Analysing synergy between market systems development projects and business environment reforms

Embracing a systemic mindset requires considering all aspects of market and government systems and understanding their interactions – Pic credit: ADB

This article delves into how market systems development initiatives can establish stronger connections with business environment reforms to enhance the functioning of markets for the benefit of marginalised communities. 

Optimising market systems outcomes through rule-based strategies

 

Projects focused on Market Systems Development (MSD) in development cooperation understand the significance of well-crafted policies in effectively regulating a system. The business environment, which encompasses the laws and regulations governing workers and businesses, serves as the foundational element of the market systems framework. When established and enforced appropriately, the business environment plays a crucial role in governing behaviour, driving productivity, and fostering improved working conditions.

Nevertheless, MSD projects often encounter a range of challenges when attempting to drive changes in laws and regulations. These obstacles include limited capacity to address legal and regulatory issues, restricted access to political forums, and perceived difficulties in tackling deeply rooted constraints. As a result, many practitioners in the field consider legal and regulatory reform as excessively challenging and choose to overlook these obstacles.

This leads us to question whether focusing solely on market-based interventions without actively pursuing reforms is truly sufficient to stimulate systemic change. Does the absence of support from the public sector risk perpetuating existing outcomes? As always, the answer depends on the specific context.

So, how can market systems development projects effectively integrate business environment reform work? Firstly, it is crucial to recognise that business environment reform should not be equated solely with policy design. The rules and regulations governing markets can be hindered by various constraints, including inadequate coordination between public authorities, limited policy awareness, and weak enforcement due to capacity constraints.

Therefore, MSD projects can develop a diverse range of interventions before considering advocacy and legal development. For example, they can collaborate with governments to enhance communication processes during the design of new laws by connecting government actors with appropriate private sector entities capable of disseminating information through their platforms. Such interventions align with typical MSD approaches and can genuinely influence law enforcement, as providing individuals with the necessary information to make informed decisions regarding law compliance is often a significant challenge.

Secondly, effectively addressing rules and regulations within MSD projects necessitates giving due importance to these issues during the analysis stage. While MSD is renowned for its analytical focus and emphasis on tackling root causes rather than symptoms, this focus appears to be somewhat diminished when it comes to analysing formal rules and regulations. If the analyses do not adequately consider the rules, it becomes more challenging to devise interventions that effectively address challenges during the design phase.

There is a clear need for MSD projects to enhance their analytical skills in this domain, as it provides valuable insights into the broader context in which these projects are implemented. Understanding the political power dynamics within a country enables more realistic intervention planning and effective pursuit of systemic results. For instance, let’s consider an MSD project in Afghanistan that aims to link a milk processing firm with dairy farmers in a remote province under Taliban control. In such a scenario, it is crucial to consider various cost-related consequences, such as informal taxes, increased transportation expenses due to security issues, and the possibility of the intervention being abruptly halted by the Taliban for political reasons. Analysing the rules and regulations, including the political economy, becomes essential to avoid unforeseen challenges.

Thirdly, MSD projects do not need to fundamentally change their nature to incorporate business environment reforms. MSD is primarily focused on incremental change, and this principle also applies to legal and regulatory reform. Engaging in legislative processes or influencing political behaviours can contribute to informal behaviour change. This can be facilitated through light-touch interventions involving existing actors within the system.

Lastly, similar to other MSD interventions, partner selection, trust-building, and gradual progress are crucial. The involvement of public institutional actors does not guarantee a flawless project. It is acceptable to pause, reflect on why progress is not as expected, adjust the strategic plan, and restart accordingly. Adaptive management remains relevant and feasible within this context.

In summary, Market Systems Development (MSD) and Business Environment Reform (BER) are mutually reinforcing. Identifying and enhancing the legal, regulatory, and administrative framework in which market systems operate allows both aspects of the MSD “donut” diagram to support and facilitate systemic change. The challenges associated with this work, including engaging with a broader range of private and public actors, can be significant. 

Furthermore, business environment reforms often require a lengthy timeframe and involve complex political processes. However, introducing project interventions that enhance the supportive functions of commercial transactions while simultaneously reducing government-induced risks and transaction costs to improve competition can yield long-lasting and impactful benefits. Embracing a systemic mindset requires considering all aspects of market and government systems and understanding their interactions. By ensuring comprehensive diagnoses and recognising the interplay between these two systems, we can refine our approach to effectively work with them in any given scenario.

(The writer is pursuing a PGDip in International Relations and holds a BA(Hons) in Business Management and a CIMA Cert BA. He has represented international projects that generate and apply knowledge on how a market systems approach can lead to sustainable decent work and economic development, ultimately seeking to improve market outcomes for marginalised communities.)