Industrial Clusters and Micro and Small Enterprises in Africa

Industrial Clusters and Micro and Small Enterprises in Africa


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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 agglomeration, 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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Publié le 30 décembre 2010
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Private Sector Development
Industrial Clusters and Micro
and Small Enterprises in Africa
From Survival to GrowthIndustrial Clusters and Micro and
Small Enterprises in AfricaIndustrial Clusters and
Micro and Small Enterprises
in Africa
From Survival to Growth
Yutaka Yoshino, Editor
A report based on joint research by the World Bank, the Japan International Cooperation
Agency, the Foundation for Advanced Studies on International Development, and economists
affiliated with the African Economic Research Consortium.© 2011 The International Bank for Reconstruction and Development / The World Bank
1818 H Street NW
Washington DC 20433
Telephone: 202-473-1000
All rights reserved
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This volume is a product of the staff of the International Bank for Reconstruction and
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ISBN: 978-0-8213-8627-9
eISBN: 978-0-8213-8628-6
DOI: 10.1596/978-0-8213-8627-9
Library of Congress Cataloging-in-Publication Data
Industrial clusters and micro and small enterprises in Africa : from survival to growth/
Yutaka Yoshino, editor.
p. cm.
Includes bibliographical references and index.
ISBN 978-0-8213-8627-9 — ISBN 978-0-8213-8628-6 (electronic)
1. Industrial clusters—Africa. 2. Small business—Africa. 3. Business enterprises—Africa.
4. Industrialization—Africa. I. World Bank.
HC800.Z9D555 2010
Cover photo by Yutaka Yoshino.
Cover design by Quantum Think.Contents
Foreword xiii
Acknowledgments xv
Abbreviations xix
Overview 1
Performance Gaps between Domestically
Owned and Foreign-Owned Firms
in Africa 2
Industrial Clusters in Africa 5
Growth Constraints for Survival Clusters 6
Building Managerial Human Capital 8
Implications for Policies 9
Chapter 1 Introduction 11
Dualistic Structure of the Private Sector
in Africa 13
Performance Gap between Domestically Owned
and Foreign-Owned Enterprises in Africa 16
Notes 23
References 24
vvi Contents
Chapter 2 Unbundling Foreign-Domestic Performance
Gaps in Africa’s Private Sector 25
Productivity Gap 26
Market Access: Participation in Nonlocal Markets 34
Notes 38
References 39
Chapter 3 Industrial Clusters as Natural Agglomerations
of Micro and Small Enterprises: A Conceptual
Framework 41
Concept of Clusters 44
Economic Geography of Industrial Clusters 47
Beyond Transportation Costs: Market and
Government Failures, Transaction Costs,
and Industrial Clusters 49
External Linkages and Cluster Competitiveness 51
Internal Dynamics and External Linkages in
Industrial Clusters around the World 52
Role of Clusters in Micro and Small Enterprise
Development 59
Notes 61
References 62
Chapter 4 Industrial Clusters and Business Performance
of Micro and Small Enterprises in Africa 65
Clustering and Business Performance: Natural
Industrial Clusters in Light Manufacturing
Industries 68
Nontraditional, Nonmanufacturing Clusters
in Africa 82
Notes 88
References 89
Chapter 5 Location, Market Access, and Business
Performance of Cluster-Based Enterprises 91
Location Choice of Micro and Small Light
Manufacturers 92
Micro-Level Choice of Location and Business
Performance: Findings from the Arusha
Furniture Cluster Case Study 94Contents vii
Notes 100
References 100
Chapter 6 Agglomeration and Growth Challenges for
Enterprises in Survival Clusters in Africa 101
Growth Bottlenecks in Survival Clusters 103
Successful Transformation from Informal
Survival-Cluster Enterprises to
Formal Enterprises 108
Implications of Cluster Growth for Employment 109
Note 110
References 110
Chapter 7 Building Managerial Human Capital in
Africa’s Survival Industrial Clusters 113
Cluster-Based Pilot Managerial Skill Training
Programs in Kumasi and Nairobi 114
Assessing the Impacts of Training Programs 124
Implications of the Results 132
Notes 135
References 136
Chapter 8 Policy Implications: Turning Survival into Growth 139
Building Managerial Skills 140
Sound Spatial and Urbanization Policy 141
Supporting Market Expansion through
Regional Integration 143
Government Cluster Development Policies 145
Note 155
References 156
Appendix 1 Instrumental Variable Model Estimation
on Domestic Ownership Effect on Productivity 157
Reference 158
Appendix 2 Basic Characteristics of Sampled Micro
and Small Light Manufacturing Enterprises
Inside and Outside the Clusters 159
Appendix 3 Data Envelopment Analysis 163
Reference 164viii Contents
Appendix 4 Format of Managerial Skills Training Programs 165
Notes 168
References 168
Appendix 5 Average Treatment of Treated and DID
Matching Estimator 169
References 171
Appendix 6 List of Background Papers and Boxes
Contributed for the Study 173
Index 175
2.1 World Bank Enterprise Surveys 26
2.2 Blinder-Oaxaca Decomposition 32
3.1 Typology of Industrial Clusters 45
3.2 Clusters and the Environment 57
4.1 Labor Productivity of Cluster-Based Enterprises
and National Averages 69
4.2 Clusters and Gender 80
4.3 IT and IT-Enabled Services Clusters in Africa
and around the World 86
4.4 Tourism Cluster in Rwanda 87
5.1 Subclusters within the Arusha Furniture Cluster
in Tanzania 96
6.1 The Olezoa Furniture Cluster in Yaoundé 104
7.1 History of Suame Magazine 115
7.2 History of Kariobangi Light Industries 116
7.3 Challenges among Micro and Small Enterprises in
Suame Magazine 122
8.1 Interface between Government Policies to Support
Micro, Small, and Medium Enterprises and Strategies
to Develop Clusters in Cameroon 145
Micro, Small,ategies
to Develop Clusters in Kenya 146
8.3 Interface between Government Policies to Support
Micro, Small, and Medium Enterprises and Strategies
to Develop Clusters in Ghana 148