Thursday, August 14, 2008

Are the poor really poor?

ASome basic assumptions have dominated the discourse on development assistance and poverty reduction among rural communities:

i) Poor communities are poor because they lack resource. Hence, aid is viewed as a substitute for locally generated resources;

ii) Aid to poor communities for specific projects, typically infrastructure, would reduce poverty.

The notion that poor countries and communities are poor is misguided. More of than not, poor communities are asset-rich and capital poor. Local capital formation is constrained by dysfunctional markets and lack of appropriate institutional and financial service arrangements.

Poor communities might be rich if we factor in trapped assets. All forms of foreign investment in poor communities whether through FDI or philanthropy are but a fraction of the potential for capital that is trapped in these communities.

We must begin to see the poor as “undercapitalized and unsupported entrepreneurs,” and view poverty as the absence of capital markets and growth. Key to the evolution of capital markets is the need for a transparent market for capital, knowledge, land and labour. Ownership and transfer of ownership must be enforced. Under such a system, a market-oriented ecosystem will emerge. A market-oriented ecosystem is platform that permits private businesses and civil society actors to co-create wealth in a symbiotic relationship.

I believe that attention must shift towards building market-based ecosystems for broad-based sustainable growth and wealth creation. Only then can we tap into the vast and trapped resources, innovation, enterprise and purchasing power of local communities.

What is needed is the capacity to bring the largest segment of smallholder farmers to the market system. With assured markets and competitive prices, local capital poor communities can increase their productive capacity and mobilize the essential capital and local or international investments to free the vast trapped resources.

The private sector, in its quest to leverage smallholder agricultural production and gain market access, can invent novel systems depending on the nature of the production and market for the crop.

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