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The Private Sector and the Marginalized Poor

An Assessment of the Potential Role of Business in Reducing Poverty and Marginality in Rural Ethiopia

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Christine Husmann

The book examines the role that the private sector can play in reducing poverty and marginality in Ethiopia by providing improved agricultural inputs to marginalized poor farmers. By creating a marginality map the author analyzes who and where the marginalized poor are. Data from a household survey about purchasing behavior, demand and needs indicates that this group can be a promising market segment for the private sector if adequate business models are applied. Yet, an analysis of the institutions governing agricultural input markets shows that investments by the private sector are discouraged by de facto monopolies of the government on crucial elements of the different supply chains, including seed breeding, fertilizer imports and finance.
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II. Identifying marginality hotspots in Ethiopia: locating future markets?

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7

Whether the private sector can contribute to poverty reduction does not only depend on the particular business strategy and the trade-off between financial and social values but also on the characteristics of people and regions that shall be targeted. Thus, information about geographic characteristics as well as about the location and the number of people and their purchasing power are necessary to assess whether there is a market that is worthwhile to be invested in (see also Section I-2). Yet, these features are likely to differ across different target groups.

Authors like Polak and Warwick (2013) argue (and have even shown in practice) that it is possible to establish profitable businesses including those living of $1 a day or less. Going even one step further, the present study analyzes in how far the private sector can go concerning catering even to the marginalized poor. This target group poses special challenges to the private sector as the marginalized poor live in remote areas and are likely to be among the poorest people of a society.

For this analysis, the first step is to identify who and where the marginalized poor are and how many Ethiopians are marginalized poor. This information will help to assess whether this group may be a potential target group for the private sector.

This chapter starts with an outline of the concept of marginality. Section II-2 transfers this concept to the mapping approach and explains the methodology and...

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