Johannesburg — POVERTY remains SA's most pressing challenge. To tackle it we need to make markets the central component of our development strategy. Rather than protecting poor people from markets, we should ensure that markets work effectively and in so doing enable the poor to improve their lives.

This market-driven approach to poverty and development builds on the lessons of experience in the development field. It is not antistate, nor does it advocate leaving the poor to their own devices. Instead, it aims to promote interventions that will help poor people help themselves, make existing markets work more inclusively of poor producers and consumers and make the benefits of well-functioning markets more widely accessible.

In the past, nongovernmental assistance for the poor has largely taken the form of "projects" -- isolated interventions to help a targeted group which take in little account of the underlying causes of poverty. The stubborn persistence of poverty despite increased economic growth in the past decade has led many people to conclude that "the market has failed" and to demand more extensive state intervention. Unfortunately, neither projects nor state-run solutions to poverty have delivered sustained benefits to large numbers of poor people in the past and they are unlikely to do so in the future.

Some of the leading international development agencies are now developing a viable alternative to these trends. Making markets work for the poor (MMW4P) builds on markets as a solution to poverty but does not leave the poor "to pull themselves up by their own bootstraps". Rather, it aims to change the circumstances that prevent the poor from participating more effectively and extensively in the market economy.

Experience in many different parts of the world demonstrates that to work with, rather than against, markets produces sound results. For example, getting local people to benefit from tourism opportunities in high-potential but deprived rural areas of SA is not an easy task. Markets do not work effectively because property rights are not clearly defined, local planning and regulations inhibit private investment, crime is prevalent, and local people lack expertise to establish successful enterprises or commercial partnerships. Tourism projects that ignore these market realities are doomed.

A clear case of such failure can be found on the Wild Coast. Here millions of rand of aid were recently spent on projects designed by development "experts" but nothing was done to address local conditions that inhibited the creation of commercial partnerships, kept tourists at bay and prevented poor people from setting up attractive facilities in a competitive environment. The project was driven by donor-defined targets and the organisations involved approached the problem in a back-to-front way. Instead of addressing the underlying causes of local market dysfunction and establishing an enabling environment for private investment, they focused on short-term outputs: training, capacity building and a grant-funded lodge development. The project was reviewed in 2004: only 45 fulltime and 61 part-time jobs had been created at the astronomical cost of R285 000 per job. The review concluded that "a commercial enterprise would in all likelihood be looking for an immediate exit strategy from the project".

By contrast, local government and development agencies in North West and Mpumalanga provinces focused on making tourism markets work and succeeded in generating significant lasting benefits for the poor. The interventions were based on the principles of understanding the limitations of the local regulatory environment; drawing in private- sector expertise; operating in a market context in which tourists were attracted to the region and private investors were motivated by profit and the fear of going out of business; and constructing workable arrangements though which the benefits of tourism were distributed to the poor.

As a result, popular tourist lodges have been established and expanded and surrounding communities are benefiting. In Madikwe, in North West, one community-private partnership investment yielded R1,3 million for residents during the construction phase alone. At maturity, it is estimated the venture will deliver more than R2m a year in sustainable income to rural households in the impoverished Lekgophung village.

The poor need help but they are not helpless.

Many are already active in markets as innovative producers and discerning consumers. Rather than build on these foundations, too many development projects impose new, inappropriate plans formulated by outside "experts" -- fuelled by short-term subsidies -- which bear little relation to prevailing market realities. They rarely manage to address systemic conditions that trap people in poverty and have mostly failed to produce long-term benefits that last after the funding stops.

Making markets work as a strategy for intervention has the advantage of starting off where poor people already are, and then looking for market-linked incentives, institutions and mechanisms that will help them participate more effectively in competitive markets.

It is, as a result, highly flexible, nonprescriptive, and draws on existing community and private-sector capacities and energies. It requires government, businesses and development agencies to work together, in their own respective interests, to make poor people a more integral part of the market economy.

This is not a miracle solution; it is, in fact, a fairly gradual approach. But, if undertaken properly, it will be sustained, cumulative and, therefore, will have a broader, and more lasting impact than many conventional development efforts. It brings the poor into the market system rather than distorting markets with unsustainable subsidies or other interventions.

MMW4P, if properly and extensively applied, will succeed in accelerating shared growth and in lifting up millions of South Africans still stuck below the poverty line.