African development is closely linked to small scale industry. The employment provided by small firms, although low paying, enables families to survive, to educate their children, and in some cases, to move out of poverty. Small businesses, however, often get stuck in a rut of low-level production, their efforts to expand thwarted, for example, by insufficient capital, poor infrastructure, or low technology. Research in Kenya, co-ordinated by the UK Institute for Development Studies, suggests that clustering enables firms to overcome such obstacles to growth. Giving rise to collective efficiency, clustering thus enhances a firm's competitive advantage and makes it easier to respond to opportunities and crises.

How far do clusters contribute to industrialisation? The research studied six clusters with between 500 and 8,000 firms each: a South African clothing cluster; Kenyan fish , vehicle repair, metal products, and garment clusters; and a Ghanaian metal work and vehicle repair cluster. The evidence suggests that clusters do further industrialisation, in three different ways.

• Laying the groundwork for industrialisation - building a productive environment where improved market access is the single most important external economy - or advantage - of joint action.
• Industrialising clusters where the emerging collective efficiency is evident in the greater specialisation that leads to positive production linkages.
• Complex industrial clusters that show significant external economies and joint action.

What are the benefits of clustering? In analysing the African clusters, it became evident that in spite of the variations and differences, each group has its own part to play in the drive towards efficiency. Pros and cons included the following:

• Improved market access is the common denominator in all six clusters. Increased production and sales and the opportunity to re-invest followed soon after.
• Greater specialisation has also lead to increased efficiency.
• Higher level technologies in some firms lead to positive technological spillovers and upgrading.
• Clustering promotes joint action which in turn helps firms deal with external shocks, especially export firms exposed to international monetary and trade risks.
• Clustering enables firms to share scarce resources.
• Access to a pool of skilled labour is theoretically supposed to be a benefit but only emerged as important in one cluster. Unemployment, too many newly qualified trainees, and low skill requirements offset any benefit in the other five.

Collaboration helps firms market their products and offers them improved access to skilled labour, to inputs, or new technology. Crucially, close proximity encourages co-operation regarding common ground and resources. To further promote industrialisation, there are clear practical implications for governments, donors, and the business community.

Governments can help by:

• providing the stable macro environment needed by all businesses
• offering appropriate infrastructure and other incentives to draw firms into clusters
• providing an institutional framework that allows associations to form, grow, and dissolve in response to members' needs.

Donors can facilitate industrialisation by:

• working with governments to ensure that clusters have easy access to financial services, physical facilities, and information about new technologies and markets
• working with associations to develop programmes to strengthen cluster operations.

Business community associations can help by:

• supporting the concerns of small firms
• re-examining potential barriers to small firm membership of business associations such as fees, meeting venues, and committee representation
• facilitating communication between large and small firms within the same industry.

Source(s):
'African Enterprise Clusters and Industrialisation: Theory and Reality', World Development 27(9) 1999

Funded by: Department for International Development, UK

id21 Research Highlight: 22 October 1999

Further Information:
Dorothy McCormick
Institute for Development Studies
University of Nairobi
P.O. Box 30197
Nairobi
Kenya

Tel: 254 2 338741
Fax: 254 2 222036
Contact the contributor: ids@nbnet.co.ke

University of Nairobi, Kenya

Institute of Development Studies (IDS), UK

Other related links:
IDS Collective Efficiency Project

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