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Industrial Clusters and Micro and Small Enterprises in Africa
GDP during the same period.2 The public sector still occupies the lion’s share of economic activity in Africa, not only in social services but also in productive sectors. In many countries, state-owned enterprises and parastatals continue to control a significant portion of production and services in the economy. A poor investment climate with high risk and high transaction costs in doing business inhibits private sector growth in Africa. There are several reasons for the small size of Africa’s private sector. First, relatively strong state interventions in the market, as well as excessive and inefficient regulations, have inhibited private sector growth. Second, private businesses face high transaction costs and high risks in an environment where market institutions are weak and infrastructure is poor. Overall, the cost of doing business is 20 to 40 percent higher in Africa than in other developing regions because of high regulatory costs, unsecured land property rights, inadequate and high-cost infrastructure, and ineffective judiciary systems. A poor investment climate and an underdeveloped financial sector are core reasons for Africa’s limited export competitiveness and low foreign and domestic investment (World Bank 2009). In the latest Doing Business report of the World Bank (2010), only eight Sub-Saharan African countries are in the top 100 of the 183 countries rated in the “ease-of-doing-business” index.3 The rankings are based on each country’s percentile ranking on 10 topics, including starting a business, construction permits, employing workers, access to credit, registering property, protecting investors, taxes, contract enforcement, trade across borders, and closing a business. Two-thirds of the low-income SubSaharan African countries are in the bottom quartile in the overall Doing Business ranking (see figure 1.1, panel a). For the most part, Sub-Saharan African countries measured poorly compared with countries in other regions (figure 1.1, panel b). The poor investment climate is also connected to the presence of a large informal economy. As in other developing countries around the world, there are large numbers of informal enterprises in Africa. Although statistics are scarce, several case studies have shown the significant weight and rapid growth of this sector in terms of employment as well as economic growth for low-income segments of the population. Its contribution to GDP is growing rapidly as well (Fox and Gaal 2008). The sparseness of the private sector base in Africa is reflected in its dual structure, which consists of a large number of small-scale domestic enterprises and a small number of large-scale foreign enterprises. On the one hand, a small number of large-scale enterprises, often owned by