Advertise with fastmoving.co.za
 
 

 Why agriculture is vital for SA's economic future Jul 12 2016 13:27 Lameez Omarjee
Why agriculture is vital for SA's economic future Jul 12 2016 13:27 Lameez Omarjee

Why agriculture is vital for SA's economic future

ECONOMIC NEWS

Fin 24 - Jul 12th 2016, 14:37

Pretoria- Countries that tax agricultural sectors are normally poor. Countries which subsidise the agricultural sector are normally rich.  

This is according to agricultural economist professor Mohammad Karaan, a speaker at National Treasury’s Public Economics Winter School being held at the University of Pretoria this week. Karaan shared evidence to show why agriculture should be part of economic and industrial policy.

“Agriculture must form an important part of the economic future of South Africa,” he said. Most economic evidence does not favour agriculture as a future development path. But there is enough evidence to show that agriculture can play a role in modernising economy, he explained.

Looking at China as an example, within 15 years, the country was able to take almost 20% of its population out of poverty through agricultural development. Much of economic development in South-East Asia, China, Singapore and others was based on industrialising agriculture, introducing land reform and developing the manufacturing industry, he explained. A country’s future is also developed around planning with surplus factors of production such as labour.

Agriculture as part of industrial development

The fact that technical change brings about specialisation and productivity, shows that agriculture should be part of an industrial development strategy. “If it was not for technical change which has taken place in the last 20 years in agricultural research and innovation, we would not be able to deal with the current drought, the worst in 100 years,” said Karaan.

Looking at the growth of South Africa’s real GDP per capita over the last 300 years, prior to the gold rush and the discovery of diamonds, GDP was low. At the time South Africa was largely an agricultural economy, exporting field crops, wool and wine. “If a sector only relies on agriculture, it will get poorer overtime, unless there is some industrialisation,” he added.

Challenges to SA’s agricultural sector

In South Africa, other than land reform being a challenge, policy inconsistency is another issue. A second problem is related to the capacity of the State.

“There is no shortage of people in state departments.

"The Department of Rural Development and Land Reform has over 2 000 people who work there. If you have 2 000 people working in nine provinces, then it should be possible to deliver land reform."

“However, the capacity to execute it is not there,” he said.

The level of domestic investment is another issue. Foreign Direct Investment follows domestic investment; it does not lead domestic investment, said Karaan.

“The problem with agriculture is that domestic investment is too low compared to current Foreign Direct Investment.”

It’s not usually governments which bring about jobs or investment flows, much of it comes from markets. There is little collaboration between the private sector and the state to advance economic growth in the sector. “The incentives (on the) state side to encourage private sector investment is not there,” he said.

South Africa’s agricultural sector’s employment levels 100 years ago, was around 1.8m to 2m people. It is currently down to 850 000 to 900 000 people, said Karaan.

In 2008 the level had dramatically declined from 850 000 to 650 000. The levels increased again in 2012 with the introduction of minimum wage.

“Job creation potential is there … 450 000 out of 960 000 jobs created were formed in developing areas,” he said.

From Fin24 

Related News

Retail boost could steer SA away from a recession
12/08/2019 - 12:37
A rebound in economic growth in the second quarter of the year will likely see SA avert its second recession in two years.

Eastern Cape aims to create thriving economy through Cannabis
02/08/2019 - 10:05
If the Eastern Cape plays its cards right to formalise its cannabis industry, the province could have a thriving economy, provincial premier Oscar Mabuyane said.

Swine fever epidemic may slash China's pig herd by half
30/07/2019 - 10:52
China’s pig herd could halve by the end of 2019 from a year earlier as an epidemic of African swine fever sweeps through the world’s top pork producer, analysts at Dutch bank Rabobank forecast.

Rate cut good news, but don't get too excited - economists
24/07/2019 - 10:05
The SA Reserve Bank's decision to cut the repo rate by 0.25% has been met with cautious optimism by analysts, who – while welcoming the move – have warned that relief is more likely to be short-term, and that room for further easing is limited.

Clover's R4.7bn deal gets Competition Commission nod
22/07/2019 - 10:12
The Competition Commission has approved, with conditions, the R4.8bn sale of branded foods and beverages group Clover Industries to a consortium led by Tel Aviv-based Central Bottling Company, Clover said on Friday.