Economic growth and development through agriculture: the case of the North West Province of South Africa
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Date
2010-05
Authors
Cloete, Philippus Christoffel
Journal Title
Journal ISSN
Volume Title
Publisher
University of the Free State
Abstract
The overall objective of the study was two-folded, firstly to improve the success of rural agricultural development in the North West Province (NWP) through the development of an institutional framework and secondly, to quantify the impact of the proposed institutional changes on the different agricultural sectors in the province. The development of an institutional framework contributes towards the existing mechanisms available to role-players and decision makers involved with rural agricultural development. The ability to quantify and simulate the impact of changes in the institutional framework addresses the concerns of researchers that theory is outstripping empirical research to an excessive extent in the field of institutional economics. Furthermore, by simulating the impact of the proposed institutional framework, indepth knowledge on the economic impact of rural agricultural development in the NWP was gained. In order to reach the first objective, a review/study was undertaken of the principles of the New Institutional Economics theory and how it relates to agricultural development in the NWP. This was followed by a SWOT-analysis to identify the main agricultural opportunities and factors inhibiting rural agricultural development in the province. From this, an institutional framework was developed to create an enabling environment for rural agricultural development in the NWP. The proposed institutional arrangements/improvements include amongst others: the establishment of public-private partnerships between government, private sector and communities, the introduction of rural finance systems, equity sharing schemes, integrated research-training programmes and market access solutions. A strategic framework for the implementation of the proposed institutions and institutional arrangements was also developed. The second objective was achieved through the application of two methodological approaches. In the first approach, the economic impact of the proposed institutional framework was estimated through a partial macro-economic equilibrium model, calibrated to a Social Accounting Matrix for the NWP. Different scenarios were simulated, with the land reform programme that served as a proxy for calculating the impact of the proposed institutional changes. From this, the baseline scenario assumed 30% of agricultural land being redistributed with a 20% success rate. This scenario closely mimics reality in the province. The second scenario assumed a success rate of 35%, with the success rate in the third scenario being 50%. The main results from this analysis include the quantitative impact of the land reform policy on the different agricultural sectors of the province as well as the impact of the proposed institutional framework thereon. The simulated results proved that development policies (i.e. land redistribution) yield different economy-wide impacts within the various agricultural sub-sectors of the province. Results from the baseline scenario show that the grain and oil-seed sectors of the province have the most significant impact on the economy, reducing provincial GDP by 6.19% compared to the 4.19% of the livestock sector. Moreover, under the assumptions of the baseline scenario, the grain and oilseeds sub-sector will reduce employment opportunities with 25 307, and government income with an estimated R 160 million. The rest of the scenarios confirm that the creation of an enabling environment for rural agricultural development through the introduction of the proposed institutional framework will significantly reduce the impacts of development policies. For example, in scenario 3 the grain and oilseed sector reported a 3.19% decline in the contribution to GDP compared to the 6.19% under the assumptions of the baseline scenario. The impact on employment opportunities is also likely to decrease by 3% for every 15% increase in the success rate. The second methodological approach entails the calculation of three sets of economic multipliers (production, value added and labour). The calculated multipliers were used to determine the economy-wide impact of the proposed institutional framework. Despite numerous shortcomings of economic multipliers, this analysis was performed to quantify the direct, indirect and induced economy-wide impacts resulting from the proposed institutional changes. Results from the multiplier analysis confirm the positive impact that the creation of an enabling environment might have on the proposed land reform policies. The main conclusion of the study is that the lack of proper and functional institutions could be seen as the main reason for the high rate of rural agricultural development failure in the NWP. Thus, should government fail to address the identified institutional shortcomings, the success rate of rural agricultural development will remain a mere 20%, which will have severe consequences for the economy and the rural people in the province. It therefore calls for the creation of an enabling environment that will support rural agricultural development. This could be achieved through the implementation of the proposed institutional framework; however, commitment from all role-players involved in rural agricultural development will be a prerequisite for success in this regard.
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Keywords
Thesis (Ph.D. (Agricultural Economics))--University of the Free State, 2010, Agriculture -- Economic aspects -- South Africa -- North-West Province, Agriculture and state -- South Africa -- North-West Province, Institutional economics, Economic development -- South Africa -- North-West Province, North-West Province (South Africa) -- Economic conditions