Memorandum submitted by Alan Gibson, The
Springfield Centre
Alan Gibson is a partner in the Springfield
Centre for Business in Development, a UK-based consultancy, training
and research organisation. Working with a number of international
development agencies, Springfield's focus is private sector development.
At the heart of all their work is the market development approach—or
making markets work for the poor. They have been involved
in the design and review of a number of market development interventions
(some supported by DFID) in Africa and Asia, have written extensively
on the subject and offer training programmes on this theme for
development agency staff.
1. INTRODUCTION
1.1 While the Committee's remit in relation
to this inquiry is broad the focus of this brief submission is
more limited. The starting point here is that growth is essential
for poverty reduction and that, in turn, private sector development
is critical for growth.[105]
The question to which this submission addresses itself is, given
this, what should be the role of agencies such as DFID in promoting
private sector development that is both effective and inclusive?
In other words, what should DFID do?
1.2 The submission first recognises the
widespread failings of many development experiences and then,
learning from this, focuses on the market development approach[106]
as a means of bringing greater coherence and efficacy to development
agency (and government) endeavours. It presents the essence of
this approach, highlights current, positive examples of the approach
in action and outlines its advantages. Finally, the broad implications
for DFID are highlighted.
2. RECOGNISE
THE BIG
PICTURE: ACKNOWLEDGE
GENERAL WEAKNESSES
. . .
2.1 Development, as an activity and "sector",
is characteristically prone to its own emperor's new clothes syndrome.
Good intentions are mistaken with achievements. Causes are confused
with symptoms. The possibility of doing damage is not acknowledged.
Debate can slide to a default option of comfortable superficiality
and easy myths—the "more-is-always-better" school
of aid-giving, the "answer-is-money" response to the
big challenges and so on. Incentives, as has been mentioned by
other contributors to this inquiry, often encourage not candid
examination of performance but presentation of the best possible
interpretation of reality.
3. | AND THE
SPECIFIC FAILINGS
IN PRIVATE
SECTOR DEVELOPMENT
3.1 These general traits apply to private
sector development but here there are more specific failings—and
recognising and learning from these is a prerequisite to acting
more effectively in the future. Broadly, these can be categorised
into two blocks:
— Remote reform: the essence
of this approach has been to reform the overall environment of
policies and regulations so that the costs of business are reduced
and the allocative power of the price mechanism restored so that
the supply-side of the economy, unencumbered, will respond. The
experience here is mixed. Often, despite apparently following
the correct script, countries' private sectors have not developed
well and growth has remained sluggish (eg Ghana). The reasons
for this are various but, crucially, processes of institutional
reform have not reflected local realities and the other constraints
to development—information, networks, knowledge—have
not been addressed.[107]
— Impulsive intervention: in
contrast, this swathe of development activities has sought to
"get things done" directly. The ethos here is, if the
market isn't delivering, we should replace it and provide finance,
advice, contacts and materials ourselves. After many years of
experience, major reviews[108]
of these all point to disappointing outreach, sustainability and
impact, and markets that are distorted and weakened. Why has this
happened? Most obviously, agencies are not businesses—they
don't have the culture, orientation and skills to deliver. More
fundamentally, they haven't asked the right question. The interveners'
instinct has been to ask: "What problems do businesses have
and how can I solve these?" and not to ask the more relevant
systemic questions—"What problems do businesses have,
why isn't the market environment providing solutions to these
and how can I address these". Development interventions have
been about addressing business problems (symptoms) and not those
of the wider market system around business (causes).
3.2 What both of these experiences share
is a failure to engage with the underlying systemic constraints
that prevent market systems from working effectively. Market development
has emerged from these experiences.
4. MARKET DEVELOPMENT:
THE APPROACH
AND THE
PRACTICE
4.1 The essence of a making markets work
approach to private sector development is:
— Understand market systems: identify
the key reasons for the underdevelopment of the market system.
Why isn't the market working, especially from the perspective
of the poor—as consumers, employees or producers?
— Develop a vision of the future: build
a transparent view of the future in relation to who undertakes
and pays from key market functions.
— Intervene to build the market system:
on the basis of key principles of good practice and using a variety
of potential tools, take actions to address key constraints and
develop the market system.
4.2 There is now a growing body of experience
of how, using this approach, sustainable and effective private
sector development can be stimulated. Three examples illustrate
the potential of the approach (all of which have been DFID-supported
to some degree):
(a)
Financial services in South
Africa
The problem: low reach of financial services,
especially among low-income groups excludes them from the mainstream
economy.
The solution: developing enhanced information
services for financial providers, supporting innovation in services
and contributing to improved regulatory processes.
The result: contributed to major increase
(several million people) in coverage and usage of financial services
and a growing momentum of positive change.
(b) Radio services
for SMEs in Uganda
The problem: poor quality of SME-related
programming in commercial radio services restricts information
flow in the economy and limits accountability.
The solution: work with small number of
radio stations directly to improve programme innovation and quality,
support "crowding in" of others and strengthen wider
market functions (regulation, journalism quality etc).
The result: up to 20 radio stations, serving
around 8m listeners, competing on the basis of programming and
services aimed at an SME audience.
(c) Information
services for farmers in Bangladesh
The problem: productivity among small-scale
vegetable farmers is low. One key reason for this is lack of information
on cultivation practices and application of inputs.
The solution: in the context of dysfunctional
state agriculture extension services, introduce new training for
input retailers in the supply chain to enhance their role as information
providers to and problem solvers for farmers.
The result: after successful introduction,
major input companies plan to expand training to reach up to 14,000
retailers, potentially covering one-quarter of the country's vegetable
farmers.
5. THE ADVANTAGES
OF THE
MARKET DEVELOPMENT
APPROACH
5.1 Although very different, all cases have
achieved success that is sustainable (market players have a strong
incentive to continue), significant and discernible (millions
of people have been affected) and additional (it's unlikely that
these benefits would have been achieved without intervention—or
certainly not with the same scale and speed). These also highlight
a number of advantages and characteristics of the approach:
— A uniting framework: although different
markets, each uses the same framework to guide their actions.
The messy nature of so much diverse private sector promotion
activity can be brought into a coherent framework for implementation
and a potential common platform for inter-agency collaboration
established.
— Clarity of agencies' role: in each
case, development agencies have acted as temporary facilitators
of market systems (rather than—as conventional approaches
would emphasise—direct players within them)
— Operational flexibility within a
strategic framework: each case has used a variety of inputs—cost-sharing
grants, technical assistance, new ideas. However, while there
is clearly no mechanical formula here and flexibility is required,
these are all within a coherent strategic context.
— Transparency of organisation's role
in markets: the role of different players—government, membership
associations, the private sector—is set out clearly.
6. WHAT DOES
THIS MEAN
FOR DFID?
6.1 DFID, like all development agencies,
is not one tight-knit entity but rather a series of smaller communities—and
sometimes at odds with each other. Notwithstanding this inherent
diversity, there are general trends in evidence. In the context
of these, what are the implications of market development thinking
and practice for DFID policies and organisation?
(a) Marking the limits of budget
support—recognise the need for other interventions
6.2 While there are strong arguments in
favour of focusing aid efforts on budget support (not least promoting
cohesion and reducing coordination costs), there are also serious
concerns. When many of the fundamental constraints to private
sector development are related to information, incentives and
knowledge it is not clear how budget support can address these.
There is an unfortunate sense of deja" vu here; tweak the
big levers of government policy and regulation and supply-side
response will happen. But an environment that is truly enabling
is more than simply having the right regulations in place (even
if that's a big part of it). The kind of tangible, systemic changes
mentioned above simply would not happen were budget support the
only instrument that DFID could call upon. Budget support may
well allow DFID to shift large amounts of money in a relatively
easy manner but—by itself—has limited efficacy in
relation to private sector development outcomes.
6.3 The first implication therefore must
be that DFID needs to restore greater balance to its work and
complement its budget support focus with other interventions related
to market development. A growing body of experience is emerging
on the different mechanisms and approaches available to design
and implement these. It would be ironic if, just as we're learning
more about how to intervene effectively, DFID's support began
to wane. Indeed, budget support collaboration with governments
is likely to be enhanced by a market development framework and
when it is informed by market development interventions.
(b) Put making markets work thinking
at the centre of private sector development
6.4 There are (still incipient) signs within
DFID that market development is emerging as a unifying theme for
different disciplines (enterprise development, livelihoods, agriculture
etc). Development is an endeavour characterised by different technical
specialisms—boxes stuffed with different methods, perspectives
and jargon, often jealously guarded. Market development potentially
offers one means of bringing greater cohesion to these disparate
boxes.
(c) Re-establish DFID's technical
capacity in private sector development
6.5 The DFID brand in the world of development
agencies has, historically, stood for technical insight and innovation.
Making markets work for the poor is an example of DFID leading
international practice. Yet, as more emphasis appears to be placed
on shifting funds and DFID simply as a conduit for these, its
technical edge is declining—much to the surprise of other
agencies. The implication is clear: there are ways in which thoughtful
and intelligent interventions can promote effective and inclusive
private sector development. If DFID wishes to engage meaningfully
with private sector development issues it needs to have people
of the right calibre in place.
(d) Give private sector development
a champion
6.6 Amidst the plethora of structural changes
that have taken place within DFID in recent years, private sector
development appears to have missed out. Yet (and this inquiry
is evidence of this) there is no doubt that pro-poor growth (and
the range of wider benefits stemming from it) will depend critically
on the extent to which private sector development is achieved.
Given this, the absence of a strong commitment from DFID to private
sector development—manifested perhaps in an in-house champion—is
a striking omission.
March 2006
105 Clearly, there are many issues pertaining to the
nature of growth and poverty reduction but while these are important
they have been the subject of other submissions and discussions
and are not considered here. Back
106
The terms market development approach and making markets work
for the poor are used interchangeably. Back
107
The ascendance of institutional economics in development thinking
is a response to these past failings. Back
108
For example, the Committee of Donor Agencies for Small Enterprise
Development in the 1990s. Back
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