Ethiopia stands at a pivotal moment in its development, poised for transformation thanks to its vibrant youth population, abundant agricultural resources, and burgeoning entrepreneurial initiatives. As Africa’s second-most populous country, with over 100 million residents, Ethiopia has experienced rapid economic growth over the past decade, with average annual GDP growth reaching around 6%. However, systemic challenges in agriculture, finance, and labor markets hinder inclusive growth, marginalizing many smallholder farmers, youth, and women. Market System Development (MSD), also known as Making Markets Work for the Poor (M4P), offers a promising strategy to address these challenges by fostering inclusive, sustainable, and resilient market systems. This blog explores how MSD is influencing Ethiopia’s economy, highlighting successful programs, recent advancements, and future prospects.
MSD is a development strategy that aims to enhance market functionality to benefit marginalized communities, prioritizing inclusivity, efficiency, and sustainability. Unlike conventional aid models that provide direct services—such as food or seed distribution—MSD involves local actors, businesses, cooperatives, and institutions to identify constraints and collaboratively create solutions that ensure lasting change within the market system. In Ethiopia, where agriculture employs over 70% of the population, MSD is particularly relevant. Smallholder farmers often encounter barriers like limited access to quality inputs, inadequate information, weak extension services, poor market connections, and insufficient financial services. MSD addresses these issues by strengthening the entire market ecosystem, ensuring that solutions are locally driven and sustainable even after donor support concludes.
For instance, rather than supplying seeds directly, an MSD initiative might collaborate with private seed companies to enhance rural distribution networks, support radio stations that broadcast agricultural advice, facilitate mobile platforms for price transparency, or partner with microfinance institutions to create customized loan products. This systemic approach cultivates self-sustaining markets that empower farmers, youth, women, and micro-entrepreneurs to engage more fully, yielding fairer outcomes. Additionally, it generates more jobs within the supply chain, encouraging young people to innovate using local knowledge.
MSD is vital for Ethiopia’s economy, which heavily relies on agriculture, accounting for over 40% of GDP and employing more than 70% of the workforce. Smallholder farmers, who produce 95% of the country’s output, face challenges such as low productivity and limited market access due to inadequate inputs, weak market connections, and restricted financial services, as banks tend to favor large firms, leaving small and medium enterprises (SMEs) underserved. Several MSD programs have demonstrated positive impacts across different regions, showcasing the approach’s adaptability.
SHARPE, managed by DAI and funded by the UK’s FCDO, applies an MSD framework in refugee settings within the Gambella and Somali regions. The program has forged partnerships with 118 private companies, including EthioChicken and Shabelle Bank, to support refugee-owned and host community micro, small, and medium enterprises (MSMEs), benefiting over 100,000 people. This initiative has unlocked $1.6 million in co-investment, generating $11.67 million in incremental income and $43.8 million in additional sales. SHARPE’s co-investment of $265,000 to mitigate risks in mobile money agent rollout in the Somali region facilitated the onboarding of agents, including refugees, with HelloCash Miclime performing strongly in these communities, resulting in all pilot loans being repaid in full.
A USAID-funded initiative, PRIME, with a budget of $62 million, operated across the Afar, Oromia, and Somali regions to enhance livestock value chains, animal health services, and market access. A final impact evaluation revealed that average household incomes increased by 78%, reaching approximately $2,287 per year, even during prolonged droughts. Food insecurity among program beneficiaries plummeted to just 4%, compared to 30% in non-participant households. PRIME also decreased greenhouse gas emission intensity per unit of livestock output by up to 42% through improved feeding and management practices.
A strong example of effective Market System Development (MSD) is the LIWAY initiative, funded by Sweden and the Netherlands since 2017. Implemented by a consortium of partners, LIWAY aims to support 257,000 youth and women in the capital through four market systems: labor, micro and small enterprises (MSEs), medium and large firms, and skills development. By December 2023, the program had successfully improved the incomes of 170,161 beneficiaries, with 56 percent being women and 81 percent youth. LIWAY has also played a significant role in driving systemic reforms, such as advocating for e-commerce platforms, contributing to start-up legislation, and fostering innovation in vocational pedagogy across Ethiopia’s technical and vocational education training (TVET) institutes.
Despite its notable achievements, the MSD approach in Ethiopia faces ongoing challenges. Government policies and regulatory obstacles, including bureaucratic inefficiencies, inconsistent tax assessments, and delays in accessing foreign exchange, hinder market growth and innovation. Additionally, the prevalence of informal markets complicates coordination and undermines effective data collection, significantly restricting the potential for large-scale interventions. Both public institutions and private-sector actors often grapple with capacity deficits, lacking essential skills and institutional resources to adapt to evolving market systems.
However, these challenges are not insurmountable. Evidence indicates that collaborative partnerships among government entities, private businesses, and international organizations, supported by an adaptive management approach, can effectively address these barriers. This was evident in LIWAY’s successful response to Ethiopia’s recent economic and political challenges.
MSD signifies a shift in mindset from short-term aid to long-term systemic solutions that empower communities. By focusing on market functionality and its beneficiaries, MSD ensures that marginalized groups—such as farmers, youth, women, and refugees—gain equitable access to economic opportunities. Initiatives like PRIME, LIWAY, AGRIHUB, SHARPE, and DREAMS illustrate the potential of this approach to transform Ethiopia’s economy, spanning from pastoralist regions to urban centers and refugee communities.
To maximize impact, Ethiopia must persist in addressing systemic challenges through purpose-driven partnerships and policy reforms. The government’s commitment to digital transformation, as highlighted by the National Digital Agricultural Extension and Advisory Services Roadmap to 2030, bolsters MSD by promoting data-driven agriculture (AICCRA). Continued investment in capacity building, regulatory streamlining, and inclusive policies will be essential for scaling MSD’s impact.
In conclusion, keeping MSD initiatives solely in the hands of international development partners or donors is often counterproductive. When external actors lead programs from conception to implementation, they undermine country ownership, skew priorities, and jeopardize sustainability. Donor-driven projects frequently reflect external agendas rather than authentic local needs, leading to misalignment that undermines effectiveness and scalability. This fragmentation not only breeds inefficiency but also fosters dependency, causing projects to falter quickly once donor support diminishes.
To address these issues, Ethiopia must prioritize its institutions, government ministries, regional authorities, private-sector leaders, cooperatives, and community organizations in the conception and direction of MSD initiatives. Donors and international agencies can provide support through financing, technical assistance, and sharing global best practices, without undermining local leadership or ownership.
In this model, Ethiopian stakeholders set the agenda, tailor solutions to local contexts, promote inclusive and participatory design, and create scalable systems capable of enduring shocks and evolving over time. This locally led, internationally supported approach is not only more sustainable but is vital for genuine market transformation in Ethiopia.
Market System Development transcends being just a methodology; it is a transformative approach aligned with Ethiopia’s vision for sustainable and inclusive growth. By leveraging local resources, enhancing resilience, and addressing systemic barriers, MSD can unlock Ethiopia’s full potential, creating markets that empower all citizens, especially those traditionally marginalized. As Ethiopia continues its development journey, MSD provides a roadmap to a more equitable and prosperous future.
Mae’dot Assefa is a Development professional with a deep understanding of the Ethiopian private sector, having worked with various development agencies. The views expressed here are her own.
Yinebeb Bahru is a development professional who has worked with major development organizations and initiatives. The views expressed in this article are his own and do not represent the opinions of his affiliated institutions. Contact: Yinebeb251@gmail.com
