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TECHNICAL CONSULTATION ON LEGAL FRAMEWORKS AND ECONOMIC POLICY INSTRUMENTS FOR SUSTAINABLE COMMERCIAL AQUACULTURE IN AFRICA SOUTH OF THE SAHARA |
Arusha, Tanzania, 4-7 December 2001 |
GENERAL POLICY FRAMEWORK FOR THE PROMOTION OF SUSTAINABLE COMMERCIAL AQUACULTURE IN SUB-SAHARAN AFRICA |
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SUMMARY This paper reviews policies that can be used to promote sustainable commercial aquaculture. Under non-sector specific policies, good governance is recognised as a key ingredient in attracting investors to commercial aquaculture and in influencing long term economic growth. Political and policy stability is of particular concern to investors in sub-Saharan Africa. Enabling policies such as guaranteed rights to land usage if not land ownership, and an appropriate exchange rate, are all factors that encourage investment. Zoning and the obligation to acquire long-term tradable permits to establish farms are some of aquaculture-specific policies that governments in sub-Saharan Africa could use to regulate the development of the industry. A general principle is to have a legislative framework compatible with monitoring and enforcement constraints, and which will ensure environmental sustainability. Over-regulation should be avoided; it can be detrimental to the industry, and is fiscally costly. There is a lack of specific aquaculture legislation in most countries in sub-Saharan Africa, which can deter investors because this creates uncertainty. Where no legislation exists, agricultural laws relating to land and water access may be appropriate for an aquaculture legislative framework. To administer the sector, a co-ordinating lead agency is optimal; where its creation is impossible, a co-ordinating committee composed of personnel from different departments could be an interim arrangement. Economic incentives such as tax exemptions, tax holidays, exemptions from import duties, bonds, and self-policing can complement command and control of aquaculture development. Whenever possible, research and extension should be conducted by the private sector and co-ordinated by producer associations. Seed production and distribution should become the responsibility of the private sector. Large operations may be essential to support small-scale farming. These could be an agribusiness that has the "know-how" to produce its own feed, and to market its output abroad. Well-managed and accountable producer associations should be encouraged; they are a medium for lobbying and diffusing technical know-how and could be used as marketing agents and as monitors for environmental self-policing. The Consultation is invited to revise as appropriate and endorse ideas explored in this paper and to identify actions which, under FAO framework, could contribute to implementation of policies discussed in this paper and to the promotion of sustainable commercial aquaculture in Africa south of the Sahara. |
1. The Committee for Inland Fisheries of Africa (CIFA) presents sound enabling government policies1 as being the most critical factor for commercial aquaculture to take-off and/or develop. They are designed to encourage confidence among investors by reducing risks and lowering costs for business activities. Some of these policies are general in scope as they are intended to create a climate conducive to all private investments, including investment in aquaculture; they are referred to as non-sector specific policies. Others focus on the promotion of a particular sector such as commercial aquaculture; they are sector-specific policies.
2. This paper is a general survey of promotional non-aquaculture and aquaculture-specific policies that have been implemented in several countries. As such, it offers a general ideal policy framework to enable sustainable commercial aquaculture to occur if other conditions for the development of the industry are met, or to develop. The more these conditions are met, the higher the likelihood to develop commercial aquaculture sustainably.
3. Non-sector specific enabling policies include good governance, openness to trade and macroeconomic growth, and emphasis on private investment.
4. Governance covers policies that address issues of political and policy stability, secure property rights, anti-corruption measures, and a strengthening of institutional factors, such as bankruptcy laws and contract enforcement.
5. Foreign-owned companies rank political and policy stability as the most important determinant of whether to invest in Africa and among the principal causes of investment success or failure. Domestic firms also rank political risk as one of the major considerations. In most sub-Saharan countries surveyed by the World Economic Forum in 1998, businesses complained about political instability, the uncertainty of rules and laws, and the honouring of contracts by governments.
6. Property rights affect incentives for producers to internalise externalities. Unclear land rights have handicapped aquaculture development in many countries. To ease the constraint, governments have expanded use rights through longer lease periods.
7. A variety of land rights exists in sub-Saharan Africa. In some cases, land rights are not clearly defined. This can be costly and wasteful as it increases the price of land for investors, can cause land disputes and may entirely fail the project. In most cases, the land acquisition process is long and fraudulent. Some countries have individual titles with no restrictions; others impose restrictions. In others, land is vested in the state, individuals only having rights to occupancy and usage. Foreign investors are concerned that land title will not be validated, and occupiers are reluctant to lease in case the rights are transferred to the new user. Freely tradable and secure property offers mobility, incentives and collateral. However, the issue of land rights is very sensitive, and title to land ownership may be less important for commercial aquaculture than that of guaranteed use and occupancy with a lease for a period long enough (20 to 50 years renewable) to stimulate investment.
8. Private investment is also negatively related to corruption. Foreign direct investment, especially, reacts very negatively to corruption. This is particularly so for more irreversible forms of foreign direct investment such as investment in farming. By pushing firms outside the formal regulatory process and obliging managers to spend time and money with government officials, corruption raises transaction costs. Corruption is also positively related to monopolistic and discretionary power, and inversely related to accountability. By reducing arbitrary regulatory authority, structural reform packages, are a means of combating corruption. Public education can also be an effective weapon and deterrent against corruption.
9. Institutional factors can encourage investors to have a long-term perspective, but they may also deter investors if they reduce competitiveness, are time-consuming and encourage corruption. In some sub-Saharan African countries, businesses report that regulations are imprecise and impose a heavy burden on competitiveness. In others, almost a quarter of the time of senior management is spent obtaining or negotiating licences and regulations. Strengthening of institutions can be done through establishment of regulations and their implementation.
10. Both openness to trade and macroeconomic growth policies are positive determinants of private investment. Economic growth can be accelerated by openness to trade, attraction of domestic and foreign private investment, investment in health and education. These policies are as relevant to Africa as elsewhere.
11. Administrative and structural reforms including liberalisation of the agricultural sector, curtailment of government intervention, the dismantling of government monopolies, the establishment of market-determined interest rates and the privatisation of some government enterprises, maintenance of a constant real effective exchange rate and stability of the exchange rate are also important macroeconomic growth enabling policies. Inappropriate exchange rates adversely affect business confidence and viability. When overvalued, it limits exports and encourages imports. In most sub-Saharan countries, output from commercial aquaculture competes against imported fish from the capture fisheries. Thus, an overvalued exchange rate reduces the competitiveness of aquaculture output by lowering the domestic price of fish imports.
12. By stressing market failures and the necessity for government intervention, traditional development policies increasingly created inefficiencies and administrative gridlock. Incentives were ignored, and often results were contrary to the intentions. New approaches to economic development have evolved away from reliance on government towards greater emphasis on the private sector as a source of wealth creation. They use free-market principles to induce a more efficient allocation of resources. In the case of aquaculture development in sub-Saharan Africa, where public provision of inputs is jeopardised by fiscal retrenchment, the market model would be reflected in the privatisation of fingerling production and fish stations as well as in the privatisation of feed production and distribution.
13. Aquaculture-specific policies can be defined at the macro level if they are meant to guide the development of the sector as a whole, or at the micro level if the purpose is to address a specific problem at the farm level.
14. Macro-level policies can be regulatory and legal, administrative and economic or industry self-imposed; these are intended to provide an orderly development of the sector. They can also be defined in response to existing or perceived issues on the supply or demand side of the industry; they are referred to as supply and demand-driven policies.
A1. Regulatory/legal, administrative and economic or industry self-imposed policies
15 Aquaculture regulations provide an orderly and sustainable environment for its development by reducing negative externalities such as pollution or conflicts over water rights, land rights, and seabed areas caused by open-access property regimes.
16. A common feature of aquaculture regulation is the obligation to acquire permits to establish a farm. Another use of permits is data gathering. An obligation attached to approval of permits could be the provision of statistics on production and on technical matters.
17. Obtaining the necessary permits may involve a number of different departments, be time-consuming and ultimately be discouraging to prospective investors. In some countries approval can take years because each permit is completely reassessed by each department, which impedes the industry growth. This suggests that regulations should not be overly burdensome. In addition, once the proposals have been submitted, the approval process should be as quick and transparent as possible. This reduces the potential for corruption and increases the likelihood of investment. Deadlines should be imposed and each agency screen only within its area of competence.
18. The duration of permits varies, but most are valid for several years. Permits that are for short periods, such as only one year, may be too brief to provide sufficient incentive for investment in the sector. In some countries, aquaculture leases can extend up to twenty-one years, but licences are necessary and are only for twelve months. The short licence period enables regulators to control the site while the longer lease period provides time for farmers to amortise their investment.
19. In some countries, permits are tradable, which encourages efficiency and consolidation. Nevertheless, protection of the public interest may require that transfers be approved.
20. Regulation can produce inefficiency and bureaucratic rigidity, which impedes development and expansion, and can be difficult to enforce. Inefficiency and bureaucratic rigidity may be due to overlapping laws, regulations and jurisdictions, which complicates applications and has a dissuasive effect on the development of aquaculture. The danger is high in federal states. Where there are numerous regulations, applicants can be assisted by a one-stop shop for administrative procedures where all information is available and easily accessible. In the absence of a single document integrating regulatory material, an alternative is to have staff from different agencies at one site.
21. Because monitoring and enforcement are time-consuming and expensive, the regulatory framework should be kept to a minimum, cheap to monitor and enforce. Regulations should at least cover a few key legal issues such as the general place of aquaculture in the legal system, access to land and water, environmental regulations, import of live fish and the introduction of non-indigenous species and use of products from new technologies including genetically modified organisms
22. There are many instances in sub-Saharan Africa where aquaculture comes under more than one department. This has led to duplication, rivalry and wastage. A preferable situation is to have one government agency responsible for the development of aquaculture. The agency would keep in touch with other government departments that are related to food production and natural resources, and would co-ordinate the sector.
23. Economic incentives and self-policing by the industry itself are complementary measures to command and control techniques. Economic incentives rely on prices as a signalling device to guide appropriate behaviour and obviate some of the expense of monitoring and enforcement. They can be positive such as tax exemptions if waste water is treated, loans at subsidised interest rates for installing water treatment systems and performance bonds, or deposits that are required and refunded if the environment remains undamaged. They can also be negative such as a tax, levy on waste water, or to discourage over-use of environmentally unfriendly substances, such as antibiotics.
24. Self-policing through peer pressure can be effective, particularly for those farmers with a long time-horizon. Enforcement of Best Management Practices is community-based. Fish farmers have an incentive to produce responsibly, and are more likely to internalise environmental externalities than many other activities because environmental damage directly affects their own output. From enlightened self-interest, farmers themselves have an incentive to reduce pollution.
A2. Supply and demand-driven sector-specific policies
25. One of the characteristics of aquaculture in sub-Saharan Africa is the existence of government-owned fish stations. Most were built by donors to produce fingerlings and food fish, provide a demonstration of aquaculture technology and practices to farmers and/or serve as training and research centres. However, operating costs could not be met by governments when donor funds were exhausted; most were then abandoned. Because of the precarious condition of some stations, an appropriate strategy is the divestiture of many fish stations to the private sector. Privatisation relieves governments of operating costs and boosts efficient management. If there is no interest from investors, management at least could be privatised. With efficient management, the station could become profitable, thereby sparking interest from local investors.
26. Increasingly in sub-Saharan Africa, high budgetary pressures of separate extension services for agriculture and aquaculture are forcing amalgamation of the two and a unified service. With a unified extension system, workers may be unfamiliar with the less significant sector, aquaculture. To provide adequate technical assistance while minimising public expenditures, extension services focussing on farmer groups and farm leaders could prove advantageous. An alternative is a "user-pays" or "fee-for-service" charge policy, by which farmers pay for extension services according to usage. In addition to rationing scarce personnel and funds, this policy has the advantage of giving an incentive for up-grading technical advice and making the private sector assist with extension services, especially by encouraging better training of personnel and farmers.
27. In order to develop, commercial aquaculture requires infrastructure and inputs that may not be readily available. These may include hatcheries, nurseries, processing plants, and either feed manufacturing, or facilities for stocking imported feed. To meet these constraints, some governments' strategy was to encourage investment from large-scale industrial operations. Only large operations had access to their own sources of capital and expertise, and could undertake the infrastructure investment profitably.
28. If there is no or limited domestic involvement in commercial aquaculture, as is the case in sub-Saharan Africa, one strategy is to attract direct foreign investment. It expedites the acquisition of technology and expertise and can be the impetus for the whole sector. Joint ventures could be encouraged; they bring in foreign capital and expertise while offering domestic investors the opportunity to participate and gain technological knowledge. However, foreign investors will require guarantees of profit and capital repatriation, and unrestricted currency conversion and may expect tax exemptions and other incentives such as debt-equity swaps and tax holidays.
29. Among the most important questions for a farmer or a government policy-maker interested in promoting aquaculture is what species should be cultivated. Three factors should guide the choice of species for commercial aquaculture: (1) the market: can the product be sold; what is its competitive advantage and will the market change?; (2) technology: can one produce the species? (3) the choice between an endemic and an introduced species. The latter choice arises if, to be economically viable, commercial aquaculture needs to introduce a non-indigenous species. Then, policy-makers must weigh the costs (ecological dangers) and potential social and economic benefits of importing alien species in their decision whether to introduce a new species for aquaculture, giving due attention to a thorough and proper a priori risk assessment according to recommended rules. FAO has established guidelines for the introduction of alien species.
30. Governments can also "kick-start" commercial aquaculture through marketing policies by establishing a market for the hygienic handling and selling of fish, investing in trading markets and helping with logistics such as providing ice and transport for the big buyers. These facilitating activities would decline as the industry develops, with marketing and transport increasingly falling on the private sector as larger firms establish.
31. Producer organizations can be useful just as a lobby group to promote commercial aquaculture. They are frequently used as a means of exchanging information, diffusing technical knowledge, increasing market share through product differentiation and generic marketing, and ensuring that the quality of the product is consistently high, self-policing regulations and even funding applied research.
32. In sub-Saharan Africa, aquaculture has been studied at least as far back as the 1940s and 1950s in certain countries. Yet, the impact of research, as reflected in output, has been limited. The low output can be partly attributed to disregard for economic incentives to producers. Part of the problem has also been poor research co-ordination and problematic diffusion of research results. A solution proposed has been to establish a regional information network.
33. Research efficiency has also been affected by the lack of demand-driven research. If the agenda is determined by a top-down approach, existing expertise and personal interests will orient publicly funded research. This often leads to the predominance of biological and technical research namely aquaculture technologies and systems, at the expense of other areas such as policy, planning, socio-economics and management. To obtain demand-driven research, a strategy is to get the private sector involved, either as a source of funds, or as one of the stakeholders setting the research agenda.
34. A factor that accelerates private research funding is industry consolidation. As industries consolidate, they fund more research. Monopolistically or perfectly competitive farms lack excess profits for research because either their excess profits are zero, or they can sell all they wish at the given price, thereby having little incentive to innovate. Oligopolistic farms, however, have both the means to fund research because of excess profits and the incentive to innovate because, demand-driven, the research can provide technological gains and early-mover advantage.
35. Most sub-Saharan countries have no aquaculture plan. Because promotion of aquaculture requires a holistic approach, a strategic plan is useful. It provides a comprehensive set of policies to achieve designated objectives and ensures that inter-related activities, such as agriculture, aquaculture and fisheries, are included, that environmental issues, such as access to water and land, are addressed and that the policy-mix is consistent. It also mitigates institutional overlapping of jurisdictions. Where there are several institutions responsible for aquaculture with all the attendant rivalry and duplication, a sector plan can encourage consensus over goals and strategies. A "good" plan is a pro-active strategy for the development of the industry and should be realistic and enforceable, with scenarios and policy options.
36. Because commercially produced fish from private farms are not a public good (they belong to the producers), the question arises whether governments should intervene in commercial aquaculture at the farm level. Governments intervene because: (1) aquaculture can generate negative externalities at the farm level, including pollution or interference of aquaculture with other users of the waterway and land, which may be not only an important cost to society, but also difficult to settle through courts; (2) of the potential benefits from commercial aquaculture (tax revenues, foreign exchange earnings, jobs, social amenities).
37. Government policies at the farm level can consist of start-up policies to kick-start the industry, expansionary policies to help the industry expand and export promotion policies to shield domestic producers against foreign competition, and help the industry compete internationally.
B1. Start-up policies
38. Commercial aquaculture typically develops in three or four stages: from infancy (10-15 years) to growth, maturity and perhaps to decline. Start-up policies, which can consist of grants of onset funding, in the form of research, or tax exemption, tariff and non-tariff protection may be critical in the first and second phases. The argument for start-up funding is the inability of infant industries to obtain private funding and to compete. If industries learn by doing, costs will decline with experience as they mature. With maturity will come economies of scale and international competitiveness. Then, in theory, government assistance should end.
39. Unfortunately, many countries in sub-Saharan Africa lack the resources to provide initial grants and monitoring personnel. An alternative form of start-up funding is to issue bonds to farmers. For governments, bond financing has the advantage of not requiring immediate cash outlays.
B2. Expansionary policies
40. Once aquaculture has taken off, farmers often experience difficulties to expand. Important constraints to the development of commercial aquaculture in sub-Saharan Africa include unavailability and high cost of feed, seeds and capital inputs.
41. In most sub-Saharan countries, the limited demand for fish feed and the high cost of agricultural by-products have handicapped the development of a fish feed industry, although there are exceptions. One policy to deal with unavailability of feed is to develop a feed industry by encouraging investment in aquaculture from a large farm. An alternative policy is to encourage livestock companies to diversify into aquaculture and feed production. If feed can be imported, but at the cost of foreign exchange, import substitution policies may be desirable.
42. As with feed production, the availability of seeds in sub-Saharan Africa, especially shrimp larvae and fingerlings, faces issues of quantity and quality. To ensure enough seed supply and maintain high quality fingerlings, an appropriate policy would be to induce a number of farmers to specialise in seed production and to train them in modern hatchery techniques.
43. Commercial aquaculture has high capital needs for start-up fixed capital and for operating capital to cover cash-flow shortages. Unfortunately, in sub-Saharan Africa, financial institutions are reluctant to provide credit to aquaculture. To increase accessibility of commercial farms to bank credit, a number of policy options exist. Because of the complexity of this problem, policies to deal with it will be discussed in a separate paper.
44. For an internationally traded product such as farmed shrimp, tilapia and catfish, high costs of seed and feed can place sub-Saharan Africa at a competitive disadvantage compared to competing foreign producers. Subsidising inputs can be costly and inefficient, and lead to distortions. However, if the conclusion is that after support during infancy input costs will fall, input subsidies can be temporarily targeted towards the industry. Policies that lead to increased supply of feed and seed may also lessen the problem of high costs.
B3. Export promotion policies
45. If the product is internationally traded, aquaculture expansion may be international and may cause a dynamic evolution of market shares internationally. Government intervention may be needed to make the industry maintain its share of the international market.
46. If acceptable under international trade agreements (refer to documentation from World Trade Organisation on subsidies and countervailing measures), policies to encourage exports are less distortionary than import substitution policies. They mainly consist of economic incentives such as tax exemptions, tax holidays and exemptions from import duties. Business executives in Africa cite taxes as either the major problem (domestic companies) or as the second most important problem (foreign companies). Therefore, tax relief can be an effective incentive. For governments, it has the advantage of incurring no direct expenditures.
47. From non-aquaculture to aquaculture specific policies at the macro and micro levels, governments in sub-Saharan Africa have a wide range of policies to choose from to promote commercial aquaculture.
48. At the macro level, governments have little discretionary funding for commercial aquaculture. This suggests that policies in the region should focus almost exclusively on those that incur few budget expenditures.
49. At the micro level, although in some countries start-up funding has been effective in stimulating investment in commercial aquaculture, most governments in sub-Saharan Africa lack the resources to implement the policy. Also, while producers frequently request subsidies on feed, seed and interest rates, the cost is usually prohibitive. Moreover subsidies distort market signals, and are difficult to eliminate. Subsidies to kick off commercial aquaculture and to enable its growth seem unrealistic in the context of fiscal retrenchment of sub-Saharan Africa.
50. In spite of the caveat on government fiscal limitations, however, there are policy options that are feasible. Among the most promising are tax holidays and exemptions. Relieving companies of the burden of corporate income taxes enables them to become financially secure in their infancy. If selectively targeted at commercial aquaculture, an incentive is provided to diversify into that sector. The government loses access to tax revenues in the short run, but gains potential long-term benefits. A similar choice exists by exempting farmers from sales taxes or custom duties. The impact on output will take longer because the reduction in variable costs occurs over a number of years.
51. Existence of commercial aquaculture shall not threaten rural small-scale aquaculture. Appropriate policies will be needed to ensure that both forms of aquaculture co-exist and are complementary and mutually supporting.
52. The Consultation is invited to:
· revise as appropriate and endorse on ideas explored in this paper;
· identify actions which, under FAO framework, could contribute to implementation of policies discussed in this paper and to the promotion of sustainable commercial aquaculture in Africa south of the Sahara.
1 Conditions that can be controled by governments and policy-makers.