Market systems development was born out of finance and agriculture, mirroring much of broader development programming since the mid-1980s. As populations have grown, land has become saturated, and people have migrated from rural to urban areas, urban poverty has once again attained prominence in the eyes of funders. Programmes are being commissioned which focus on job creation and industrialisation, and among them, market systems programmes have similarly begun to focus on problems of urban poverty.
This presents huge opportunities as well as challenges. In rural areas, economies are less vibrant. Populations are less dense and there are far fewer transactions. The goods and services transacted are also relatively simple in nature. A lack of innovation, poor access to goods and services, and stagnant policy environments are commonplace and well suited to a sectoral approach. In an urban context, dense populations, complex economies, geographical access to market and high levels of innovation make the development challenge very different. As such a very different approach is needed in order to ensure effective intervention from a market systems programme, starting from the earliest stages of programme design and diagnosis.
Agora have been involved at the forefront of this shift towards a more systemic approach for urban development, as designers, researchers, and implementers. Based on this experience, here's some practical guidance for donors and practitioners looking to address the challenges of urban development, job creation, and income generation in a sustainable way.
From clutching at straws to a needle in a haystack: a change in focus to achieve impact
In rural contexts, markets are often narrow and shallow – there are a small number of activities upon which people rely for their incomes and the number of players and complexity of those sectors are both limited. In an urban context, however, markets are dynamic and complex. There is a huge density of supply and demand side actors. People’s income generating activities too become more complex. The ‘hustle’ economy is the main way in which most people earn their living.
Market development programmes must, therefore, be more circumspect in how they approach sector prioritisation. In a context of hundreds of thousands of entrepreneurs who have been drawn to the economic hubs of the country, with deep contextual knowledge and incentives to succeed, the ability of a market development programme to innovate in the way that they might in ‘thinner’ market is limited.
However, market development programmes can bring two different lenses to urban context which may help to generate impact. Both of these are grounded in a solid understanding of the context and a recognition that that context will shift over time.
Firstly, market development programmes can ‘zoom out’ to look at issues which go beyond the interests of any particular actor group. For example, government, development programmes, or industry associations may look at how to improve labour as a constraint to their growth, but an urban employment MSD program can focus on larger structural issues that impact the functioning of multiple markets such as social norms or regulatory constraints. A market systems programme, moreover, can add value by looking at how low-skilled labour as a sector works, how labour moves between sectors and the causes of frictional unemployment.
Secondly market systems programmes can ‘zoom in’ to focus intently on the position of a tightly defined target group within these markets. The markets might seemingly be highly functional but there may be sections of the market where the incentives to address constraints to performance are not as clear. For example, governments and programmes often focus on MSE development, but the factors that affect low income single-proprietor market entrants may be very different to those that affect companies employing 20 people. Market systems programmes have the opportunity to focus more intently on hidden populations for whom incentives of more powerful actors have not already created desirable outcomes.
The examples discussed here include:
Working in informal labour markets – which don’t create jobs but help disadvantaged groups to engage in productive sectors by reducing transaction costs
Working in growth (job creating) sectors – which again have common constraints but are not commonly the focus of government or other development programmes.
Working in Microentrepreneurship - which are cross-cutting be experience common constraints
Complexity in social structures and personal incentives impacts diagnosis and intervention design
While in many advanced economies, cities are synonymous with social isolation and detachment as hubs of economic migration, in many developing countries, the social dimension remains critical to both behaviours and the incentives that drive them.
Urban societies are far more complex and heterogeneous than their rural counterparts. There is far greater variety in people’s daily interactions with technology, with goods and services, and with each other. There is also greater ethnic and religious variation and greater inequality in wealth and power. The social lives of individuals in urban areas is more varied but there also greater variations in the mix of social interactions engaged in by different groups. Some groups in cities continue to lead very ‘localised’ lives while others use the city infrastructure to engage far more broadly. This complexity of social structures can create constraints to income generation, affect people’s behaviours in addressing these constraints and also determine the mixed financial and non-financial incentives for them to do so. Consequently, for an urban development programme, being cognisant of these structures and incentives - working within them, capitalising on them, or seeking to change them – provides the greatest potential for impact.
In terms of constraints, social structures affect people’s ability to find out about jobs, provide information on new business opportunities and support to realise them, and access to credit. Behavioural norms are also shaped by social factors. People might seek jobs only from those within their ethnic group, or seek to work only within their neighbourhood. These behavioural norms are driven by the personal incentives derived from social structures. People may only be willing to engage in work which allows them to maintain social ties. They may prefer work which allows them a certain social standing, or may only seek work which does not provide that status outside of their neighbourhood. These personal incentives include social status, perceived intensity of work, moral incentives, and autonomy.
Examples here include:
A case study on work in urban sanitation in Kenya
A survey of how migrants find jobs in Ethiopia
A survey of job preferences among youth in Ethiopia
Findings on perceptions types of work in Tanzania and Ethiopia
Tools and techniques: changes for diagnosis and intervention
To achieve these goals, there are some important strategies for both diagnosis and intervention, where the urban context provides opportunities for different approaches than a rural context.
In terms of research and diagnosis, it is important to consider hidden populations. Programme teams may be familiar with a city at one level, but it can be very difficult for them to appreciate the different spaces and perspectives on that city for different groups. It is necessary to ‘unlearn’ a great deal of embedded knowledge in order to access better data on certain groups. These groups include ‘hidden’ populations. Women in informal settlements and migrants of no fixed address can be very hard to access but they may for a significant proportion of a target group market systems development programme focused on urban areas.
Examples covered here include:
Gathering at places where you know women will be present – subsidised distribution days at government shops – to snowball respondents.
In terms of intervention development, there are also new techniques made possible by the geography and dynamism of urban areas. In rural areas, sparse populations experience such social and cultural diversity that facilitative interventions can waste significant amounts of money on experimental and quasi-experimental methods to design intervention and measure impact. In urban settings, however, people are operating within a relatively homogenous environment in terms of relevant actors, transport networks, government infrastructures etc. This provides an opportunity to test what really works in triggering behaviour change in a way that can have direct relevance to a scalable impact.
Examples here include:
A/B testing on willingness to pay for childcare and resulting labour market participation.
A/B testing on job board placement, search costs, and employment rates.
Hopefully the points raised here help will help you to think about urban development, one of the most pressing priorities for poverty reduction of our time, in a different and potentially more impactful way. Get in touch to discuss more and see how this can work in your particular context.