Creating markets is hard

William Easterly's Aid Watch blog cites an interesting project in Ethiopia as an example of the impossibility of assessing development projects on a binary scale:

This month, while the G8 continued their vague pledges of billions in food aid, Eleni Gabre-Madhin was busy bringing a market-based solution to the problem of food security in Ethiopia, as the CEO of the Ethiopia Commodities Exchange (ECX). After years of studying Ethiopia’s agricultural markets, Gabre-Madhin hit upon a central commodities market as a way to end the country’s deadly boom and bust cycle, which has seen overproduction and low food prices one year and famine the next.

The ECX has been running for a little over a year now, and lists five commodities traded on its website—coffee, sesame, beans, maize and wheat. With a central trading pit in Addis Ababa, eight warehouses throughout the country, and market data being transmitted through a network of electronic display tickers, text messages, TV, internet and radio, the ECX is designed to reduce the burden of high transaction costs and excessive risk on farmers and traders, and increase access to information for small-scale farmers in remote areas.

In 2008 when the ECX was launched, the Economist called it a “bold experiment to improve the efficiency of agricultural marketing,” and Eleni Gabre-Madhin herself has been lauded as a visionary and a pioneer.

Sounds great, right? There is certainly much to be said for transparency and liquidity in agricultural markets. But interference by the corrupt and untrusted government has apparently damaged ECX's credibility, highlighting the challenge of building markets in countries with weaker legal and institutional frameworks than we're used to here in the developed world.