Clustering and incubation in Africa’s small business development: some experiences and lessons

Abstract

There is a general recognition and acceptance that small and medium enterprises (SMEs) are important contributors to social and economic development. However, in Africa which hosts many developing economies, SMEs must endure numerous challenges that tend to repress small enterprise development. Formal cluster development programmes have been identified as one progressive way of assisting SMEs to overcome the obstacles. It involves deliberately instituting and supporting small enterprise clusters. Although this idea of formal clustering of firms is relatively new to Africa, cluster development programmes are increasingly taking the form of small business incubation. Business incubation essentially aims to provide a systematic method of rendering business support services to fledgling small businesses to help them continually rise above market challenges and thrive. Some governments in Africa have embraced the notion and are incorporating plans into their local economic development (LED) programmes to enhance small business development through incubation. Countries like South Africa, Ghana, Kenya, and Nigeria have amongst the most conspicuous incubator programmes and cluster experiences on the African continent. This study interrogates the effectiveness of and hence the scope for formal business incubation or rigid clustering programmes in Africa. It assesses examples of both rigid and flexible clusters in a few African countries in order to identify their main differences and to thus establish some critical areas of business clustering needed for useful small and medium enterprise development in Africa. Upon reviewing case study literature, it is observed that formal incubation programmes are likely to be less effective in creating new SMEs compared to the more flexible clusters in Africa. Rigid clusters also tend to rely heavily on state funding, are more subjected to political interference, are prone to expansion capacity constraints, and are unlikely to sustain themselves financially in the long run. The study notes that rigid clustering mainly favours a high-tech environment. Hence, incubation programmes may be more suitable for advanced economies. For low-tech industries, on the other hand, formal business incubation may be inappropriate.