The impact of government expenditure and private sector investment on agricultural sector : a comparative analysis of selected Southern African customs union countries

Abstract

Agriculture is a vital economic activity for developing countries, more especially in Africa. The agricultural sector provides employment to the low skilled labour force and plays a pivotal role in the Southern African Customs Union economy as it has the potential of sustaining livelihoods, employment creation, and it is a strong link to the rest of the economy. The study investigated the impact of government expenditure and private investment in agriculture of South Africa, Botswana and Namibia (SACU). To achieve this, an analysis was conducted using the Autoregressive Distribution Lag model (ARDL), Cointegration test and Granger causality test on data spanning the period 1991-2021 to tests for the long run relationship of the variables employed and also to ascertain if Keynesian theory and the Wagner theory hold in the economies of selected SACU countries. The study attempts to add on literature both the short and long run impact of government expenditure in the agricultural sector of SACU. The study is expected to contribute significantly to macroeconomics. The Cointegration test revealed that there is significant positive long-run influence of government expenditure in agriculture, private investment in agriculture and employment in agriculture at all levels of significance (1%, 5% and 10%). The ARDL test results further revealed that in South Africa government expenditure has a positive influence on agricultural output, while the other two countries (Botswana and Namibia) showing negative results. However, private investment revealed a positive influence on agricultural output in all the selected countries confirming Keynesian and Wagner theory holds. The ARDL test showed that the speed of adjustment for South Africa, Botswana and Namibia was estimated at 69.68%, 99.38% and 61.54% respectively, revealing that the variables will converge back to equilibrium relatively quickly. The study recommends an increase of at least 1% of state revenue to be allocated to the agricultural sector each year, so that at some point it will be in line with the Malabo declaration which recommends that governments spend at least 10% of state revenue in the agricultural sector. Additionally, the study recommends a clear and predictable legal and regulatory framework, effective management, streamlined business registration and permit application processes must be established. This will incentivize companies to operate and develop in the agricultural sector of SACU.