The Inclusive Market or Market Systems Development (IM or MSD) approach focuses on the transactions between actors in a given economic system. It addresses the problems underlying poor performance and market failures.
Any such transaction can be described by a key function (i.e., the volume of supply and demand between two or more actors), regulated by support functions, such as technology, and rules such as laws.
Rather than directly interfering with the core function, for example by subsidising transaction costs or assuming the role of supplier/buyer, a development actor applying the MI or MSD approach identifies weaknesses in the supporting functions and regulatory framework and acts as a facilitator to improve them. In doing so, the concerned development actor relies on willing and able local partners.
The best way to explain the seemingly abstract concept of the MI or MSD approach is to use a simple example. Let’s consider the local fish farming market in Benin: Today, producers find it difficult to compete with imported frozen fish because of high production costs. These costs are mainly due to the high price of fish feed, most of which is also imported.
For a development project to help in this situation, a simple and instinctive way is to subsidise these feed imports to reduce the production costs for the fish farmers. The beneficiaries are then able to sell their products at a lower price than the imported products. The problem with this solution is that it is not sustainable. On the contrary, it directly interferes with the function of the core, and the development actor takes a central role in the system. As soon as the project ends and the subsidies stop, the fish farmers are back to square one. At the same time, the subsidies can distort the performance of market for a new generation of local feed producers. Their products have great potential but do not yet have the quality, sales approval, or market access to be commercialised in large quantities. It is very difficult for them to enter a market that is already heavily subsidised by donors.
This is where Beninclusif's IM or MSD approach comes into play. Instead of working with subsidies, the project strengthens these promising enterprises and helps them to bring their ideas to the market. Beninclusif supports quality assessments, facilitates collaboration with local authorities or helps develop marketing strategies. Each intervention is carefully designed to take into account the temporary role of the project without creating dependencies. Through more innovations and improved framework conditions, the production costs of local fish producers are lowered in a much more sustainable way than through short-term subsidies.
This is only a simplified example as the economic reality is often more complex. A multitude of actors have different interests, and conflicts often undermine market dynamics, significantly influencing the outcome of an intervention. It is therefore essential that the project is aware of the dynamics and relationships in the targeted sectors. Assumptions must be regularly reviewed and strategies adjusted to changing circumstances. Adaptive management and a learning culture are essential for the success of the project.
To learn more about Swisscontact's systems approach to sustainable agriculture and how Beninclusif helps to improve the citrus sector, watch this video: