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Making Market Systems Work for an Urbanizing World

May 12, 2022

The world is rapidly urbanizing: An estimated two-thirds of all people will live in cities by 2050. In developing countries, people in cities tend to be young and experience higher levels of income, wealth, education, housing, and health services inequality. Urban market systems are evolving in the face of these new realities, and their structure and organization—as well as their core supply and demand dynamics—will look different.

On the supply side, producers and value chains in urban market systems will likely comprise more actors with a high share of informal or micro entities. And on the demand side, product preferences tend to differ, and the services sector tends to be more prominent in cities than in rural markets. The supportive functions and rules of urban market systems will also vary, especially given the high levels of both informality and infrastructure, the comparative ease of communication and speed of commerce, and their own governance and finance. Digital diffusion tends to be more robust in urban centers, which also affects the functioning of market systems; these dynamics were intensified by COVID-19.

At the same time, spatial differences in market systems stem from interactions with other systems such as finance, labor, health, food, energy, environment, and transport (infrastructure), and education. For example, because urbanization raises exposure to environmental factors like air, water, and noise pollution or issues related to public hygiene, sewage, and waste disposal, city dwellers face health risk factors that may require distinct regulation, services, or medication. Similarly, the needs for the broader care infrastructure and ecosystem tend to be more acute. In food market systems, urbanization leads to rising food demand and changing food preferences, while challenges such as food safety prices and freshness tend to be more severe.

Within Abt’s inclusive market systems approach, we have identified and are applying several programming practices that account for these factors and increase the effectiveness of our interventions in urban market systems and adjacent systems integration.

1. Strengthen rural-urban linkages: Supply chains as well as manufacturing, distribution, and finance networks usually operate across regions. Working with firms and actors within and across the rural/periurban/urban market spectrum to improve information flow and business-to-business transactions can improve market system efficiency, promote positive returns to urbanization on rural communities, reduce urban food insecurity, and mitigate inequality and urban poverty. In addition, our experience with larger metro-based input suppliers is helping them to see the value in expanding their marketing and distribution networks to capture rural entrepreneurs and customers. Abt is applying these practices in Egypt to increase incomes and improve livelihoods of rural communities, while creating job opportunities along the horticultural value chain, including in secondary cities and corridors under the Feed the Future Egypt Rural Agribusiness Strengthening Project. Similarly, our efforts to facilitate expanded trade of semi-processed animal products in the Sahel regional livestock value chain was based on rising incomes in bigger urban and coastal markets, which generated sophisticated demand for higher-quality meats.

2. Nurture innovation, including embracing informality: With the rapid diffusion of ideas and substantial numbers of entrepreneurial, tech-savvy youth, cities have proven to be engines of innovation. Simultaneously, the considerable informal and microenterprise sector—with its lower barriers to entry and robust interpersonal networks—can be a vital test market or incubator for new goods, services, or business models. In Mexico City, under the USAID Mexico Economic Policy Program, Abt supported the design, creation, and implementation of Atrévete a Emprender (Dare to Start Up), a novel business development competition program that encouraged young people to become entrepreneurs and facilitated government cooperation with several of the city’s main public universities, whose aggregate student population exceeds 400,000.

3. Capitalize on agglomeration, including of the private sector: Cities have a high concentration of commerce, as well as of human and financial capital. Urban markets and interacting systems can be strengthened by tapping into these resources and business networks to enhance products or service delivery. In Jordan, where more than 90 percent of the population lives in cities, Abt worked through private health market providers to expand COVID-19 care, including by upskilling and training its sizable medical workforce to serve a broader population.

4. Optimize technology: The digital revolution has spread further and faster in cities, changing the landscape for market systems and offering a wider range of tools and platforms to conduct business, access and move money, and extend the reach of public services and infrastructure narrowing rural-urban divides. And as seen on full display during COVID-19 lockdowns, technology also opens urban market systems to digital economy and employment growth. Amid city-wide quarantines in Cambodia, the Abt-led Feed the Future Harvest II team connected project partner suppliers with online delivery service providers, helping to meet the growing need for fresh produce while ensuring customer safety.

5. Prioritize inclusion and equity, and use data and evidence to identify impacts: Given the inequality that pervades urban areas, we are applying research and evidence to determine how metropolitan policies or programs affect individual economic situations and well-being. For example, to inform USAID urban programs and public/private sector solutions, Abt developed a methodology to identify key urban environmental problems and impacts on citizens in cities of the developing world, and tested it in Bangkok.

The importance of cities to economic, social, political, and cultural development was recognized and codified in the United Nations’ SDG 11: Make Cities and Human Settlements Inclusive, Safe, Resilient and Sustainable. We have seen how market systems are vital to achieving this goal and associated targets. We look forward to continuing to learn from—and collaborate with—our clients, partners, and stakeholders to make market systems work for our urbanizing world and improve the economic wellbeing of city, peri-urban, and rural residents alike.

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