The World Bank, Japan International Cooperation Agency (JICA)
Research Institute, and the Foundation for Advanced Studies on
International Development (FASID), in collaboration with researchers
affiliated with the African Economic Research Consortium (AERC),
recently conducted a study on Africa’s domestic enterprises to
improve the understanding of the constraints micro and small
enterprises in Africa face in improving productivity and expanding
their markets.
In Africa, there are stark performance gaps between domestically
owned enterprises and foreign-owned enterprises in terms of sales
performance, productivity, and ability to reach distant markets. Among
others, size appears to be a dominant factor in explaining the gap.
Against this background, the study analyzes how naturally formed
industrial clusters—concentrations of enterprises engaged in same
or closely related industrial activities in specific
locations—could potentially mitigate constraints Africa’s
micro and small enterprises face and enhance their business
performance. The study is one of the first comprehensive quantitative
inquiries on industrial clusters in Africa.
The analysis specifically focuses on the role of spontaneously grown
clusters of light manufacturing industries based on a set of original
case studies of industrial clusters conducted for this research
project. One of the key findings from the case studies was that
cluster-based micro and small enterprises are performing better than
similar micro and small enterprises outside of the clusters in terms of
sales performance and ability to reach distant markets. Market access
is a leading reason for cluster-based enterprises to choose their
current locations.
However, cluster-based enterprises face another set of unique growth
constraints. By the very nature of spontaneous agglomera¬tion, new
enterprises continue to flow to the clusters seeking the profit
opportunities and better access to markets at such locations. The
result can be intense competition in addition to increased congestion.
Space constraints often impede growth within clusters. The lack of
alternative locations available for industrial activities in the same
cities, generic infrastructure bottlenecks, and unclear zoning policies
and their unpredictable changes limit firms’ location choices and
constrain their mobility. While competition should improve efficiency,
lack of capacity among those competing cluster-based enterprises to
invest and innovate does not generate growth out of the competition.
The vast majority of naturally formed clusters of light manufacturing
industries in Africa are still at a “survival” level, where
agglomeration externalities are only limited to expand quantity but not
quality as we observe in more advanced innovation-oriented clusters in
elsewhere in the world.
Existing studies on such natural industrial clusters in Africa have
found that the lack of managerial skills among entrepreneurs running
micro and small enterprises is a major constraint for innovation and
growth in the clusters. As a part of this study, pilot managerial
skills training programs were conducted in two industrial clusters on
an experimental basis, where a group of randomly selected entrepreneurs
within the clusters were given three-week long crush course of based
management such as bookkeeping, marketing, business planning, and
production management. The impact evaluation of the experiments showed
significant positive impacts of the training programs on value added
and gross profits of enterprises.
Raising the current survival-type industrial clusters, which have
been formed as a coping mechanism to weak investment climate, into more
dynamic innovating clusters will be an important avenue for fostering
growth of micro and small enterprises in Africa. While national efforts
to improve investment climate and investments in human capital are
undoubtedly important, there could be more targeted policies to be
formulated, in complementing general policies, to support growth of
micro and small domestic enterprises using existing industrial clusters
as a natural springboard for their growth. In that context, the study
discusses the merit of cluster-based managerial human capital
development to build steps toward more innovation-oriented clusters,
the importance of sound spatial planning policy, particularly at the
local level in the context of urban planning, the need to expand market
access and economic linkages for industrial clusters including regional
integration and linkages with large enterprises.
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