Africa continues to grapple with high levels of poverty and inequality. In 2024, approximately 8.5% of the world’s population lived in extreme poverty defined as living on less than $2.15 per day. A staggering 67% of these people were located in sub-Saharan Africa.
A significant majority of the poor in sub-Saharan Africa around 70% live in rural areas, and 65% to 70% of them are engaged in agriculture. The sector is a vital contributor to national economies, accounting for between 30% and 40% of GDP in many African countries. However, despite its importance, agriculture remains underfunded. Most African nations lack sufficient domestic resources for agricultural investment, and external funding sources are becoming increasingly limited. This calls for innovative financing strategies to enable sustainable and inclusive economic development.
A recent economic simulation study examined how different financing methods for agricultural investments would impact inclusive growth across 10 African countries: Angola, Mozambique, Namibia, Botswana, Rwanda, Gabon, Malawi, eSwatini, Lesotho, and Zimbabwe. The model evaluated the outcomes of raising taxes, reducing non-agricultural investment, and increasing external borrowing or aid.
The findings were clear investing more in agriculture, particularly through external financing, produced the highest increases in both rural and national incomes. External funding proved more effective because it avoids the immediate economic strain that domestic financing can impose. Nevertheless, a combination of external and internal funding also produced strong results. All financing strategies tested resulted in income growth in rural areas, ultimately contributing to reductions in poverty and hunger.
The model offered insights into how different types of financing affect the broader economy and household welfare. External financing stood out as the most impactful strategy, though it carried the risk of currency depreciation and inflation, which could reduce export competitiveness. Still, these risks were found to be more manageable than the economic strain of internal financing except in Mozambique, where rural income benefits were lower under external financing.
Among domestic options, reallocating resources from non-agricultural to agricultural investments increased income across most countries. This was seen as particularly promising for nations facing budget constraints, as it allows them to prioritize agricultural development without relying solely on international aid or increasing public debt.
A deeper analysis of poverty and inequality outcomes found that agricultural investment consistently reduced both indicators across the studied countries. Malawi, in particular, showed the most significant poverty reduction. Other notable improvements were observed in Rwanda, Botswana, eSwatini, and Angola. Interestingly, in Angola, investment in the services sector closely tied to its oil industry had the most substantial impact on poverty and inequality.
Even modest increases in public investment had visible effects, with agriculture delivering the strongest results, followed by industry and services.
The findings underline the importance of strategic, forward-looking scenario planning in policymaking. In the short term, concessional external financing should be prioritized, particularly where its risks can be managed. In the medium term, governments need to cut inefficient non-agricultural spending, eliminate waste, and redirect funds toward agriculture. Over time, tax policy reforms should increase public revenue for agricultural investment, supported by transparent practices to maintain public trust.
Aligning national development strategies with ambitious agricultural investment plans is essential for achieving sustainable and inclusive economic growth.
