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### Abstract

In 2000, as part of its strategy for growth and poverty reduction, the Government of Rwanda set a goal to increase per capita income from US$230 to US$900 and halve the incidence of poverty by 2020. Two years after those targets were established Rwanda's first Poverty Reduction Strategy Paper (PRSP) projected that GDP growth in the range of 6 to 7 percent would be needed over the long term for those targets to be realized. The principal sources of growth in the short to medium term were to be the agriculture and manufacturing sectors, with agricultural projected to start at 5.2 percent and accelerate over the period due to productivity improvements. Manufacturing growth was projected to rise sharply to 11.5 percent, based on the expansion of manufacturing capacity in agro-processing, and then slow to a more sustainable level of 7 percent. Between 1995 and 2005, real GDP grew at an average annual rate of 10 percent as the economy recovered from the effects of the 1994 genocide. Real GDP growth is now slowing, however. Between 2001 and 2005, average annual GDP growth averaged only 5.2 percent. If growth continues below 6 percent, this will be insufficient to reach Government's development targets. Government therefore needs to quickly put in place policies to accelerate growth. Transforming the agriculture sector will be a critical element of any growth strategy. Agriculture accounts for 35-40 percent of GDP, and employs around 80 percent of the population. It is also the main source of foreign exchange, and is the primary source of inputs for the manufacturing sector. Yet agricultural growth has been disappointing. Between 2001 and 2005, agricultural growth averaged 4.2 percent per year, below the target range of 5 to 8 percent set out in the PRSP. In recognition of the need to stimulate further sustained growth in agriculture, the government is now poised to identify and prioritize the key interventions. This paper aims to assist government in prioritizing the key measures by examining how the level of agricultural growth needed to achieve the government's policy objectives can be achieved. Some in Rwanda advocate the promotion of export crops, both traditional export crops (e.g., coffee, tea, pyrethrum, hides and skins) and non-traditional export crops (e.g., cut flowers, fruits, vegetables, essential oils, vanilla, silk, macadamia). Others argue that agricultural growth can best be stimulated in the short- to medium-term by increasing productivity in food staples, both crops and livestock. This debate mirrors those ongoing in many other developing countries, in sub-Saharan Africa and elsewhere. An economy-wide, multi-market model (REMM) was developed to test the likely payoffs to alternative agricultural development strategies. The REMM is disaggregated to the sub-national (provincial) level and includes 30 agricultural sectors (commodities) and two aggregate non-agricultural sectors. Eight household types are identified within each province according to size of landholding and gender of household head. The economy-wide model is linked to a micro-simulation model that includes all households sampled in a nationally representative survey (1999-2001 Household Living Condition Survey). The macro-micro linkage framework permits assessment of the likely impacts of alternative policy scenarios on growth, incomes and poverty, and food security at national, sub-national, and household group levels. The model was first used to simulate a base run scenario representing the "business as usual" option, under which agricultural and non-agricultural growth are assumed to continue along current trends. Alternative growth scenarios were later evaluated relative to this baseline. The modelling results show that business as usual is not an option if Rwanda is to meet its national development targets, including the Millennium Development Goals (MDGs) and the targets agreed to under the New Economic Partnership for Africa's Development (NEPAD). The base run scenario highlights that a continuation of current policies will bring about a modest reduction in the national poverty rate, but the absolute number of people living below the poverty line will increase because of population growth. Food self-sufficiency at the national level will be eroded in the face of demographic pressure and rising food imports. The simulations conducted using the REMM indicate that rapid and sustainable growth in Rwanda's agricultural sector is achievable only if the productivity, profitability, and competitiveness of agriculture is improved. Therefore, the priority measures identified focus on increasing investments in land and water resources, strengthening extension, promoting the performance of both domestic and export markets. Key to this will be strengthening support to producer organizations. The simulations produced a number of insights to inform policy design: - Agriculture has the potential to be a leading engine of growth for Rwanda's economy over the short to medium term - Within agriculture, the main drivers of growth will be food staples, including livestock. - Staple-led growth is more pro-poor than export-led growth. - Growth in staples will reduce the nation's food deficit, but it will not eliminate imports of all commodities. - Growth in agricultural exports will help to reduce the total trade deficit, but it will not be able to eliminate it completely. - Agricultural growth will contribute to the attainment of the first MDG of halving poverty by 2015, but agricultural growth alone will not to be sufficient. These findings from Rwanda are relevant for the many other developing countries, in sub-Saharan Africa and also in other regions, in which policy makers are struggling to unlock the power of agriculture to serve as a driver of growth and poverty reduction. In recent years, much attention has focused on boosting agricultural growth by promoting the development of high-value export crops. The REMM simulation results serve as a reminder that in agrarian economies in which a large proportion of rural households continue to engage in production of food staples destined for home consumption, investments aimed at raising the productivity of food staples are likely to have a much greater impact in the short to medium term in fostering broad-based, pro-poor growth.

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