THE ECONOMICS AND POLICY IMPLICATIONS OF GOVERNMENT INVESTMENT IN WATER AMD IRRIGATION DEVELOPMENT IN ZIMBABWE CHARLES JOROBIAH GWENHAMO HOVE DOCTOR OF PHILOSOPHY LONDON SCHOOL OF ECONOMICS AND POLITICAL SCIENCE (UNIVERSITY OF LONDON). UMI Number: U048698 All rights reserved INFORMATION TO ALL USERS The quality of this reproduction is dependent upon the quality of the copy submitted. In the unlikely event that the author did not send a complete manuscript and there are missing pages, these will be noted. Also, if material had to be removed, a note will indicate the deletion. Dissertation Publishing UMI U048698 Published by ProQuest LLC 2014. Copyright in the Dissertation held by the Author. Microform Edition © ProQuest LLC. All rights reserved. This work is protected against unauthorized copying under Title 17, United States Code. ProQuest LLC 789 East Eisenhower Parkway P.O. Box 1346 Ann Arbor, Ml 48106-1346 I H £S £ S ? 6 9 12- THE ECONOMICS AND POLICY IMPLICATIONS OF GOVERNMENT INVESTMENT IN WATER AND IRRIGATION DEVELOPMENT IN ZIMBABWE Charles J.G Hove ABSTRACT The study examines and analyses the Government of Zimbabwe's investment policy in water and irrigation agriculture between 1980 and 1985 from an economic and policy approach. The approach emphasises both the economic and policy implications that result from such public investment. The major objective of the study is to assess whether or not public investment in water and irrigation has satisfied Government economic and policy objectives of 'growth and equity'. The cost-benefit framework has been adopted in the assessment of the performance of the commercial irrigation sector. Using this framework, the study seeks to show whether chosen policies have optimized such economic benefits as economic growth, profitability, foreign exchange earnings, and employment creation, for the costs incurred. Small-scale peasant schemes are assessed using cost-effective analysis framework. On the basis of this method, the study examines the extent to which chosen policy strategies and projects have maximized equity objectives such as the increase in food production, improvement in standard of living, and increase in income earnings etc, at least cost of production. Throughout the analysis of the two sectors, the role played by public subsidies in all the cost structures is examined. In the case of peasant schemes the costs are compared with those of the rain-fed peasant agriculture in order to assess the incremental equity, or lack of it, due to irrigation. Social and environmental effects of these policies and their impact on costs and benefits are also discussed both qualitatively and quantitatively. The whole analysis takes place against the background of national economic decline, rising investment costs and rising public debt. The question of the economy's ability to support a subsidy-based investment policy is central in the whole study as this raises serious implications for future investment. Alternative investment strategies and future research areas are suggested. i CONTENTS Page LIST OF FIGURES V LIST OF TABLES vii ACKNOWLEDGEMENTS ix 1. INTRODUCTION AND THE OBJECTIVES OF THE STUDY Introduction 2 The Hypothesis 4 Development of Research Interest 7 Data Sources 15 Research Objectives 18 2. THEORETICAL TREATMENT OF PROJECT ASSESSMENT TECHNIQUES Introduction 25 Cost-Benefit Analysis (CBA) and Commercial Irrigation Agriculture 27 Recent Advances 31 The practice of Cost-Benefit-Analysis 35 Criticism of the CBA 45 Implications for Irrigation Projects 48 Justification for choosing CBA method for the present study 49 Calculations in the present study 50 Cost Effective Analysis and the subsistent Irrigation Sector 51 Equity and the irrigation sector, Appraisal of subsistent Irrigation schemes justification for using CEA Framework 53 Calculations in the present study 56 3. THE PHYSICAL AND SOCIO-ECONOMIC BACKGROUND Introduction 58 The Physical Resource Potential 59 The Socio-Political and Economic context 73 The State of the Economy 88 ii 4. PUBLIC SECTOR INVESTMENT AND COMMERCIAL IRRIGATION COSTS Introduction 98 Public Cost Outlay:- 102 Capital cost outlays 104 Supply Capacity Extension and the Pricing Policy 117 Operation and maintenance costs 122 Public Investment in Infrastructural support services 130 The Farm Irrigation Fund 133 Farm Irrigation Fund Subsidy and Wheat Self-Sufficiency 136 Agricultural Produce Price subsidies 140 Public cost outlay to irrigation and Rainfed Agriculture, a comparison. 146 5. THE BENEFITS FROM COMMERCIAL IRRIGATION AGRICULTURE Introduction 150 The Streams of Benefits: 153 The High Yields 154 Food supply self - sufficiency 157 Employment Generation 162 The Profitability of Commercial Irrigation 169 Foreign Exchange Earnings 174 Net Foreign Exchange Earned 179 6. PUBLIC INVESTMENT IN SMALL SCALE IRRIGATION AGRICULTURE Introduction 185 Equity and Public Investment in Small Scale Irrigation Agriculture 190 Why Irrigation? 192 The Investment cost subsidies 194 iii Interest Groups in small scale Irrigation Agriculture:- 203 The Agronomists and Agricultural Policy Makers 204 The Engineering Bias 209 The political imperatives 211 Donor support 213 Planning and Administrative controls 213 The farmer 214 The Benefits 215 What is the Alternative? 219 7. THE SOCIAL AND ENVIRONMENT EFFECTS OF PUBLIC INVESTMENT IN WATER AND IRRIGATION DEVELOPMENT Introduction 221 The Socio-Economic and Environmental Effects:- 224 First Order Environmental Effects 225 Second and Third Order Environmental Effects 238 Social Effects:- 243 The spread of diseases 244 The Socio-Economic cost of Malaria and Bilharzia 251 8. CONCLUSIONS AND RECOMMANDATIONS Introduction 260 Public Investment in water 263 Recommendations on Water Pricing 269 Investment in small scale Peasant schemes 272 Other subsidies 276 Benefits from Commercial Irrigation Agriculture 277 Benefits to small scale Producers: The equity question 285 The Social and Environmental Effects 288 iv Future Research Needs:- 291 1. The Land Tenure Issues and Rural Incomes 292 2. Analysis of water use efficiency in Agriculture 294 3. Organisational issues 295 4. An Evaluation of the Political and Legal Constraints 295 5. Food Self-sufficiency and Cash Crops 297 6. Regional Food Transfers 298 7. The Externality Effects 299 Appendices 301 References 318 \ V LIST OF FIGURES Bcp 1.1 Lowveld Irrigation Schemes 1 3.1 The physiographic Regions of Zimbabwe 61 3.2 The Potential Irrigable Soils of Zimbabwe 64 3.3 Annual Mean Temperature map of Zimbabwe 65 3.4 Rainfall Variability in Zimbabwe 66 3.5 Monthly Rainfall changes - Chisumbanje/ Middlesabi, 1980-1984 68 3.6 Monthly Evaporation Rates - Chisumbanje/Middle Sabi, 1972-1975, 1975-1978 69 3.7 Natural Farming Regions of Zimbabwe 72 3.8 Pulic Investment in Water Schemes 1900-1980 78 3.9 Public Institutions and Organisations involved in water Development and Irrigation Agriculture 1961-1979 82 3.10 The Growth of Sugar Production in Zimbabwe 1954-1984 87 3.11 Gross Domestic Product at constant 1965 Prices, 1965-1984 89 3.12 Central Government Budger Deficit as Percentage Of GDP, 1978 - 1984 91 3.13 Balance of Payments 1978-1983 94 3.14 Earnings and the Tax Burden 1979-1984 95 3.15 Central Government Debt 1975-1983 96 4.1 Theoretical short-run and long run marginal prices 118 4.2t The Sabi (River-run based) system: Operation and maintenance costs at constant 1978 prices, 1978-1983 127 4.3 The Chiredzi Dam (Gravity based) system: Operational and Maintenance costs at constant 1974/75 Prices, 1974-1983 128 4.4 Mtilikwe Dam (Pumping based) system: Operation and maintenance costs at costant 1974/75 prices, 1974-1983 129 5.1 Benefits Derived from Commercial Irrigation Agriculture - The ideal case 152 vi 6.1 The Interest Groups in Small-Scale Irrigation Agriculture 205 7.1 Percentage of children with schistosoma haematobium in the three areas of endemicity 246 7.2 Percentage of children with schistosoma mansoni in the two areas of endemicity 247 7.3 Regional monthly incidence of malaria 250 VII LIST OF TABLES Rg* 2.1 Recent additions to Project Appraisal Methodology 33 3.1 Rainfall Distribution in Zimbabwe 70 3.2 The Natural Regions 70 3.3 Distribution of Land by Natural Regions by 1979 75 3.4 Sectoral Perfomance, 1982-1983 93 4.1 Proposed mean Public Capital Expenditure 1984-1987 105 4.2 The cost of Raising Mwenje Dam 105 4.3 The Unit cost of Producing Water; A comparison of Old and New Dams. 107 4.4 Farmers' willingness-to-pay compared to water production costs. 113 4.5 Foreign Investment in Large Scale Dams 114 4.6 Cost of supplying water per hectare 116 4.7 Public water supply price subsidies to farmers 121 4.8 Regional Water Authority's Capital stock 1981-1982 125 4.9 The cost structure of three types of schemes borrowing from the Farm Irrigation Fund 136 4.10 Net Returns to Irrigation per year 138 4.11 Percent Net Returns to Irrigation per year 139 4.12 Budgetary subsidies for various crops 142 4.13 Maize: Production, Producer Price and Local selling Price 143 4.14 Wheat: Producer Prices and the quest for self-sufficiency 144 4.15 Subsidies paid by government to the Agricutural Marketing Authority 146 4.16 Cost comparison: Rainfed and Irrigation Agriculture 148 5.1 A comparison of yields, Rainfed and Irrigated Agriculture: The incremental value due to irrigation 155 viii 5.2 The cost of the extra yield per kg due to Irrigation per hectare 156 5.3 Wheat Production: The Effects of Reduced Hectarage on Yield 159 5.4 Wheat supply and Demand Situation 159 5.5 Wheat self-sufficiency 160 5.6 Sugar Production and Disposal 161 5.7 Domestic Demand for Coffee 162 5.8 Minimum wage:- Low Income Grades; A comparison 168 5.9 Returns to Private Investors 171 5.10 Gross Foreign Exchange Earnings from Irrigation on Crop Exports only (1979-1983) 176 5.11 London Daily Price of sugar 1980-1985 178 5.12 Use of the Foreign Exchange Resources by the Commercial Irrigation sector (1978-1983) 180 5.13 Net Foreign Exchange Earning? Commercial Irrigation.