Tuesday, January 15, 2008

Sustainable Development for dummies (Part 2 – Market Cycles)

This is the second of 3 blog posts in which I try to explain very briefly my view of what “Sustainable Development” is, based on my experiences in Rwanda.

Whether it is the government, aid agencies or NGOs attempting to develop a country, the final aim is the same: to give an impulse to the development of independent sectors. Energy specialists try to create entire energy sectors, health specialists attempt to create a national health sector, economic development specialists try to create a whole range of vital economic sectors. The development of a new sector generally follows the following 4-stage profile (adapted from a product life cycle):

I. Sector introduction stage

  • demand has to be created
  • cost high
  • volume low
  • no/little competition

II. Growth stage

  • economies of scale
  • volume increases significantly
  • public awareness
  • competition begins to increase

III. Mature stage

  • market is better established
  • volume peaks
  • increase in competitive offerings
  • prices tend to drop
  • differentiation, diversification of product or service.

IV. Decline, Stability or new growth stage

  • volume stabilises leading to a focus on efficiency rather than growth
  • volume declines e.g. if a replacement product/service is introduced
  • new growth stage can be triggered if changes in the market or the product create new demand

Development aid simply doesn’t have the resources or the mandate to guide the entire product cycle. For example, how can development aid hope to supply electricity to hundreds of millions of people in Africa?

The aim of development aid is to guide a sector through stage I so that the market and the government can take over an exponentially growing sector.

This is a key point in understanding the role of development aid. Understanding this principle, also allows us to better assess the sustainability of a development aid intervention. If indeed we are successfully guiding a sector through stage I of its development, we would expect to see:

  • Exponential growth
  • The creation of new independent market actors and institutions

Our new definition of sustainable development aid would then be:

Development Aid is sustainable when it leaves behind an independent and exponentially growing sector that is able to respond to future environmental, social and economic challenges.

This is an ambitious aim. And I would guess that less then 10% of development aid projects succeed in fulfilling this aim. Leaving behind a sector independent enough to continue the work after the end of your project is not easy.

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