Public spending on agriculture and its effects on unemployment in sub-Saharan Africa

Abstract

Unemployment has social, health and economic consequences. As such, reducing unemployment to its minimum is a policy goal in every economy. Sub-Saharan Africa has the fastest-growing, young population which is expected to bulge the labour force and increase unemployment in the decade to come. It is, therefore, important for governments to think of ways of creating employment in the region. Expansionary fiscal policies suggest that increased public expenditure helps in creating employment. Agriculture is one of the key contributors to the gross domestic product in the sub-Saharan region. Most countries have committed to increasing public agriculture spending through the Comprehensive African Agriculture Development Programme (CAADP) and its declarations such as Maputo and Malabo where African leaders agreed to allocate at least 10 percent of the total budget to agriculture. Even though most of the countries have not honoured the declarations by allocating less than 10 percent, public spending on agriculture (in absolute numbers) has improved substantially in the region. However, despite the increase in public agricultural spending in the region, the evaluation of the effects of public agricultural spending on unemployment remains scanty.

The study, therefore, analysed the dynamic effects of public agricultural spending on unemployment in sub-Saharan Africa. Since the countries are heterogeneous in terms of their reliance on agriculture, the study also compared the effects of public agricultural spending on unemployment between agriculture-based and non-agriculture-based countries. The data used were a panel of 19 sub-Saharan African countries for the period from 2001 to 2018 and were obtained from the Comprehensive African Agriculture Development Program (CAADP) - managed Region Strategic Analysis and Knowledge Support System (ReSAKSS) and the World Bank. The dynamic fixed effects and the Generalized Method of Moments (GMM) result indicated that public agriculture spending reduces unemployment in sub-Saharan Africa. The study, however, found that the effect of public agricultural spending on unemployment reduction in sub-Saharan Africa is higher among agriculture-based economies than non-agriculture-based economies.

Following the differences in the effects, the study concludes that regional agricultural agreements might not be optimal in reaching the countries’ targets. The regional agricultural agreements such as Maputo and Malabo may give different results based on the countries’ inherent agricultural and macro-economic features. As such, the study recommends that countries in sub-Saharan Africa should pledge and set agricultural policies based on their inherent features related to agriculture and the macro-economy.

Keywords: Sub-Saharan Africa, Public agricultural spending, unemployment, GMM, Dynamic fixed effects model, Agriculture based countries.