Thin Markets, SMEs, Crises: Thoughts from Africa
Perhaps you already know them. For more than four decades there has been cyclical relief and aid in the Horn of Africa. Amidst this crisis, market-based and driven initiatives strain to thrive and remain relevant. In most cases, they wither due to huge distortions that humanitarian assistance causes. The reality though is the disruptions to normal functioning markets are going to become more frequent and even at a greater scale.
To its credit, though the humanitarian sector has shown a rapidly increasing interest in the private sector in recent years. A 2017 HPG reported pointed to the fact humanitarian aid world is starting to borrow many of its orthodoxies from other sectors (e.g. politics, the business world). This has generated growing interest in two quite distinct ideas: that the aid sector should learn more from private enterprises (i.e. efficiency, innovation, etc.); and that aid could be better (i.e. more efficiently) delivered either directly by, or in ‘partnership’ with, private companies. This interest in the private sector more broadly has coincided with a growing concern for the role of markets during, and in the aftermath of, crises. Drawing on the famous analysis of famine by Amartya Sen (1981), and the consensus that food security had to be understood as the ability of people to access food, rather than as the aggregate production or availability of food, radical changes in thinking about food security and hunger led humanitarian agencies to think seriously about how people vulnerable to, or affected by, crises find their food (and, by extension, meet their other basic needs).
Hence, understanding how crises affect livelihoods through their effect on markets, or understanding how markets affect people’s resilience to crises, necessitates a different kind of approach to interventions. A resilience perspective has to go beyond questions of business continuity and the resilience of markets themselves, and look also at the non-economic relations that shape market outcomes.
HPG has carried out studies to answer questions, on i) how markets and businesses adapt during crises, and what determines their ability to function through crises. ii) How relations of power and institutional factors affect the way people are treated by and engage in markets during and immediately following crises and iii) How humanitarian aid affects markets in crises, and the impact this has on different households.
AGRO based SMEs sectors, the majority of whom appear formal, but largely operate informally have often been affected adversely when crises occur. They can’t source from their smallholder farmers who have been worse affected by the crises for instance. Due to their informal operations modes, they are largely invisible from would be support or interventions, be they from government or development partners.
In disaster management, preparedness has largely involved systems and processes to make plans for communities and their infrastructure to recover from the disaster with minimal adverse impact. However, the local SME's and business angle has not been considered, and largely because of their own informality. That said, markets systems approach which is increasingly becoming a menu for most NGO aid interventions is gaining traction. There is increasing recognition (although not universal acceptance) that improving access to markets for small producers in low-income countries is a route to poverty reduction and achievement of the MDGs. DFID for example, while putting emphasis now on governance, sees boosting access to markets as a priority for poverty reduction. But a number of factors are restricting the access of small producers to markets. Small producers suffer from inadequate market information, limited bargaining power, lack of access to credit, and high transaction costs. Market forces are likely to favour large-scale production with economies of scale – the market will fail to create a level playing field for small producers. Policy failures also mean that small producers are disadvantaged as non-tariff barriers such as sanitary standards may be costly for small producers to meet, an institutional focus on large scale can mean that extension services and research are oriented to larger producers. Insecure land and resource tenure is characteristic of small producers and severely hampers their ability to get access to credit and get involved in markets.
Another major trend is for NGOs to enter into and seek partnerships with business as a way both to tap into business resources and skills and to influence practice in the private sector. This and the trend for NGOs to set up social enterprise companies can lead to blurring of NGO and business boundaries. Coffee is an example of a product market where NGO involvement has been extensive and has taken a number of forms. There have been considerable NGO efforts to promote value chain development through fair trade (globally coffee was the first fair trade product). Other NGOs have promoted organic certification and sustainability certification (Rainforest Alliance). Certification has often been accompanied by or preceded by efforts to promote producer organizations. NGOs have also taken a role in market intermediation. Oxfam and Traidcraft set up a trading and coffee roasting company Café Direct, now the UK’s leading Fair Trade drinks company. More recently, Oxfam with a group of coffee-growing cooperatives set up Progreso Cafes Limited, with 25% of the shares bought on behalf of the cooperatives, 25% held by a Coffee Producers Trust which will pay for development projects in poor coffee growing 4 communities and 50% held by Oxfam. This is a partnership with Matthew Algie, an independent coffee roaster. Policy advocacy has also had considerable attention from NGOs with efforts being focused now on the renegotiation of the International Coffee Agreement. NGOs have been arguing for greater consideration to the interests of small producers.
The relationship between government and business is changing: business is getting more powerful. They are using coalitions to speak to the government. Supermarket standards are increasingly setting the framework; it is not only the government setting the agenda. Business should be encouraged not to stand on the sidelines. However, it is necessary to create a ‘safe’ environment for engagement. The enthusiasm of the private sector in dialogue depends to an extent on the geographical location and the sub-sector. NGOs need to understand the key drivers and barriers for the private sector when seeking to engage. Working with champions within the sector helps to build overall trust and collaboration.