in Kenya during net exports, which were -1.5 percent of GDP in 1967-73, then the 1970 to 1985 period. The share of tea in agricultural dropped to -&8 percent in 1979-81 and rose to -2.8 percent in 1982-84. Tanzania's net exports were -2.6 percent of GDP exports ranged betwited 1231 percent of total exports. in the 1967-73 period and worsened to more than -11 average tea contitut ed at-39 percent o t r pretafter 1979. Malawi has consistentlly had much larger Coffee and tea export violumtes increase ato 3.8 percent (ande percent atr17.Mavhacossetyhdmclrgr 7.5 percent, respectively, in the 1970 to 1985 period (Table negative net exports (slightly over -11 percent of GDP) than ' ' . Kenya or Tanzania until 1982-84, when its negative balance 5). Kenyan exports of horicultural aops also grew rapidly improved to -7.0 percent. Current account deficits in the 112.7 percent) between 1970 and 1985, but from a small three countries showed roughly similar patterns to those of base. net exports. The reasons for the differential behavior of the crop ye y ction role in Kenyan tpo trade shares and net exports are better understood through crop production through a shift in cropping patterns to the more decomposed picture of export and food crop higher value crops. The growth rate of smaliholder coffee themoredecompo below, . production was 6 percent compared to I percent for performance presented below. estates, leading to an increase in the share of smallholder coffee production from 35 percent (60 percent of total area) in 1964 to around 60 percent in the 1980s (75 percent of Figure 1 area). Smallholder tea production increased at an impres- Terms of trade index (base year = 1972) sive 13.5 percent compared to the 5.5 percent growth in volumes from estates, and the share of smallholder tea 1X0 - production (and area) increased from around 5 percent in 140 - the mid-1960s to 48 percent in 1985 (65 percent of total area). Smaliholder sugar production grew at 16.9 percent ,,<, / \ and estate production at 5.3 percent with the smallholder 120 / \share of sugar growing from 11 percent of the total in 1973 to 48 percent in 1984. Much of the impressive growth in the 150 \ volume of horticultural crop exports in 1970-85 came from smallholders. The smallholder share of marketed maize 10o - \,/ I A \ \ fsales, which was negligible at independence, is currently 45 90 1/ Mh\ Vpercent. Smallholder dairying production increased at 8.5 percent with the smaliholder share increasing to 50 percent .0 \/ \ >of the country's milk (to which smallholders contributed little at independence). Almost all the marketed production 70 of rice, pulses, cotton, and pyrethrum comes from smallholders. 196 15 19771 1977197519741971 197719 197 19 1950 19 91 In sharp contrast to Kenya, tobacco, tea, and sugar, the three important exports of Malawi, have all been estate crops, with tobacco earnings ranging from 43 percent to 51 Figure 2 percent of the total earnings during 1970 and 1985, those of Income terms of trade (base year - 1967) tea between 15 percent and 22 percent, and sugar rising 160 - from a low base of 1.7 percent in 1970 to 17 percent during 150 - 1979-81, but then declining to 9.3 percent during the 1982 to 140 - 1985 period. Production of burley tobacco increased by 15.4 percent annually, flue-cured tobacco by 10.4 percent, tea by 1,0 / 4.5 percent, and sugar by 14.7 percent. Groundnuts (the only 120 - crop grown by smaliholders), which was previously a major 1C10 export generating about 11 percent of total export earnings _0 t / \ \ 11 \ \in the 1970-73 period, declined to 1.2 percent in the 1982- 100^ < \ / \ X \ 85 period. Groundnuts export volumes declined by 13.2 90 \ percent annually and the production of cotton (another Kj Al <smallholder crop) also declined by 12.5 percent annually. 70 - Tanzania has had a much more diversified export base 0 Xcompared to either Kenya or Malawi with coffee contribut- 60 \ ing 23-35 percent of total export earnings during the 1970 50 - to 1985 period, but with other important exports either 4;- . , . , ,,,,,,,,,, stagnating or declining in shares. Cloves and tobacco 1967 1969