Market Facilitation and the Benefits of NGOs

I don’t usually write follow up posts, though I received a thought-provoking comment from longtime Develop Economies reader Ed Center on my post about the negative impacts of NGOs on economic development in Northern Ghana. It is worth quoting in full:

This insight then begs the question; why are you working for an NGO in Ghana?

I have a friend in Cambodia who went to an excellent school that provides education and job skills to street kids. The thing is, he isn’t a street kid. He lied so that he could get a better education than is offered in the sad public school system. There are some excellent NGOs in Cambodia, particularly in education and heath, but does this cluttered network take the onus off the government and private sector to teach and care for the people? Do foreign NGOs crowd the space that local public and private sectors should occupy? Or without these NGOs, would my friend have gotten a crappy education? Without NGOs, do more babies die and more people go ignorant?

And what is the strategy when the answer to all these questions seems to be yes?

It is true that I am currently working for an NGO doing agriculture economic development work here in Ghana. But it is worth noting that the project I’m working on takes the negative effects of its predecessors into account in its approach. It is a market facilitation project, which emphasizes making linkages in the private sector, and working with companies to develop business models that are more profitable and scalable. The underlying premise is that, beyond a lack of financial resources and technical capabilities, there are basic communication gaps between value chain “actors.” This requires some explanation.

Using the example of pizza, there are a lot of actors in the chain. At the beginning of the chain are the companies that produce the ingredients – dairy farms, tomato farms, flour mills, and vegetable farms. Depending on the size of these farms, they either deal directly with a large pizza-maker, like Domino’s or Papa John’s, or a wholesaler, who then sells in bulk. These buyers then sell to smaller wholesalers, who sell to local pizza shops, who then deliver it to your door. Or, in the case of Domino’s, they probably have deals with huge dairy mills, which send all of their products to Domino’s, which makes the pizza somewhere, ships it (frozen) to a local distribution center, which then sends it out to your local Domino’s and, in 30 minutes or less, is delivered to your door. Or maybe it is sold to DiGiorno or, my personal favorite, Elios, which sells the frozen pizza to a supermarket, which you buy and put in your freezer. And there is more. There are the fertilizer companies that supply the tomato factories, and the banks that provide the loans up and down the chain. That is the value chain.

The assumption here is that the value chain for, say, rice, is not nearly as developed or as strong. Producers don’t necessarily know what the market wants, so they don’t grow to the specifications of the buyer. It would be like if the dairy mills made only cheddar when everyone knows that mozzarella is what they need. So market facilitation tries to take into account the specifications of the market, and tries to get producers to fall into line.
So, that is facilitation. But I will have another part to this post where I will address Ed’s point about the value of certain types of NGOs, which is certainly valid. In the next post, I’ll discuss why Ed is absolutely right – that provision education, healthcare, and other services by NGOs is important and necessary.

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