A Market Systems Lens to COVID-19 Mitigation Strategies
This post was written by Shannon Gaffney, Chief of Party, USAID Digital Economy and Market Development (DEMD) Project
COVID-19 has caused major disruptions to health systems, economies, and lives all around the world. Among these, national lockdowns, interruptions of cross-border flows of goods and people, and lack of access to markets and distribution channels pose particular challenges to businesses. In response, firms have adapted their business models to sell their products and services online, identified new distributors and buyers, and quickly adjusted their service offerings. In the longer term, a systems approach to risk management may be beneficial for promoting broad-based recovery.
A Systems Approach to Risk Management and Recovery
Building the resilience of individuals, households, businesses, and communities to respond to shocks and stresses is critical to mitigate the impacts of “markets in crisis.” The 2020 Market Systems Symposium, organized by EcoVentures International in collaboration with select development organizations and donors, explored the benefits of applying a market systems lens to COVID-19 mitigation strategies. Over June-September, a series of virtual plenary discussions and presentations of ongoing work in Honduras, Uganda, Mozambique, and Somalia, among others, offered insights, tools, and approaches to better understand firm- and system-level changes needed to support a more effective entrepreneurial ecosystem.
These projects are finding that while the crisis has created opportunities for positive behavior change, there are also risks. Negative coping mechanisms within the market system, such as the distressed sale of assets or consumption of inferior quality food products, could cause even greater harm to populations of interest. Avoiding this outcome requires supporting local market actors and institutions to identify, prioritize, and allocate risk more equitably throughout the system. Applying these concepts can both inform the short-term COVID-19 response and improve the long-term resilience of market systems.
The examples below highlight some of the ways in which donors and implementing partners can play a role in introducing and scaling these practices so enterprises can maintain employment and operations.
- Many projects are capitalizing on the growth of e-commerce to enable firms to buy, sell, and transact online, accelerating and facilitating connections to new buyers and shifting distribution channels to sell direct to consumers. For countless small businesses struggling to survive COVID-related disruptions, support to launch online marketing campaigns and execute online distribution strategies is a critical lifeline that would be more difficult or even impossible without external help.
- Digital tools can also be leveraged to repair broken supply chains. In Mozambique, field staff partnered with an existing mobile application to enhance information flows to farmers, including through virtual and physical extension services. The project is now considering how to integrate an online marketplace feature into the app that will allow farmers to interact directly with private sector actors and accelerate B2B transactions among agribusinesses.
- In the case of entire industries (like tourism) that are facing large-scale disruptions with few options to adapt, strengthening public-private dialogue to mobilize institutional responses has proved effective. In Honduras, the National Institute of Tourism, private sector chambers, tourism ministers, and representatives of the local tourism industry came together to discuss stimulus packages and broader support measures.
A key lesson emerging from these examples is that, given the swift speed of shocks, decision-makers require timely, actionable data to respond appropriately. But this goes beyond merely generating statistics. To support adaptive actions, feedback loops that lead to consensus among market actors must be established or strengthened. Because systems thinking encourages using data to solve collective problems, it also encourages firm-to-firm cooperation as an alternative to direct competition. For example, using data to benchmark performance versus foreign competitors can help empower peer networks to jointly address systemic challenges facing an industry.
Also critical are networks to facilitate connectivity and cooperation at a broader systemic level. In developing country contexts, a lack of trust among market actors often inhibits the system from functioning in an inclusive and efficient manner. Donors and implementing partners can help provide the “connective tissue” that starts to build this trust and creates lasting commercial relationships between market actors. The network brings in outside technologies, innovations, services, and skills that can generate creative solutions to local problems. When firms are connected effectively, they are much better at managing shocks and stresses. Research from the Aspen Network of Development Entrepreneurs (ANDE) shows that in the COVID-19 crisis, the entrepreneurs most connected to networks are more successfully weathering its effects.
iDE’s Market Systems Resilience Index (MSRI) is a tool helping to bridge knowledge gaps related to one of the main impediments to development work—the last mile supply chain. The MSRI, first developed in Bangladesh, allows practitioners to understand the rural market and explain the emerging challenges and opportunities to the private sector. This contributes to a better understanding of the end mile client. MSRI 2.0 is now under design in Mozambique with a greater focus on developing practical solutions for connecting farmers to local private sector actors, including through extending digital logistics services to last-mile distribution channels.
COVID-19 is a once in a century reckoning that has brought market systems resilience urgently to the surface. But donor programs generally need to be more proactive about anticipating and planning for more regular disruptions (including periodic droughts, floods, elections, etc.) and stressors (including corruption and migration) that may play a more detrimental role than idiosyncratic shocks. Implementers should consider which capacities within the market system are going to be the most valuable in mitigating the impact of and speeding recovery from these events and then work to develop those capacities alongside core programming.
It is important to remember that working within systems is broader than the donor programs themselves. Participation from local partners and stakeholders ensures that decisions and relationships are embraced by the market. Bringing in external expertise to support local innovation and adaptation is an important step on the Journey to Self-Reliance.