Overview
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same level of productivity if they had the same level of endowments in those factors. Thus policies to address constraints on those factors would help to close the foreign-domestic gap in business performance.
Industrial Clusters in Africa Given that firm size is an overarching constraint for the vast majority of domestic enterprises in Africa, a natural question concerns what facilitates the growth of micro and small enterprises. Various studies have been conducted to address how the four factors—capital intensity, market access, managers’ education, and access to finance—among others, facilitate or constrain growth of those enterprises. Another approach to the issue is to try to understand how those enterprises are coping with constraints on the ground, how the coping mechanisms work, and what their benefits and shortfalls are. One promising mechanism that can facilitate growth for small African firms is the formation of industrial clusters. An industrial cluster is a geographic concentration of firms in the same or related industries. These natural agglomerations of micro and small enterprises are common in major cities in Africa. This study investigates how industrial clusters could help micro and small domestic enterprises to overcome their size constraints and improve both their sales performance and their access to new markets. While the manufacturing base is considered weak in Africa because of the spotty presence of large, competitive domestic manufacturers, industrial clusters appear to provide pockets of vitality in Africa’s private sector. To examine their success, this research project conducted a set of case studies of industrial clusters in five countries—Cameroon, Ghana, Kenya, Mauritius, and Rwanda—focusing on the role of spontaneously grown clusters in light manufacturing industries, such as textiles and garments, furniture, and metalwork and equipment. An in-depth study was also conducted in the Arusha furniture cluster in Tanzania. A key finding of the research is that cluster-based micro and small enterprises are performing better—both in sales performance and ability to reach distant markets—than enterprises of the same size, in the same industries, and in the same cities, but outside the clusters (see figures 5 and 6). Decomposing the cluster premium on sales performance—the margin an enterprise gets in sales performance from being inside the cluster—shows that the higher capital intensity inside the cluster is the primary factor behind the cluster premium in sales performance. That is, agglomeration of enterprises leads to more capital accumulation inside the clusters.