When aid goes wrong: a lesson from Pakistan on why we can’t ignore markets

21 October 2014
Articles and blogs
One month ago, a severe flood swept across Pakistan, damaging nearly 110,000 homes. Soon aid groups will have to move beyond providing immediate, life-saving assistance and begin thinking about how to help people rebuild their homes and lives. But will they repeat mistakes made four years ago?

In 2010, Pakistan was hit by a devastating flood affecting nearly 20 million people. While the humanitarian response saved thousands of lives, well-intentioned aid efforts to help people build shelters using bamboo – standard local building material – also inadvertently inflated the price of bamboo well above local pay cheques and pushed businesses further into debt as they were left with stock they couldn’t sell.

How did that happen? In Sindh province, one of the worst hit areas, demand for the relatively low-cost bamboo – a common construction material in the area – increased slightly at first as people displaced by the floods and local NGOs built temporary shelters. But the real impact came months later when the humanitarian response shifted into the ‘recovery’ phase. International organisations, keen to use local materials in rebuilding homes, began purchasing bamboo en masse from retailers, wholesalers and even growers. The market dried up, and prices increased further. People hard hit by the floods who wanted to purchase bamboo for their own use faced shortages and significantly higher prices.

But prices really skyrocketed when ‘agents’ – noticing the NGO demand – stepped in as middlemen, offering to mediate relations between overwhelmed bamboo dealers and NGOs. They proposed rates of around PKR 15 (10p) per foot to aid agencies, before purchasing the bamboo from dealers for around PKR 7-8 (5p) per foot. This doubled the cost of reconstruction efforts and wasted resources that could have been spent helping more people more effectively.

Aid agencies also drove up the quality of bamboo – pushing traders to stock more durable extra-thick bamboo, which local people weren’t able to afford. This dynamic also affected sale of rice and goats, with international NGOs setting higher quality standards and driving up prices. ‘Normal’ quality goods were less and less available for local customers. In the end, when aid agencies stopped purchasing these high-quality items, traders were unable to sell their expensive stocks to local customers. They struggled to re-pay their suppliers and went deeper into debt.

International aid agencies also drove up the price for shipping during and after the 2010 floods. They hired all available lorries – not only from Sindh but also from surrounding provinces – and were entirely unaware of normal transport costs. In total, they pushed the price of short-haul trucking up by as much as 900% during the initial relief phase and by 180-300% in the medium-term. As a result, people affected by the flood could not afford trucks to help them evacuate their families and possessions as the floodwaters rose. Businesses were less able to get goods and equipment in and out of the affected areas – even once businesses were able to hire lorries again, they passed along to the additional cost to consumers, again driving up market prices.

Repeating past mistakes

These unintentional but negative consequences of poor understanding of local economies can undermine humanitarian efforts in many parts of the world. Many in the humanitarian sector have highlighted this failing, and sparked moves to develop tools and initiatives to include market analysis in programming. But why do these mistakes continue to happen?

First, sudden-onset disasters rightly lead to rapid responses. The first priority is getting aid into affected areas. Adequate human resources are rarely allocated to studying local markets and revising approaches accordingly. Second, even where analysis is available, humanitarian aid workers in the response have little time to understand or act upon it.

Third, the aid workers who will respond to the next crisis in a place like Pakistan will likely be a new cohort flown into the country with little understand of the province-specific market dynamics or an awareness of the challenges which arose during the 2010 floods. Even where national staff members remain in place, their ability to act on their knowledge of local markets is often overridden by pressure to move quickly regardless of the cost.

The problem isn’t a lack of knowledge or analysis, but a managerial one. Now four years later, humanitarian agencies must reflect on what went wrong in 2010 to ensure that they don’t make the same mistakes once again – whether in Pakistan or beyond. We have the know-how and the tools to understand and adapt to local markets. We just need to make it happen before, during and after a crisis hits.

Steven A. Zyck is a Research Fellow with the Humanitarian Policy Group (HPG) at ODI. He is currently undertaking research in Pakistan with Irina Mosel and the Sustainable Development Policy Institute in Islamabad on markets, part of a larger research project on ‘Markets in crises and transitions’.

Steven A. Zyck