In the following post, Katie Niemeyer of Land O' Lakes Venture37 discusses an interesting case of conservation agriculture. For years, conservation agriculture has been pushed by donors for its clear benefits in terms of soil fertility, increased productivity, crop diversity, etc. As the post describes, conservation farming practices can also have a positive effect on resilience at the household level, as improved soil is central to increasing the ability to produce crops even when faced with pest and/or weather shocks/stresses. At the same time, there has been little uptake in many countries. The post highlights the importance of taking a more holistic or systemic perspective, that can leverage market forces and factors to increase the attractiveness to farmers of taking on these new practices. One challenge to this case, and all of development writ large, is that helping smallholders increase maize production, often for consumption, is only a starting point-- not an end point. Increasingly, it is important to think about how such initial and beneficial changes can catalyze the next change and the change after that, leading to an increasingly faster pace of the journey to self reliance. Register for & join the Market Systems Symposium for more on this topic.
Climate Adaptation and Conservation in Market Systems as a key theme at this year’s Market Systems Symposium presents a unique opportunity for us as market systems development practitioners to think more dynamically about the concept of resilience. At Land O’Lakes Venture37, we are exploring how market-driven climate smart agriculture can strengthen farm-household systems, and how that relates to market systems resilience.
A farm system is the way in which farm resources are used and tailored to the physical, biological, and socioeconomic realities of local agro-ecological contexts. A farm-household system also incorporates individual household needs and desires that drive decision making. Climate smart and conservation agriculture provide an opportunity to strengthen the resilience of the whole farm-household system. However, to achieve this at scale market systems resilience must also be strengthened to enable systemic change in the way farmers produce.
Connecting the dots: market, farm, and household resilience through climate adaptation
Now, some ground setting on climate smart and conservation agriculture. Climate smart agriculture (CSA) is an integrated approach to farming that aims to increase productivity and incomes in a way that enables adaptation and builds resilience to climate change while reducing emissions. Conservation agriculture is a subset of CSA. It incorporates the tenets of minimum tillage, soil cover, and greater plant diversity through crop rotation or intercropping. Taking a farm-household system view, Land O’Lakes Venture37 works with the private sector and other local partners that have the ability to enable resilient agriculture – the use CSA (including conservation) technologies that drive farm, household and market system resilience.
Now that I’ve satiated all of the aggies out there, let’s turn to the development theorists.
A quick refresh on USAID’s Resilience Frameworks
USAID defines resilience as the ability of people, households, communities, countries, and systems to mitigate, adapt to, and recover from shocks and stresses in a manner that reduces chronic vulnerability and facilitates inclusive growth.
This definition of resilience is demonstrated through a set of absorptive, adaptive, and transformative capacities that enable continued progress toward improved outcomes despite shocks and stresses.
USAID’s Market Systems Resilience framework views these capacities through the lens of proactive versus reactive market systems orientations. While a market system with a proactive orientation has the ability to absorb, adapt, and transform in response to shocks or stresses, reactive orientations leave the market system unable to transform due to limited diversity and unbalanced power, which contributes to system stagnancy or fragile functional states.
We can use this resilience framework to think about a resilient farm-household system. In conventional land-based agriculture, the soil is a good place to start. Evidence shows that resilient (conservation) agriculture practices build healthier soils that strengthen farm-household system absorptive capacity by helping crops withstand severe weather events. Accumulation of soil organic matter improves soil structure and aggregate stability, while also actively sequestering carbon and mitigating the effects of climate change. Resilient agriculture also enables the adaptive capacity of the farm-household system by maintaining or improving soil fertility, bulk density, water holding capacity and infiltration so that the soil can support different types of crops without the need to incorporate expensive inputs into the cropping schedule.
Resilient agriculture also contributes to resilience of the “household” in the farm-household system by diversifying production and strengthening absorptive and adaptive capacities. For example, if a farm-household system incorporates cover and/or intercropping of legumes, the resilience outcome is four-fold:
But how can we scale adoption of resilient agriculture?
This brings us to the critical role that market systems resilience plays in enabling the transformative capacity of the farm-household system. Agricultural support networks must be able to provide the tailored innovations, technologies and advisory services that are needed to support resilient agriculture. But this should be viewed as an opportunity to catalyze investment that facilitates greater market system diversity and connectivity and foster a more proactive market system orientation. And as more farm households adopt resilient agriculture and are able to withstand and thrive through climate shocks and stresses, other market actors ranging from input supply companies, agrodealers, service providers, and offtakers benefit from the mutually-reinforcing effects of more consistent supply and demand.
You might be thinking – that’s great in theory, but given that resilient and conservation agriculture often promote low-input systems and require time before productivity benefits can be realized – where are the market incentives for adoption, replication, and scale?
Let’s look at a case study from Mozambique demonstrating market incentives for resilient agriculture
Mozambique is highly vulnerable to climate change. While Cyclones Idai, Kenneth, and Eloise caught international headlines, increasingly erratic rainfall, reduced growing seasons (by up to two days/year), and soil degradation continue to intensify as the primary drivers of vulnerability. Climate-adapted hybrid seed varieties alone cannot be a panacea for the Mozambique agriculture sector because degraded soils limit the ability of farm-household systems to achieve the full production potential of hybrid seeds in order to receive a return on investment. And, despite millions of dollars of donor funding, the formal seed market remains relatively small. A recent seed system survey conducted by Venture37 on the Feed the Future Resilient Agricultural Markets Activity – Beria Corridor (RAMA-BC) suggests that only 6% of seed is sourced from agrodealers, compared to 78% of community sourced seed.
Some input supply market actors are realizing that to capture the smallholder farmer markets in Mozambique, they need different solutions and are starting to respond to the market incentives of resilient agriculture.
RAMA-BC partners with input supply networks (seed companies and agrodealers) throughout northern Mozambique to pilot and scale input product innovations and embedded services that support resilient agriculture, particularly in climate smart maize production systems. One of those partnerships is with Phoenix Seeds, an independent first-mover seed company in the space of cover crop and intercropping input products that, even before the RAMA-BC partnership, had started introducing lablab and sunhemp legumes into the local market. Phoenix Seeds and Venture37 have partnered to successfully test the use of jackbean as a cover crop (which Phoenix has independently scaled to commercial seed production), pilot promotional seed kits that bundle drought-tolerant maize seed with complementary legume cover crop seeds, test the efficacy of using legume intercrops to control fall armyworm through integrated pest management (IPM), and demonstrate resilient agriculture practices and the resultant productivity gains through demonstration plots in partnership with local agrodealers and commercially-oriented lead farmers.
What was the Impact on Resilience?
As we enter the exciting time of sharing, learning, and creating together at this year’s Symposium, I challenge us all to step out of our “resilience silos” and draw connections between private sector-led approaches that achieve market system, farm system, and farm-household system resilience outcomes.
Maybe the most important lesson to emerge from the application of systems lenses on complex market system challenges is the importance of social norms on decision making. This blog explores one team’s experience with their own learning journey around social norms. Of particular importance is how the team leaned into the complexity of social norms to gain critical insights into how housing investment decisions are being influenced. From those insights they were able to develop an innovative pilot that leverages social norms to catalyze changes that are expected to result in improved housing outcomes. Join the Market System Symposium to hear more about the learnings from this exciting case.
In Peru – like much of the world – housing is a process, not a purchase. For low-income families, the process of building or upgrading a home can often take decades. With this protracted timeline, families’ decisions – about the design, who to hire, where to cut costs, etc. – have a significant impact on the quality and resilience of the home. Social norms, and the social networks through which information and influence flows, are often major determinants of these decisions.
Habitat for Humanity’s Terwilliger Center for Innovation in Shelter applies market systems development approaches to the challenge of ensuring affordable and quality housing for the base of the pyramid, working with the private sector to pilot new products and solutions. But we also recognize that understanding and documenting the social norms around owner-driven construction is key to designing more effective interventions. As the Terwilliger Center developed our housing market systems program in Peru, we intuited as hunches or assumptions a variety of social norms, but also understood that formally documenting these and understanding their strength and prevalence would allow us to design a more effective market systems development program.
Analyzing social norms and social networks appears a daunting task at first, but one that the Terwilliger Center’s team in Peru was eager to take on to better understand their local market. They worked with MarketShare Associates, using two of their tried-and-true tools to simplify this analysis and provide actionable findings: a value network analysis and a social network analysis and mapping process.
The value network analysis (see Figure 1) functions as a lite-version of a much heavier (and more expensive) social network analysis. It was ideal for a program team looking to map the connections between various social actors and households as they try to access information about construction materials, services, and practices.
The social norms mapping process identified social norms (see Figure 2) – the informal rules governing “normal” behavior – and mapped them according to three criteria: 1) prevalence, 2) strength, and 3) relevance. Prevalence refers to the extent to which a norm is present and common across a given group, while strength is the extent to which a social norm influences behavior and sanctions against breaking a given norm. Relevance, the third criteria, was how much the norm hinders specific programming or behavioral change objectives that the Peru team pre-identified.
Our social network analysis of the housing construction sector showed that households had a limited number of influencers. Outside of family and friends, the study found that masons had the strongest influence on household construction decisions. These results pointed to an opportunity to influence household decision making and promote improved construction practices by influencing masons.
How then to influence masons and promote better construction practices? Governments and nonprofits often seek to improve access to formal training to promote professional behaviors with a social good – in this case improved construction practices and material choices amongst masons. But, as figure two shows, the norms analysis found that social recognition is more important to both households and masons than formal training and credentials. Moreover, this norm had both the highest strength and highest prevenance, indicating that access to formal training was unlikely to result in any behavior change.
As one mason made clear: “Training only helps you when you are employed in big companies and not for family housing.”
These norms developed, and persist, in part because households use word-of-mouth referral systems to find a socially recognized mason to build their home. But the system does not guarantee a mason who will build to the highest standards of durability and quality. In other words, social recognition is divorced from the actual quality of the mason.
But what if we could somehow tie social recognition to quality?
From this hypothetical, Guardian Constructor (“Trusted Builder” in English) was born. The Terwilliger Center and our partners in Peru vet mason’s and recognize them as a Guardian Constructor for their work. With this branded designation, developers and financial institutions providing housing credits can confer social recognition on highly skilled masons.
At the same time, it prototypes a new way of building capacity, as developers hire architects and engineers to provide additional support to the masons – specialized on the job training that aligns with existing norms. A Guardian Constructor, in tandem with these technical partners, provide design, titling, and other critical – yet often missing – services to low-income households, while offering reassurances to financial partners about the quality of their investment.
Currently the team is in the prototype and field-testing stage of this intervention, working with an urban developer, two construction technical service providers, and six financial intermediaries. Longer term, the team also hopes to incorporate Guardian Constructor into the Peruvian government’s housing subsidy program.
The Terwilliger Center recognizes that in many countries, including Peru, solving the affordable housing crisis is as much about addressing the “soft challenges” of existing norms as it is the “hard challenges” of technology and construction. And while most norms present as immoveable challenges, finding ways to work around or with them – like amplifying social recognition for masons who apply sound construction practices – is a way to use them as leverage for larger-scale systems change
The following blog post discusses the challenges that often accompany many market systems in developing economies where the incentives and market forces/factors are misaligned in ways that disadvantage lower incomes communities. While these misalignments have serious consequences in many market systems, when the market system is also intertwined in an increasingly vulnerable ecosystem, like a coastal waterway, such misalignments can substantially speed up environment degradation and increase vulnerability. As the post suggests, and a key theme that will be explored at the Market System Symposium, figuring out and catalyzing a change in market system forces and factors such that they combine to favor conservation practices and reward labor fairly is central to any journey to self reliance.
COVID-19 forced companies and governments to reconsider the sustainability and resiliency of global seafood supply chains.
Around the world, the seafood industry plays a critical role in feeding billions of people. It’s also a major economic driver: According to the United Nations, fishing and aquaculture provide livelihoods to around 820 million people worldwide.
In many countries like the Philippines, Vietnam, Ecuador, and Ghana, it is small-scale fisherfolk and aquaculture farmers who dominate the seafood industry. But artisanal fishing communities and small operations are especially vulnerable to disruptions like what we’ve witnessed in the time of COVID-19. Often, it is the small operators who do not have access to insurance, retirement plans, alternative livelihoods, or health care—and if they do, it is unaffordable. There is very little, if any, clear price signaling from the markets they sell to, and many fisherfolk and aquaculture farmers do not have much flexibility in how or to whom they sell their products.
Transitioning to more sustainable fishing practices is also often difficult for these small-scale fisherfolk and aquaculture farmers. Many do not see direct financial benefit, nor do they have the capital needed—or access to affordable loans—to make the financial investments necessary to transform their operations.
The seafood industry also struggles with other serious issues like human rights violations, the use of unethical and illegal work practices, gender inequality, illegal and unreported and unregulated (IUU) fishing, and collapses in marine ecosystems caused by overfishing.
As we enter 2021, we see five major trends emerging from the global development community, government, and the private sector to help small-scale fisherfolk and aquaculture farmers enhance seafood sustainability and resilience. Many of these trends have evolved or arisen in response to COVID-19, but they stand to be ongoing opportunities for progress in the seafood industry.
KEY TRENDS FOR SUSTAINABLE SEAFOOD SUPPLY CHAINS IN 2021 (AND BEYOND)
1. Greater Domestic Import/Export Market Diversity.
COVID-19 highlighted the serious disruptions that result from overreliance on one import/export market. Fisherfolk and aquaculture farmers who relied on selling fresh or frozen seafood products to one primary market experienced major disruptions because of lockdowns and restaurant and hotel closures in the United States, Europe, and China.
To remain in business, small-scale fisheries and aquaculture operations had to quickly pivot to weather the disruption. For example, in the Philippines, blue swimming crab from the Visayan Sea fishery is usually destined for canning and export. It is not widely available in Manila or other local markets. But as the pandemic shut down the export market, we saw a number of entrepreneurs adapt to market pre-cooked, whole crab on social media to local Filipino consumers.
We also saw governments and companies collaborate to safeguard food security and prevent economic fallout for local fisheries and aquaculture providers. In the Philippines, the Department of Agriculture and the private sector launched “eKadiwa,” an online marketing platform to help producers and agri-preneurs sell fresh and affordable farm and seafood products to local consumers.
While COVID-19 accelerated this expansion of import/export markets, we expect this trend to continue in the seafood industry. Diversifying these markets will give small-scale fisherfolk and aquaculture providers more control over pricing and resiliency—in the event of another market shock.
And we will likely see more cross-sector partnerships to develop regional and domestic markets too. This will improve local food security while protecting the livelihoods of fishing communities.
2. Acceleration of Digital Technology for Seafood Sustainability and Market Development.
When COVID-19 upended the import/export market, it was digital technology that opened new markets for many fisherfolk and aquaculture providers. Those who were nimble enough to move their products to a digital marketplace could connect directly to consumers for purchase and delivery.
In May 2020, USAID Fish Right's Fish Tiangge initiative in the Philippines developed an online platform using Facebook to link fishers with local consumers. This one initiative connected 6,000 fisherfolk with more than 300,000 households—enhancing local food security and preserving incomes for thousands of fisherfolk.
Digital technology is also helping to modernize fishing and aquaculture operations, increase profits, and expand awareness of best practices for sustainable seafood. For example, we are collaborating with AquaConnect in India to provide digital solutions that help shrimp farmers identify quality products and farm-input purchases. Farmers also get notices and materials on growth and disease advisories, advice and information on affordable financing, and resources to connect to different markets in India.
Digital technology will continue to be a major player in 2021 and beyond.
3. Private Sector Engagement to Unlock New Solutions for Sustainable Seafood.
To create reliable and sustainable seafood supply chains, we need private sector engagement. Of course, the public sector can and should play a role. But government and the global development community can only do so much to address logistics, aggregate supply, ensure quality, and verify sustainable practices for small-scale fisheries and aquaculture providers.
A truly sustainable seafood industry demands creative, market-driven solutions that fit the local context. We’ve been inspired by local private sector innovators like eFishery: eFishery provides technology solutions, financing options, and input sourcing for small-scale aquaculture farmers in Indonesia, helping them build sustainable and profitable businesses. It also provides an online platform connecting farmers to buyers, to close supply chain gaps and strengthen domestic seafood supply chains. We are seeing more local, regional, and international private sector-led solutions—like Verifik8 and Abalobi and Aruna—for small-scale fisheries and aquaculture worldwide; we expect this field to continue to evolve in 2021 and beyond.
4. Innovative Financing to Spur Change in the Seafood Industry.
New, innovative financing approaches can rapidly scale sustainability solutions in the seafood industry. Historically, small-scale fisheries and aquaculture providers have struggled to access capital to improve their practices and operations or to protect against market disruptions, shocks, and income loss. This is a critical gap.
At Resonance, we are designing and piloting blended finance mechanisms that increase farmer and fisher profitability while also improving sustainable fisheries management. These finance mechanisms all build on partnerships on the ground with suppliers, aggregators, local financiers, and buyers—leveraging local connections and social capital. We are exploring a range of finance solutions for fisheries, including:
For example, Resonance is currently exploring a partnership with Minh Phu, Vietnam’s largest shrimp company; Seafood Watch, a global leader in sustainable seafood; and local banks, to provide blended financing to shrimp farmers to improve their shrimp yields while also protecting and restoring mangrove forests in their properties.
5. New Models to Verify and Reward Sustainable and Fair Labor Practices in the Seafood Industry.
Over the last few years, we have worked with several partners, from private sector buyers to NGOs to governments, to analyze the return on investment (ROI) for seafood sustainability certifications and improvement programs. Each project analysis overlapped in one key area: the traditional certification and auditing of individual small-scale fisherfolk and aquaculture providers is not working, despite significant investments.
There is growing support, from all stakeholders, to develop alternative models to verify and reward sustainable seafood production practices. We’re currently collaborating with Seafood Watch, Thai Union, and others to create the Partnership Assurance Model (PAM), an innovative approach to verifying sustainable aquaculture production at a regional level rather than certifying individual farms and operations. We are starting by working with Seafood Watch, buyers, suppliers and government to use PAM to help improve the quality and sustainability of shrimp produced in Andhra Pradesh, India, and Ca Mau, Vietnam.
Further, PAM and other models like it can help verify sustainable and fair labor practices—an area that the seafood industry has struggled with.
New assurance and improvement models such as PAM will gain greater traction as NGOs, governments, and the private sector seek more effective and cost-efficient ways to accelerate and verify sustainability progress.
SUSTAINABLE SEAFOOD IN 2021 AND BEYOND
While COVID-19 challenged many small-scale fisherfolk and aquaculture providers, it also showed us areas of opportunity where the seafood industry can build more resilient and sustainable supply chains. We expect the trends that we have outlined will play critical roles in helping governments, the global development community, and the private sector make progress toward a more stable, more sustainable seafood sector.
This post discusses the central themes that will be explored at the Market Systems Symposium 2021.
An enduring question in development is why societies seem to get stuck in patterns of behavior that can be hard to understand. Whether conflict, stubborn levels of poverty, elite capture, inability to address climate change, increasing equality, etc., development practitioners continue to wrestle with how best to help catalyze positive change. Applying systems thinking, including embracing complexity, has been an important advancement in helping development practitioners understand difficult questions that are grounded in understanding local contexts. At the same time, complexity and systems lenses suggest that if there is a given pattern, like strong gender norms to limit women from participating in and benefiting from economic activity, such patterns are grounded in something that made that pattern attractive. Through the lens of a western moral framework, this can be hard to align or even disconnect from stated development goals.
These difficult and sticky challenges are central to the Market Systems Symposium 2021. Climate change and related conservation challenges, a new theme at this year’s Symposium, are integral to the longer-term journey to self-reliance of many countries. At the same time, there remain patterns in many of these contexts that are likely to make the journey longer and more difficult in terms of health, economic, etc., outcomes. Similarly, how communities and societies manage shocks and stresses is also critical to a country’s journey to middle income status, a thread that will be explored under the Market Systems Resilience theme. While it seems clear that communities often rely heavily on informal communal social safety net mechanisms to help them weather shocks and stresses, many of these mechanisms can result in patterns that do not align with economic growth requirements. Urban populations and related non-agricultural market systems, while less of a focus for much of the development industry, are likely to be the economic engine that drives a society to middle income status; this will be discussed under a theme exploring systems such as housing, water, nutrition, and more. In all these themes, how private sector actors compete, cooperate, invest, innovate, etc. is elemental to whether a society can grow in ways that are more inclusive and durable. In many developing countries, there are patterns related to firms using their political/market power to create unfair competitive landscapes that limit who can participate and benefit. Questions and debates related to challenging private sector patterns will be covered in the Symposium’s Private Sector Engagement theme.
Whether the patterns relate to conservation challenges, inability to overcome known and knowable stresses/shocks, elite capture in markets, the critical role urban poor play in the journey to self-reliance, etc. learning how best to apply various lenses to local contexts to understand the current attractiveness of problematic patterns will play a foundational role in the Market Systems Symposium’s conversations. Practitioners will also debate, discuss and share learning in how to catalyze changes in market systems that are attractive enough to signal to others in the market system it is time to adopt, adapt, and/or otherwise change behavior.
Additionally, the Symposium will interweave key cross-cutting themes related to how initial changes in market systems can influence change in deeper-seated norms/mental models like the role of youth, gender norms and/or other limiting norms related to vulnerable groups. How entrepreneurship could/should emerge and catalyze increasing innovation over time will also be a cross-cutting theme, including how effective entrepreneurship requires increasing inclusiveness, better internal market systems signaling/feedback and mechanisms that allow for increasing churn/trial and error. The other cross-cutting themes will cover operational issues that include measurement, donor strategies, and adaptive management.
We are excited for this year’s Market System Symposium, especially in light of increasing confidence that life is getting back to some sense of normalcy. Pushing new learning, better practice, and a shared commitment to applying systems thinking to complex development challenges seems more important than ever.
LEARNING STORY SPOTLIGHT: Chillington Rwanda, Pathways for Adaptation and Growth, Responding to Societies’ and Customers’ Needs
Entrepreneurship is an evolving area of inquiry as it has become increasingly clear that growth and especially inclusive growth is highly dependent on a country having a robust entrepreneurial eco-system. While more traditional efforts have focused on individual entrepreneurs and their defined issues like access to finance and basic business skills, market systems projects have focused more on systemic biases and constraints that guide the evolution of an entrepreneurial eco-system.
Incorporated in 1982 in Rwanda, Chillington Rwanda Ltd is a leading local manufacturer of agricultural cast iron tools (such as shovels, pick axes, and wheelbarrows), which was a solid business before COVID-19. The company had already demonstrated its ability to respond to local demand signals, innovate, and provide product lines that would improve life for Rwandans. Chillington Rwanda had diversified its cast iron product line to produce manhole covers as manholes are often left uncovered on construction sites and in public spaces where manhole covers are hard to come by or standard sizes do not fit, and result in severe safety issues in Rwanda. Chillington Rwanda produces manhole covers at regular and customizable sizes and within a year manhole covers have become 50% of their business). Chillington Rwanda started manufacturing wheelbarrows in 2011 locally at almost double the price of imported wheelbarrows but has still been able to capture around 80% of the market share to date. Their product is recognized for much better quality and therefore durability, with the ability to customize wheels and handles. Chillington Rwanda conducts regular surveys with its customers and distributors, including sending their team to rural villages to do so. Based on customer feedback in late 2018, Chillington Rwanda quickly innovated and sourced an adapted wheel design which is more appropriate for many of the Rwandan conditions so that they now offer a line of wheelbarrows that function much better in the more muddy conditions while others operate better on asphalt.
The emergence of the COVID-19 pandemic started to put a strain on Chillington Rwanda’s business lines as overall economic activity slowed. For Chillington Rwanda, waiting out the shock was not an option. They needed to adapt, but how best to adapt in such a dynamic environment was a central question. Chillington Rwanda resorted to first principles of a value- based business that pointed Chillington Rwanda to look at where they could deliver value. In surveying the dynamic landscape, they saw that Rwandans were struggling to adhere to basic public health protocols. As they investigated further, they identified an opportunity defined by the value they could deliver for their community/society. The opportunity was related to the gap in the use of surgical face masks as Personal Protective Equipment (PPE) that seemed to stem from the relatively high costs of masks in Rwanda. Additionally, Chillington Rwanda identified the opportunity as potentially regional in nature.
Chillington Rwanda began to go to work. They assessed the opportunity, including near, medium and longer term contexts of shifting and expanding their production capacity. Would the cost of shifting be more than off-set by increases in sales and firm value given the timeline for wearing surgical face masks for COVID-19 protection? If not, could the new production line adapt easily to produce products that have a clear ongoing and potentially increasing demand? Chillington Rwanda drew on their existing expertise in manufacturing and existing relationships with production equipment suppliers in China to diversify from producing agricultural tools and equipment (such as wheelbarrows and spades) to producing surgical face masks as PPE.
Chillington Rwanda recognized that the pre-COVID-19 demand over the previous six months for imported PPE surgical face masks in Rwanda averaged 1.5 million masks per month from ongoing mask requirements at hospitals, pharmacies, etc. This ensured a potential ongoing demand which substantiated diversifying into this area even if demand were to drop post COVID-19. Chillington Rwanda’s market analysis seemed to indicate that there was real value not only from a narrow business perspective, but maybe more importantly, from a community/societal value perspective.
In addition to the clear demand signals around masks, Chillington Rwanda also recognized the signaling in demand for feminine hygiene products (sanitary pads) which can be produced using the same manufacturing capabilities as surgical face masks. This provided a further opportunity for diversifying in the future using the same manufacturing capacity being invested in for the surgical masks.
Chillington Rwanda recognized that investment into producing PPE masks made further business sense as this business strategy falls within the Government of Rwanda’s priority to support an environment that enables medical equipment manufacture in Rwanda for local use and export to other parts of Africa and the world. Specifically, as a result of COVID-19, the government is incentivizing the production of PPE face masks by local producers in a bid to facilitate mass production as well as affordability. In April 2020, Chillington Rwanda was included in the Rwanda Food Drug Authority (FDA) official list of companies allowed to manufacture barrier and medical masks in Rwanda, with Chillington Rwanda being one of only three companies approved to manufacture higher quality surgical masks.
The combined demand from consumer feminine hygiene products and healthcare worker masks, and the informal Government approval, provided Chillington Rwanda with the longer-term commercial rationale to make the final decision. Consequently, Chillington Rwanda began adapting to initially focus on producing quality assured affordable masks for Rwandans, with the idea that a regional market for quality assured masks would also emerge as neighboring countries were also experiencing similar challenges in accessing masks.
With a loan from a commercial bank and support from the German development agency, GIZ, who were eager to support local mask production to decrease costs of masks in Rwanda to make them more easily accessible, Chillington Rwanda had the finance to fund initial production and laboratory testing. This laboratory testing phase was very important in developing standards for quality control and assurance for higher quality surgical masks in Rwanda. The Rwanda Standards Board helped local manufacturers such as Chillington Rwanda to understand how to conform to quality standards in mask production. Chillington Rwanda provided samples of its masks to the Quality Control Division of the Rwanda FDA for approval.
Chillington Rwanda invested in a machine from China that has the capacity to produce 4 million masks and started production, distributing the masks through pharmacies throughout Rwanda. Sales have grown quickly. In keeping with its vision to make masks for affordable and accessible in Rwanda, Chillington Rwanda is currently producing masks at 300 RWF with a goal to further decrease costs to 180 RWF.
Chillington was eager to learn from its initial endeavors. Consumers appeared to appreciate the quality of the masks. In quick response to customer and distributor feedback, the company however recognized that consumers and retailers prefer masks to be packaged in smaller packs (of 5 to 10 masks rather than 50) so that when customers take a mask from the box in the retail store there is less chance of contamination with too many other masks at the same time. The company is therefore adapting its packaging to support improved health and sanitary at the retailers sales points by investing in a packaging machine that is able to package in smaller units.
Chillington Rwanda does not only think about its product lines and customers, but also about its staff and workers. Growth-orientated firms are able to understand the importance of investing in performance management systems as a continued way to improve staff capacity and performance. Chillington Rwanda worked with a consulting firm on how to invest in performance management systems which incentivize a motivated, productive and loyal team. Productivity has been linked to payments, so Chillington Rwanda pays workers more if they are able to reach production targets.
Chillington Rwanda recognizes the importance of treating workers well and ensuring good health and hygiene procedures. In 2019, for example, there was 0% staff turnover. The company provides drinking water stations throughout its plant and milk for workers. A sense of pride and team spirit is reinforced through aesthetically pleasing uniforms. The factory and offices are being renovated and upgraded with new coats of paint and more natural light. As a result of COVID-19, Chillington Rwanda implements good manufacturing practices with workers washing hands before work and keeping distance from other workers. Their team has been split into two groups, with a night shift added to distance workers even more.
By focusing on signals from Rwandans that indicate what is of value to them, Chillington Rwanda was able to more clearly see how they could adapt in a way that added value. Often businesses focus on the supply or production of products they perceive as having value with little awareness of or a clear understanding of the end customers’ needs, wants, contexts. Even worse, in many cases, the firms focus on how they can produce a product that delivers less value, but can be perceived as providing a higher value. Whether by adulterating, faking, or not investing in quality assurance, they calculate that by operating in a unclear/confusing environment for consumers they can capture extra, unfair margins from their customers.
Chillington Rwanda’s commitment to customer value and its responsiveness to consumer signals provides an excellent example of how markets can work well when market actors compete on delivering customer value. As firms and entrepreneurs increasingly focus on competing on the value they deliver to customers, staff and suppliers, the more likely other firms in addition to Chillington Rwanda will adapt and innovate in response to end-consumer signals about what is important to them. Markets that evolve such competitive landscapes not only generate more inclusive wealth, they also increase a society’s resilience by taking on and neutralizing or mitigating risks from stresses and shocks. Chillington Rwanda is helping Rwanda to mitigate the shock of COVID-19 by producing cost effective masks locally that allow Rwandans to better protect themselves from COVID-19. Chillington Rwanda saw an opportunity and innovated/adapted to meet an emerging consumer demand, helping their business and the wider society be more resilient.
This post was authored by the Nguriza Nshore team.
Entrepreneurship is an evolving area of inquiry as it has become increasingly clear that growth and especially inclusive growth is highly dependent on a country having a robust entrepreneurial eco-system. While more traditional efforts have focused on individual entrepreneurs and their defined issues like access to finance and basic business skills, market systems projects have focused more on systemic biases and constraints that guide the evolution of an entrepreneurial eco-system.
Kigali-based Masaka Creamery was established in 2015 as a vehicle for launching a high-quality dairy creamery in Rwanda. The company produces yogurt, fermented milk (buttermilk), cream, cheese and butter for the domestic market. The female-run Masaka Creamery is an interesting case in that its initial value proposition was not one hundred percent defined by growth or commercial goals. It also had a goal of providing meaningful employment for deaf individuals as well as youth. Unlike other cases in the series, Masaka Creamery’s starting point integrated a clearer vision of the value it could provide as a business that went beyond its customers to include its staff and suppliers. As Nguriza Nshore is learning, even businesses that start with a relatively narrow commercial goal, such as generating a positive gross margin, will only grow over time if they take into consideration the value they deliver not only to customers, but also staff and suppliers. Businesses that act in extractive ways toward their staff and/or suppliers are unlikely to get good performance, but as the Masaka Creamery example shows, are also unlikely to weather stresses and shocks well.
Masaka Creamery established its brand as a reliable and quality assured supplier of various dairy products to other businesses such as restaurants and hotels. By targeting restaurants and hotels that catered to high-end consumers, Masaka Creamery could generate a healthy margin ensuring they could treat staff and suppliers in ways that demonstrated shared value, while also investing in the important and necessary quality assurance practice demanded by such a clientele. Interestingly, by focusing more on a business to business model, as opposed to a business to customer model, Masaka Creamery probably eased their start-up process as they had fewer and larger clients on which they could focus their customer service.
Masaka Creamery was growing nicely and attracting investment as it continued to strengthen its brand as a reliable and quality assured supplier of dairy products to its business customers. It is here where the story gets interesting. COVID-19 emerged quickly and had an outsized effect on the exact businesses that Masaka Creamery has targeted, especially restaurants and hotels, which emerged as their largest customer segment. Masaka Creamery could have hunkered down and tried to weather the shock, but they realized doing so would have serious repercussions on their staff and suppliers, so they adapted. Unlike other entrepreneurs who focused heavily on capturing and extracting margins from their business, Masaka Creamery invested in ensuring quality and performance as required by their business customers. This customer orientation that included investing in staff and suppliers, gave them a clear competitive advantage when forced to adapt as they had both an emerging brand based on customer value, an operating culture that was based on shared value (i.e., which also translates into shared risk), and a vision for the company that was defined by more than what they produced.
Masaka Creamery quickly realized that most of their business clients would have trouble maintaining their purchases requiring the firm to look for other channels. Interestingly, Masaka Creamery took the bold step of testing a direct to customer channel. Such a shift from a commercial channel with fewer and larger clients to an end-consumer channel with many more smaller clients can be very difficult for a business. Managing a large and growing customer base requires a fundamental shift in business operations, especially marketing and customer service. Masaka Creamery’s key advantage though seemed to be its customer orientation or its interest in delivering value to its customers.
Masaka Creamery went to work learning how to leverage social media, how to segment the market in ways that eased their transition to a direct to end-consumer channel. They brought on board marketing and branding skills that are essential for a direct to consumer channel, and they raised their game in terms of customer service. For example, they actively engage their customers, leaving thank you notes for customers and promoting their values as central to their business. The transition was not easy as they also had to develop capacity in managing multi-stop delivery routes, a substantial increase in the number of transactions, a large and growing customer base, and brand integrity (i.e., emergent customer complaints, operational hiccups that could affect customer value, unexpected company/product memes, etc..).
Masaka Creamery has emerged out of the transition in a way that has them on a stronger growth trajectory. They have a growing base of repeat customers, their revenue is even higher than before COVID-19, their brand value is increasing, and they are investing in ways that will increase their capacity to deliver value to their staff, suppliers and customers. The Masaka Creamery story is particularly important in demonstrating the value of entrepreneurs when they are motivated by the value they can create, as opposed to the margin they can capture. It is through Masaka Creamery’s commitment to value that they were able to adapt in ways that led to increased growth and increased employment.
This post was authored by the Nguriza Nshore team.
This post is part of a larger series highlighting the Feed the Future Nguriza Nshore project in Rwanda. Nguriza Nshore is applying systemic lenses and tactics to shift the orientation of the financial services market system. Nguriza Nshore is focusing on two major shifts in the financial services market system. The first is shifting the orientation of the banking and microfinance service providers toward the SME segment. This shift requires banks and micro-finance service providers to shift their operations and product offerings to accommodate the specific needs of SMEs and the SME segment. The second is shifting the overall balance of enterprise finance away from banks and microfinance service providers and toward private capital that can more effectively serve the growth capital needs of Rwandan entrepreneurs.
The Government of Rwanda (GoR), through the leadership of the Ministry of Trade and Industry (MINICOM), realized that in order to continue its economic growth and to grow even more inclusively, it is necessary to substantially improve the entrepreneurial and SME operating environment in the country. With the support of the Feed the Future Rwanda Nguriza Nshore project (Nguriza Nshore), MINICOM decided to undertake a participatory process for developing and gathering support for an ambitious EntrepreneurshipDevelopment Policy (EDP). Through this participatory process, MINICOM and Nguriza Nshore were able to both develop a comprehensive policy for catalyzing greater entrepreneurial activity, as well as generate a wide base of support for the policy. Nguriza Nshore continued to support MINICOM through the policy approval process at the national level. The comprehensive nature of the EDP presented MINICOM with a range of challenges related to building internal support across multiple Ministries. By working closely together, MINICOM and Nguriza Nshore managed the approval process by leveraging the wide base of support generated through the participatory development process.
For Nguriza Nshore, its effort to support MINICOM to develop a comprehensive entrepreneurrship policy included more than just the potential benefits of the improved policy; Nguriza Nshore was also keen on improving how policies were developed and improved over time. Taking a more systemic approach has been central to Nguriza Nshore’s success in supporting MINICOM. For example, by focusing on a participatory process of policy development, MINICOM and Nguriza Nshore were able to catalyze a substantial constituency for the policy. MINICOM and Nguriza Nshore traveled across 20 districts and interviewed 313 diverse stakeholders to better understand the achievements and challenges from the previous SME policy. Specifically, through the participatory process, they were able to prioritize challenges affecting startups and business growth in Rwanda and adapt the EDP based on constituent input. Throughout the policy drafting and consultation process, MINICOM and Nguriza Nshore were able to gain insights into the unique challenges of women as they start and grow their businesses. Through the process, of the 313 stakeholders consulted, 122 were women.
Nguriza Nshore has also supported MINICOM as the ministry thinks through the key components of implementing the policy, including how to anticipate and build in an adaptive capacity. Throughout the process, Nguriza Nshore witnessed a continued strong sense of ownership among stakeholders present during the EDP implementation plan adaptation workshop, where participants updated the implementation priorities to match new COVID-19 realities and align with GoR economic recovery activities. Additional stakeholders have also already begun aligning their activities with the EDP. Inkomoko approached MINICOM with a request to directly support the implementation of EDP by aligning Inkomoko’s $2.3 million SME Relief Fund within the EDP framework.
In April of 2020, a Cabinet meeting passed the EDP, and a formal launch event was held in November. All in all, the passage of the EDP by the Cabinet is a testament to its inclusive development process and alignment to GoR’s priorities. With this milestone, Nguriza Nshore will implement all future activities with the entrepreneurship ecosystem priorities, which will ultimately go beyond the life of the Activity. The EDP will be officially implemented by MINICOM in 2021. Nguriza Nshore will continue to partner with MINICOM and support the policy’s amplification across the country.
This post was authored by the Nguriza Nshore team.
This post is the second half of a two-part series. To view the first post, click here.
In any given market system, elements of both small-group and large-group dynamics co-exist. What matters most, however, is which dynamic is dominant. As a result, when analyzing a market system to understand the prevalence of small group and large group institutions, it is useful to tease apart the regulative, normative and cultural-cognitive elements. Showing the ways in which large and small group thinking might co-exist at different institutional levels provides a sense of direction to programs looking to influence change towards a large group orientation.
Assessing how predominant or influential small group institutions manifest in market system behavior is critical. In addition, while regulative variables are considered “faster” (i.e., easier to change), interventions based on “slower” normative or cultural-cognitive variables will be more likely to yield sustainable, self-enforcing changes within the market system. For example, a common situation occurs when the regulative institutions have been reformed to align with large-group principles (e.g. employment equity laws and regulations), yet the normative and cultural-cognitive institutions continue to reflect small-group norms (e.g. discriminatory hiring based on kinship/family ties). In these cases, the informal institutions typically control behavior, leading to a disconnect between law and practice. For example, a Kenyan project used an earlier version of this framework to gain insights into cases where there was a high a prevalence of corruption/elite capture, which is a common manifestation of small group dynamics as normative/cultural-cognitive institutions around communal loyalty often create a ‘greater good’ perception that reinforces such behaviors.
The table below gives high-level insight on the kind of ‘map’ that could be produced for any given market system:
With a greater understanding based on a more nuanced and contextual perspective of local behavioral patterns, practitioners can design program strategies and intervention tactics that are more effective at catalyzing durable change.
As a default, most projects start with a set of assumptions that a society should be moving toward large group dynamics. While there is increasing evidence that such institutional change does result in higher life expectancy, better health and educational outcomes, etc. (i.e., key development objectives), the process of change will be messy, with winners and losers and shifting responsibilities for who manages the downside risk from change. As a recent book on the spectacular development in China lays out, (Ang, Yuen Yuen, How China Escaped the Poverty Trap, September 2016) institutional or systemic change involves co-evolution of institutions and market behaviors. The historical review of 40 years of China’s development reveals a process of smaller emergent ‘viable fit’ changes that catalyze additional nuanced changes that also fit the context. Each smaller change has to deal with systemic pushback as a result of eventual clashes with accepted institutions. Many small changes are reversed or blocked, while others take hold. Over time, this process can result in substantial change, as in China, but it is more meandering. The viability of any particular change is often uncertain at a given point and time.
For systems thinking practitioners, adaptive management has been normalized in the process of probe, sense, and respond. For this process to be effective, it requires some way to parse observable patterns to know where or how to probe, make sense of changing patterns, and respond tactically (including re-allocating resources). Typically, practitioners rely on observable manifestations of regulative, normative, and cultural-cognitive institutions drawn from countries defined as ‘developed’. These manifestations are often framed as best practices or the right way of doing something, but often do not fit ‘developing’ country contexts. Drawing again from the Kenyan case, donor programs have for years predefined that a cooperative organizational structure was the right way to improve cooperation within the dairy market system. When applying this framework, donors should have recognized that small group dynamics were at play. Instead, sustained focus on an organizational structure that reinforces group loyalty at times amplified adversarial relational contexts between farmers and processors as the answer. When an earlier version of the framework was applied, the project shifted away from pushing any specific organizational structure and focused more on amplifying specific behaviors that align with large group dynamics, such as clear performance-based supply chain management tactics that can form the foundation of building a trusted commercial relationship between farmers and processors.
The underlying management philosophy we propose is self-selection, which involves uncovering and directing attention and resources towards attractors. These examples of behavior attract attention and help move other system actors towards what’s new because of interesting and desirable features of the new behavior. This is not about an old, stable company making a dramatic change. Instead, programs should be looking for outliers - an actor or person keen to change (i.e., not vested in the current dynamic).
The idea of an attractor or outlier is that over time, the behavior can become normalized – reinforced by emerging normative institutions. Thus, change is driven by an internal process based on benefits – including social benefits. From this point of view, we understand leverage relative to the potential amplification of the attractiveness of the behavior. This way of thinking can have a substantial effect on tactics, as the idea of locating ‘problems’ and fixing them via training or other direct interventions ceases to make sense. Firms have more leverage than farmers, but the firm itself is not the point – it’s a signaling tool for propagating new norms. The firm’s behaviors signal back into the system that the behaviors are attractive and the source of new normative institutions. Over time, as those norms become more dominant, they may also replace assumptions of ‘how things work’, and become embedded as cultural-cognitive institutions.
Conclusion: Pragmatic questions for testing & call for partnerships
This way of thinking links important strands of systems thinking in development that need further exploration. Important next steps include building out practice guidance to help practitioners understand these strategies and tactical decisions (what to do and why), to move beyond the overly simplistic and inaccurate “direct” versus “indirect” understanding of facilitation. Here are some important questions that merit deeper investigation:
Written by Mike Klassen and Mike Field
This post is the first half of a two-part series. To view the second post, click here.
The field of market systems practice has embraced complexity thinking in recent years. In general, this is a great thing: acknowledgement of complex and multidimensional causes, the internal drivers and momentum of systems (with or without us as development actors), and the unpredictability of response help keep our egos in check. However, while we have embraced complexity, we continue to ignore the important and difficult task of emergent trade-offs that a society has to deal with as it develops. So, while ardent supporters of complexity often say, “it’s better to let the system itself decide,” the decision to intervene in another country is itself a normative act. We need to take ownership of this, and increase our willingness to stake our assumptions around the effects of system change outcomes and whether they are contextually better or worse for a given society. To do this thoughtfully, we need a better framework for evaluating the underlying institutions. When complexity is combined with institutional thinking, the framing can provide greater clarity on system dynamics and how a given change would likely result in some trade-offs, which can then be assessed as better or worse, thus allowing a project to either amplify or dampen signals favoring the change.
For the past six months, a team has mined academic sources to investigate possible frameworks that can help explain the deeper social and cultural norms and institutions that underpin market systems. While that work focuses on inclusive, entrepreneurial market systems in the context of enabling environment reforms, we think it has wide applicability to all market systems programs. This blog post introduces the two big ideas we propose as the basis for an institutional view of market systems: (1) small group vs. large group thinking, and (2) regulative, normative and cultural cognitive institutions. We then sketch out how these could be used by managers making decisions about allocating resources in a market systems program.
Small group vs. Large group
The distinction between small group and large group societies or institutions is best articulated by David Rose:
An important step in the economic development of any society is being able to move from only being able to support personal exchange to being able to support impersonal exchange. A completely small group sense of morality is adequate for personal exchange but becomes increasingly inadequate as exchange and cooperation becomes impersonal because it is conducted in larger group contexts. (Rose, 2011)
Large group societies allow risk management at a societal level, through institutions that evolve to support impersonal exchange and trust in society beyond simply personal relationships. In contrast, small group societies centralize resources and control, and rely on strong family and kinship ties, mitigating risk at the level of the small group. This can be an incredibly important community-level safety net, but it leads to exploitative relationships as it is deemed morally acceptable and even important for members of a community to extract resources from those outside their group in order to support their own. When small group institutions dominate, it is typical that higher-level ideas of merit are devalued, and substantial segments of society are blocked from meaningful participation as power is wielded to the benefit of the smaller group holding power.
Broadly, ‘development’ can be thought of as the trajectory from mostly small group societies to large group societies, however this is not a simple, one-way path. There is no easy transition from a low-income authoritarian government to a society where rule of law is respected and equity is enshrined in cultural and legal norms. The process of change creates winners and losers, and these are important trade-offs we need to reflect on in our work. It’s also important to note that countries can move in either direction - in recent years there is a clear trend toward populism and authoritarianism – most starkly in Hungary and Poland, but also in countries like the US and UK – which can be seen as manifestations of small group thinking.
Ultimately, the small versus large group framing sets up an institutional spectrum that can help program managers make decisions on what evidence to gather and how to allocate development resources when wading into an uncertain environment.
Three types of institutions
Institutions are the ‘rules of the game’ that shape human behavior in conscious and unconscious ways. A common distinction is made between formal institutions (laws, regulations, contracts) and informal institutions (belief systems, social norms). We take that distinction a step further, and draw on the work of sociologist W. R. Scott, who proposed three types of institutions: regulative, normative and cultural cognitive. These flow from the more explicit and formal (regulative institutions) to the more implicit and taken-for granted (cultural cognitive). A helpful analogy is the iceberg model in systems thinking, which elaborates how mental models mold systemic structures that ultimately shape patterns of behavior and events.
The three institutional types each influence behavior in different ways, based on different logics, compliance mechanisms and sources of legitimacy. Regulative institutions explicitly coerce behavior through rules or sanctions enforced externally. Normative institutions encourage behavior by appealing to the need for people to belong by following desirable group norms. Normative institutions also sanction people for not following norms via social mechanisms like shame. Cultural cognitive institutions shape subconscious assumptions, constructing a taken-for-granted view of how the world works that shapes the available choices for action or behavior.
What is most important about this distinction is that the more deeply embedded the institution, the more dominant or controlling its influence on a market system’s behaviors. When all three sets of institutions align, behavior patterns can be deeply entrenched and very difficult to change. When there is conflict or different signals being sent, it is the normative and cultural cognitive institutions that tend to dominate. It is important to note that change can happen even when a behavior is deeply held, but it would likely take longer to change.
Implication for practitioners
Complexity was central in helping practitioners understand and embrace the messiness of systemic change. For example, in Zambia, a project decided that a lead farmer model was the right way to push the project’s ideas on improved farming practices. The project provided that farmer with resources and training that other farmers could not access. While complexity thinking might align with this tactic as a way to catalyze change as it could present an attractive alternative for other farmers, institutional theory clearly would have identified the local normative and cultural-cognitive institutions around communal loyalty that raise the potential for communal backlash. In the end, that farmer’s fields were burnt down by the community as they were perceived as behaving outside of acceptable boundaries as defined by local manifestations of institutions. Additionally, institutional theory helps practitioners better understand their own biases. In the Zambia case, it’s clear that the farmer model is based on long-held North American normative and cultural-cognitive institutions around individualism and individually-driven innovation that often does not translate in other country contexts. By combining complexity to understand the messiness of change, and institutional theory to understand localized and contextualized trade-offs, practitioners can make better and more informed decisions on how best to catalyze an internal change process.
Institutional theory also helps practitioners to understand change at deeper levels. Small group societies are very effective in certain ways that are positive, including deep and wide family/friends/communal networks that absorb shocks and stresses. At the same time, small group societies tend to create high levels of haves and have-nots with internal hierarchies. Similarly, larger group societies rely heavily on more formal mechanisms and innovation to neutralize/mitigate risks, but when those functions perform poorly, family/communal networks are often not strong enough to absorb shocks. This shows how important it is to think through change processes carefully, to avoid the unintended consequence of eroding existing (small-group) risk management mechanisms before new society-wide (large-group) mechanisms are fully developed.
For more on how to apply this framework in practice, see Part 2 of this blog.
Written by Mike Klassen and Mike Field
In the following post, Jessan Catre lays out an important case for housing, and especially housing for lower income populations, as needing to be a central organizing node for recovery efforts. While not explicit in the blog, he also highlights the importance of how relief efforts are organized to make sure they are catalytic and maintain/enhance the diversity of market systems. Often the knee-jerk reaction of recovery efforts are to give things to vulnerable populations, and often do this via large contracts to big firms. Such effort, while unintended, can do substantial damage to systems as they push out SME and informal firms, shifting power to larger firms, as well as redirecting these firms to focus on donor customers. The emergence of providing cash directly into the hands of the vulnerable population has been a welcome mechanism to inject resources that can be more effective at catalyzing greater positive knock effects. As Jessan recommends, recovery should not just be about getting back to where the system was, but taking the opportunity to lay the ground work coming out of a shock like Covid-19 that allows for a quickening pace of positive systemic change.
The COVID-19 pandemic has completely upended the life that Arfel Aljohon, a carpenter, worked so hard to build for his family in the heart of the Philippines.
In late March, all of Cebu island was put under "enhanced community quarantine," an almost total lockdown, including the temporary closure of non-essential shops and businesses. These restrictions, while necessary to minimize spread of the deadly virus, meant the pipeline of work he had lined up came to an abrupt halt, and with it the $8 to $10 he expected to earn daily. One of his daughters was a teacher at a private school, and she also contributed to the family purse. When the school closed, her salary stopped too.
Overnight, Aljohon and his family went from feeling comfortable to wondering how they were going to survive, let alone support their four aging parents and other relatives near their home in Bogo City, Cebu Province. To make matters worse, Aljohon was about to complete repairs on their house but now can’t afford to, so the family feels particularly vulnerable to COVID-19.
Aljohon’s ordeal is tragically common, not only across the Philippines but also in the other middle-income countries where Habitat for Humanity works to improve the resilience and inclusiveness of housing markets and help people gain access to a decent place to call home. So as governments and development organizations around the world consider how to prevent an economic and social catastrophe, it’s extremely important that they understand how local building and local housing markets really work.
Many of the 1.6 billion people who lack adequate housing make do by building and repairing their homes incrementally as family finances allow. Houses built in this way comprise from 20 to 70 percent of housing stock, depending on the country, in the Global South. The informal housing markets that caters to these builders are massive as well.
But shocks to the housing sector produce far-reaching ripple effects, starting with informal businesses like Aljohon’s. They are some of the most vulnerable to the effects of COVID-19. We are already seeing low-income families worldwide postponing construction projects and using the money for even more basic needs, such as food and medicine.
As a result, masons and carpenters stop working. Demand for materials decreases, hitting local building material retailers. Upstream, this affects construction materials manufacturers, with paralyzed supply chains disrupting the flow of raw materials. The disruption spans the entire construction supply chain. With manufacturing halted in many countries, critical building materials are unavailable to households. So even if and when families are ready to improve their homes, they are unable to do so.
Similarly, the financial sector also is in lockdown. Banks are deemed essential businesses but the microfinance institutions that most low-income homebuilders turn to for external funding are not. Without regular repayments, their survival is in jeopardy.
Fortunately, there is an upside to this complicated web of interdependence. A well-functioning housing market can serve as the foundation to the economic recovery needed to create prosperous and resilient societies. Under normal circumstances, the construction sector, of which housing is an important segment, is one of the largest in the global economy, representing $10 trillion in spending annually and employing millions of people such as Aljohon. Many governments, from the Philippines and Peru, realize this. They are already using investments in the construction sector, of which housing is a part of, as a driver for economic recovery from COVID-19.
But the devil is in the details. Incorporating housing into relief packages will mean little if those plans overlook the needs of low-income homebuilders and households. Three actions, in particular, will keep them at the center and truly strengthen the resilience and inclusiveness of housing markets:
First, as governments begin to invest in the housing sector in order to spur economic recovery, they must design bailouts with the informal sector in mind. In addition to working with large or mid-size developers focusing on new construction, they must ensure that funds flow to small-scale developers and businesses or microfinance institutions that can channel capital to people seeking to upgrade or expand existing homes.
Second, it is crucial that aid does not displace local market actors—including construction material companies, hardware stores, training providers, media entities and financial institutions—who will be irreplaceable in providing those services and products into the future. Financial relief should be channeled through these local housing market actors and when possible, through cash-based programming to make their homes safer during the pandemic.
Finally, as governments take steps to designate construction and housing as essential services, we must focus on the safety of the people who will be building back our communities and our economies. Construction laborers need access to personal protective equipment and training in how to use it. They also must be familiar with appropriate physical distancing guidelines and good hygiene habits to keep themselves, their clients and their own families safe.
Taking action now will help ensure the survival and resilience of informal housing markets that are so crucial to economic recovery. More importantly, they can help reverse the fortunes of families such as Aljohon’s who can once again feel secure in their own homes. That will allow them to begin building back their neighborhoods and, along with it, the hope that everyone in their community can house themselves safely, securely and sustainably.
Jessan Catre is the Philippines Country Manager at Habitat for Humanity’s Terwilliger Center for Innovation in Shelter
The MSDHub Blog Series is authored by respected implementers and donors of market systems projects globally.