Subsidies and Market Systems Development
Executive Summary
The Australian Department of Foreign Affairs and Trade (DFAT) Operational Framework for Private Sector Engagement (the Operational Framework) is soon to be released. It will articulate a strategy for the continued development of DFAT culture and systems to enable the department to better share assets, networks and expertise with the private sector. The Operational Framework will provide practical tools and approaches that aim to amplify the impact of Australia’s aid program through partnerships with the private sector.
This knowledge exchange brief focuses on issues of market distortion and subsidies to market actors relevant to the Operational Framework. The brief examines the way that Market Systems Development (MSD) programs such as the Market Development Facility (MDF) utilise subsidies; particularly how levels of additionality and concessionality are determined. The brief, whilst acknowledging donor concerns around providing public money directly to the private sector argues that many of the considerations surrounding market distortion and private sector subsidy are not dissimilar to risks associated with other forms of program. It concludes that whilst partnering with the private sector can deliver sustainable impact at scale, development funders should remain cautious of any sort of partner selection bias.
This knowledge exchange brief is part of a series developed by the DFAT-funded Market Development Facility (MDF). The briefs reflect a range of perspectives from roundtable discussions facilitated by MDF at DFAT in Canberra in October 2018 as part of MDF’s learning agenda. The briefs acknowledge the diversity of policy perspectives on MSD and incorporate examples and lessons learned from MDF and other MSD programs. The learning agenda aims to support learning and information sharing by MDF, one of DFAT’s largest, most sectorally diverse and geographically dispersed MSD programs. Learning Agenda sessions are aimed at deepening understanding of the value, application and complementarities of MSD as well as other private sector approaches in complex economic and political environments.
