Agricultural growth and investment options for poverty reduction in Rwanda

Diao, Xinshen; Fan, Shenggen; Kanyarukiga, Sam; Yu, Bingxin
International Food Policy Research Institute (IFPRI)

Agricultural development strategies that are put forward by individual African countries delineate priorities for actions to enhance agricultural and overall development. Understanding alternative agricultural growth options and their linkages with poverty reduction and prioritizing agricultural investments are the two key components of an agricultural development strategy. However, the relationships between growth and poverty reduction and between targeted growth and required public investment are not straightforward, and solid research is needed to support an evidence-based policymaking process. This monograph provides such a study using Rwanda as a case. An economywide model is developed for the study and is applied to the most recent economic data and public investment information to analyze agricultural growth and investment options for poverty reduction in Rwanda. The monograph shows that the country’s targeted agricultural subsector growth, if achieved, would allow Rwanda to meet the Comprehensive Africa Agriculture Development Programme (CAADP) target of 6 percent annual growth in agricultural gross domestic product (GDP) by 2020. With comparable growth in the nonagricultural sector, rapid economic growth would result in the national poverty rate falling to 35.5 percent by 2015, a reduction of 25 percentage points over the 1999 rate. Although the majority of rural households benefit from rapid agricultural growth, the most vulnerable households—those with very small landholdings and with few opportunities to participate in the production of export crops—appear to benefit less. The report shows that economywide growth led by the agricultural sector has a greater effect on poverty reduction than does the same level of growth driven by the nonagricultural sector. Among agricultural subsectors, growth driven mainly by increased productivity in staple crops has the greatest poverty reduction effect.

The report points out that meeting the CAADP 6 percent agricultural growth target in Rwanda will require the allocation of public resources to the agricultural sector to rise significantly and reach 10 percent of the total government budget. Estimated economywide returns to public investment in agriculture are high and will come not only from growth in the agricultural sector. Through linkage and multiplier effects, one dollar of public investment in agricultural staples generates US$3.63 of increased agricultural GDP (AgGDP) and US$0.21 of increased nonagricultural GDP. In the agricultural sector, economywide returns from investing in staple foods, including staple crops and livestock, are much higher than those from investing in export crops. But even though the investment returns are high, the planned amount of investment in Rwanda will not be enough to significantly improve the current low yields of many foodcrops in the country. The average yield for maize will stay at a low level in 2015—a level already reached by many African countries today.

The report also points out the trade-offs between rapid growth and low economywide returns from investing in the export sector. Targeting the export sector through public policy and investment will bring double-digit growth to the sector, measured by an increase in GDP; however, economywide returns to such investments are low. The weak linkages of the export sector with other economic activities on both the supply and demand sides reduce the role of the export sector as a key driver in both overall economic growth and poverty reduction. Nevertheless, the export sector has often attracted more government attention than has the agricultural sector in many African countries, with favorable policies and investment support. The findings of this report, which show relatively low economywide returns to public spending in the export sector and relatively less poverty reduction from growth led by exports, further emphasize the importance of broad-based agricultural growth. Agricultural development strategy, including effective public investment strategy, has to focus on growth that benefits a majority of farmers. Only such a strategy can be expected to be efficient and effective for growth, poverty reduction, and economic development in general.

Publication date
Source / Citation
Diao, Xinshen; Fan, Shenggen; Kanyarukiga, Sam; and Yu, Bingxin. 2010. Agricultural growth and investment options for poverty reduction in Rwanda. IFPRI Research Monograph. Washington, D.C.: International Food Policy Research Institute.