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«Policy Research Paper Industrial Policies for the Structural Transformation of African Economies: Options and Best Practices No. 2 Policy Research ...»

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For this to happen, entrepreneurial spirit and management skills are required, thus implying the need for training and investment in research to be improved upon as well as increased (von Drachenfels and Altenburg, 2006). In the context of Africa, Botswana provides an encouraging example of active State involvement in the development of domestic enterprises (Elhiraika, 2008).42 Excessive emphasis is sometimes placed on the growth potential of an improved busiBotswana has a number of State-funded institutions involved in enterprise development. These include the Botswana Development Corporation (BDC) that provides financial support to medium- and large-size businesses and also monitors their performance; the Citizen Entrepreneurial Development Agency (CEDA), which provides funding and technical assistance for the development of enterprises in various sectors; the Local Enterprise Development Authority (LEA), which facilitates entrepreneurship and small- and medium-enterprise development through targeted interventions, to achieve economic diversification through business development services, access to technology, finance and infrastructure, networking and R&D. CEDA and LEA often work together to provide training to potential entrepreneurs and to help them develop business plans. Finally, the Hospitality and Tourism Association of Botswana (HATAB) provides assistance for business development in its area.

ness environment, a measure necessary to expand infrastructure and enhance the rapid integration of SSA into the liberalized world trade (von Drachenfels and Altenburg, 2006).

One of the major changes in the approach to industrialization in the last decades has been the increasing acknowledgment of the role of the private sector which has, in recent times, been increasingly partnering with government in the economic development process. Investment promotion agencies (IPAs) in Africa, whether established as autonomous agencies or departments/ units within government ministries, have been given specific mandates to promote investment, both foreign and local, in their respective countries. Recently, efforts have been made by AfrIPANet43 to put investment issues onto the Agenda of the Conference of African Ministers of Industry CAMI since investment promotion is perceived as a key to the development of Africa through industrialization (Regional Programme for Investment Promotion in Africa, 200944).

In this context, the role of government should be to provide incentives for private enterprise (domestic and foreign) to attract investment. This strategy is likely to be more successful if sufficient attention will be paid to coordinating the different initiatives being undertaken to promote industrialization in Africa.

Another crucial issue is the role of technology and innovation for development in African countries. While everybody agrees that innovation is a necessary condition for improving economic performance, views on how to proceed with technology and innovation abound. For instance, Kim (1999) suggested that African countries should focus on adopting mature technologies where products and processes have been standardized and operations can be based on turn-key operations from imported plant and machinery, patented technologies, blueprints and codified procedures. In contrast, Enos (1995) argued that directing R&D efforts towards new sectors would best serve the development needs of Africa.

In the last part of this section, two particularly promising strategies for fostering industrialization and growth are considered, namely promoting industrial clusters and upgrading along the agricultural value chain. In the last part of the section, a typology of African countries is proposed, to identify which is the best industrial policy mix for each country.

Promoting industrial clusters Industrial clusters play a central role in fostering the industrialization and development process.

Pietrobelli (2008) argues that the cluster level is often where it is appropriate to design and implement new policies. In particular, there are important economies of scale in service delivery and in the development of local systems to address standards, which help to make policy implementation at the cluster level more efficient. Oyelaran-Oyeyinka and McCormick (2007) produced a collection of studies showing that the role of governments in industrial development has been large in Africa in recent years, particularly in supporting clusters.

An important element in industrial development is the system of linkages among industrial units and firms. Ogbu et al. (1995) suggest that the absence of a dynamic capital-goods sector in SSA countries constitutes the most serious obstacle to dynamic industrial linkages. Often, suppliers 43 As expressed at its launch in 2001, AfrIPANe is motivated by “The need to have a common platform where Sub-Saharan African IPAs can meet to deliberate on issues affecting the region and to work together with UNIDO, the donors and other international agencies to find solutions to address the common problems of the region.” 44 http://www.unido.org/fileadmin/user_media/UNIDO_Worldwide/Africa_Programme/CAMI/AfricaStrategy_English.

PDF in distant lands are a poor substitute or no substitute at all for local suppliers. This is particularly true in the case of agricultural production. This is one of the reasons the cluster approach may be particularly effective in the case of African countries. Another advantage of industrial clusters is that they enhance enterprise performance by reducing transaction costs to reach traders. Moreover, as shown for the tailoring sector in Kenya by Akoten and Otsuka (2007), linking up with traders increase tailors’ production capabilities and thus contributes to the transformation of the mode of industrial production in developing economies.

There are several reasons for supporting cluster development. Based on her extensive research, McCormick (1999) argues that governments, donors, and the business community should support existing clusters and create the conditions necessary to develop new ones because they facilitate the industrialization process. In particular, governments should offer improved infrastructure and other incentives to producers to locate in the cluster, and create a policy environment that facilitates business activity (i.e. easing borrowing, reducing bureaucracy, etc). Finally, business associations and chambers of commerce should create opportunities for small enterprises to communicate with larger firms, which is a first step in the direction of possible cooperation.

Oyelaran-Oyeyinka and Lal (2006) analyses the role of institutional infrastructural and collective learning in the adoption of new technologies in African clusters. The study considers the Suame cluster in Ghana and the Kamukunji and Kariobangi clusters in Kenya. The authors suggest that an intervention by the governments and a greater participation of the private sector is required in setting up training and information service centers within clusters. The objective is indeed to provide need-based skills for better usage of new technologies, i.e. ICT technologies such as e-mail and the Internet. Another interesting case illustrating the benefit from inter-firm collaboration and clustering comes from the experience of rice farmers in the Mbarali district in Tanzania. The Private Enterprise Support Activities program (PESA) - supported by the United States Agency for International Development USAID - assists farmers in forming producer associations and to strengthen existing groups that pool resources and improve their sales position.45 The associations serve as vehicles for training in marketing, bargaining, and financial management skills. The program also created a micro-credit system to support farmers’ investment projects. This allowed them to significantly improve their production technique.

Zeng (2008) argues that there cannot be general policy suggestions for cluster development. As shown by her collection of cluster studies, there is an enormous variety of situations and hence no policy that can be uniformly applicable to all clusters in Africa. To meet the needs of clusters’ diverse contexts and industries, policy design and implementation must be carefully set at the local level. Still, government measures should always include efforts to: a) encourage further knowledge acquisition, adaptation, and diffusion; b) strengthen educational institutions and technology institutes and their link with the business sector; c) strengthen and upgrade skill training and d) provide sound infrastructure. Interestingly, ssimilar conclusions are also supported by case-studies in Oyelaran-Oyeyinka and McCormick (2007).

One interesting piece of evidence about policies that foster cluster growth is provided by Diyamett (2009).46 The preliminary results of the cluster initiatives in Tanzania suggest that there have been improvements in several dimensions, namely: visibility of the firms involved in the project, trust and linkage formation, and collective efficiency. There are also some indications of 45 See: http://www.dai.com/work/success_stories_detail.php?stid=25.

46 The project included eight clusters: metal work and engineering, mushroom, vegetable seed, seaweed, tourism and cultural heritage, pharmaceuticals, sisal, and vegetable and food.

the beginning of a process of product diversification and quality improvement. This is an interesting experience since it demonstrates a cluster forming as the outcome of collaboration, in this case, between SIDA that founded the initiative and the University of Dar es Salaam. In fact, the whole project has been coordinated by the College of Engineering and Technology (CoeT) of the University of Dar es Salaam.47 The analysis of the cluster initiative suggests some interesting conclusions and policy advice. The cluster approach works well when (at least) three actors take part in the initiative: the university, the government and the private sector. In particular, the author suggests that the cluster initiative should be coupled with the creation of a science park. Moreover, the key should be to combine the availability of natural resources and exploit the capabilities present in the University. Indeed, African countries do not lack excellence or expertise in the academia: what is missing is instead a way of bringing them closer to the needs of their country’s economic development.

Clusters may also be particularly effective because they create conditions to improve product quality through spillover effects and imitation. The shoes cluster in Ethiopia analysed in Sonobe et al. (2009) is a clear example of this. The industry had a dramatic contradiction due to the entry of China in the market around 2000. It followed a period of massive entry of new enterprises established by former employees of the existing shoe factories. Soon after, the industry started to grow again thanks to improvement in the quality of products, and improved marketing and management, which led to an increase in size of the shoe firms. This has been possible because of improvements introduced by highly educated entrepreneurs, which were then followed by others. The ingredients for this success point to: the absorption of technological and management knowledge and the positive effect of better marketing. It follows that the government should a) support investment in managerial skills; b) promote knowledge spillovers through infrastructure, industrial zoning, and marketplace construction; and c) ease the access to credit for innovative enterprises.

Similarly, in their study of Kenyan micro- and small-enterprise clusters, McCormick and Kinyanjui (2007) note that having to produce for high-quality demand customers such as supermarkets, hospitals, schools and governments can enhance productive capacity. It follows that governments should design and implement policies to support clusters in this process of improving their supply in terms of characteristics, quality and timing. Also enterprise associations, nongovernment organizations, research institutions and larger private-sector actors should cooperate to realize this objective. Another interesting example of cluster support is documented in Morris and Robbins (2007). They describe the active involvement of the South African Government in supporting the automobile clusters. In this case, support measures are provided by the Department of Trade and Industry and include access to credit and market information, provision of training and labour-market reforms.

Mytelka (2007) emphasizes that government intervention may nurture the emergence of clusters but cannot, in general, create it from scratch. Instead, policies should be designed to create an environment conducive to the conditions under which a cluster can emerge. Moreover, it is important to emphasize that clusters are not necessarily innovation systems. This implies that providing support to the cluster does not necessarily mean improving firms’ innovation performance. Instead, transforming clusters into innovation systems requires sustained and focused policy support.

47 The important role played by the CoeT is also described in Mwamila and Temu (2006).

For instance, natural resources (NR) clusters have specific characteristics that require specific forms of government intervention (Pietrobelli and Rabellotti, 2006). In the case of NR-based clusters, it is often the case that research is concentrated in the leader of the chain. It follows that, more than for other clusters, SMEs need public and local research institutions to support them in adapting and internalizing the leader research advancements in their production process. In addition, public policy programmes should be designed to disseminate research to SMEs and to induce them to collaborate with research institutions.

While examples of active interventions are numerous and successful cases are not exceptions, still more has to be done, especially for the diffusion and adoption of information and communication technologies (ICTs) within clusters. Oyelaran-Oyeyinka et al. (2007) analyzing the Suame cluster in northern Ghana and the Kamukunji and Kariobangi clusters in Kenya show that no policies are in place to support ICTs even though it is very likely that they would deliver high payoffs. Because ICTs are an important means to increase competencies and collective efficiency, they suggest adoption of policies that increase private-sector participation in setting up training and information service centers within clusters. In addition, governments should provide subsidies and financing schemes to support the adoption of new technology.

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