weakly related. However between 1995 and 2003 the macroeconomic environment was extremely hostile. Nominal lending rates exceeded 45% for three-quarters of this period, and inflation peaked at over 90% early on in 1995. It is extremely difficult for any private investment to weather such a macroeconomic winter, and thus plausible that investment failed to respond in this period due to this instability.

Incorporating the dampening effect of macro-instability during 1993-2005, it is likely that investment - like output - is also affected by the demand effect from export revenues. Although investment data is not disaggregated, the next section investigates the output response of each sector. The pattern of growth is indicative of the factors which constrain growth.

# **Sectoral Pattern**

The sectoral pattern of GDP confirms a lack of transmission during the macro-instability of 1993-2003, and presents growth diffusing through the sectors starting with agriculture. The pattern is particularly clear from 2002 where growth resumes in agriculture and diffuses through to financial services, distribution, manufacturing, transport/ communications and eventually through to construction.

**Table 2: Sectoral contributions to growth in GDP**

||1996|1997|1998|1999|2000|2001|2002|2003|2004|2005|2006|2007|
|---|---|---|---|---|---|---|---|---|---|---|---|---|
|Agriculture, Forestry and Fishing|7.8%|0.0%|5.3%|1.6%|2.0%|-2.4%|1.0%|2.3%|1.1%|-3.5%|4.3%|3.5%|
|Financial and Professional Services|1.3%|2.5%|-0.7%|0.0%|0.2%|-0.2%|0.5%|0.5%|0.8%|0.7%|1.7%|1.1%|
|Distribution|-0.2%|3.7%|-1.6%|-0.4%|-0.1%|0.2%|0.3%|-0.2%|1.4%|2.8%|1.8%|1.3%|
|Manufacturing|-0.1%|0.1%|0.2%|0.2%|-0.4%|-1.8%|0.0%|0.4%|0.8%|0.9%|0.7%|1.0%|
|Transport and Communications|-0.4%|0.4%|0.0%|0.2%|-0.2%|0.1%|0.6%|0.4%|0.4%|0.5%|0.4%|1.3%|
|Construction|0.2%|0.1%|0.0%|0.3%|0.0%|-0.1%|0.3%|0.3%|0.3%|0.4%|0.4%|0.9%|
|Producers of Government Services|-0.3%|0.2%|-0.5%|-0.2%|-1.0%|0.1%|0.0%|0.2%|0.2%|0.1%|0.3%|0.6%|
|Electricity and Water|0.0%|0.1%|0.1%|0.0%|0.1%|-0.1%|0.1%|0.0%|0.1%|0.1%|0.1%|0.1%|
|Private Social and Community Services|0.2%|0.2%|0.0%|0.0%|0.1%|0.1%|0.1%|0.1%|0.1%|0.1%|0.1%|0.1%|
|Ownership of Dwellings|0.0%|0.0%|0.0%|0.0%|0.0%|0.0%|0.0%|0.0%|0.0%|0.1%|0.1%|0.0%|
|Mining and Quarrying|1.5%|-0.4%|0.1%|0.0%|0.1%|0.1%|-0.6%|0.2%|0.5%|0.8%|-0.5%|0.0%|
|Unallocable Finance Charges|-0.1%|-0.4%|0.1%|-0.3%|-0.1%|0.1%|-0.5%|-0.3%|-0.6%|-0.7%|-0.7%|-0.7%|
|Growth in GDP at Factor cost|10.0%|6.6%|3.0%|1.6%|0.8%|-3.9%|1.9%|3.9%|5.1%|2.2%|8.6%|9.2%|

_Source: National Statistics Office, National Accounts 1994-2007_ The largest contribution to growth comes from agriculture, nearly all of which is attributed to the smallholder sector. Although likely that smallholder output has been overestimated<sup>10</sup> , the sales of rural retail networks and recent growth in livestock indicate that significant rural growth is taking place.

However other factors have been in play alongside the stimulus from agriculture. Financial reform since the 1980s catalyzed growth in the banking sector enabling the number of banks to expand from two in 1994 to nine in 2008. A relaxation of state

> 10 Small holder production of root crops and more recently of maize may be significantly overstated.  The Agricultural Census for 2007 compiled by the NSO is due to be released soon which will enable triangulation of these estimates.

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