Why Market Development

A) General rationale for Market Development approaches

Proponents of market development approaches, such as Making Markets work for the Poor (M4P), value chain development or industrial strategy, argue that poverty can only be reduced sustainably through improvement of the market systems within which poor people must live. Markets are the main means through which people participate in economic activity: “Nine out of ten people in the developing world earn their income in the private sector… On average, the private sector in developing countries, both formal and informal, accounts for 65 to 75% of the Gross National Product (GNP)” (Netherlands, MoFA, Private Sector Development: the key to economic growth, 2007).

The priorities expressed by the poor themselves confirm this priority; the World Bank’s Voices of the Poor report surveyed 60,000 poor people and asked them what they saw as their best escape route from poverty. The answer was unequivocal: through jobs or economic opportunities.

Where markets operate in an inclusive manner, they serve the poor by offering them the means – jobs, opportunities, finance, products – to increase their incomes (DFID 2004). In this context, an important justification for market development approaches is about scale; where development agencies demonstrate how to overcome market or government failures whilst working with a small target group, the incentive to make a profit can lead other businesses to copy the positive change on a massive scale. Related to this is the aspect of sustainability: Due to the catalytic nature of interventions, they can improve the way in which a market system functions in the longer term, without the agent of change remaining within the market system (DFID 2008).

B) Sequence of expected results development programmes targeting markets, sectors or value chains

Market development interventions can include a wide range of activities. Examples include technical assistance to providers of specialist advice and training to businesses, the introduction of new business ideas or technologies, the provision of market information, and linkage of different actors in a value-chain. Sida (2013), for instance, reviews the theories of change for industrial policy, promoting entrepreneurship and investment, and productivity and competitive markets.

It is expected that such interventions will cause the target firms to change their behaviour in ways that lead to increase their turnover, or to become more productive and therefore more profitable. Other firms are therefore expected to copy the behaviour change, increasing the competitiveness and productivity in whole markets.

With market development interventions mostly taking place in sectors in which the poor are concentrated, such as agriculture and labour-intensive industries, poor entrepreneurs are expected to benefit most from increased incomes.

Moreover, where firms increase their productivity and turnover/ profit, they are likely to start employing more people, which is likely to benefit the poor.

C) More information: success stories and research on evidence