Industrial clusters are a key component of an inclusive growth strategy to increase incomes and employment, strengthen competitiveness and sustainable development in Africa. Africa has a diverse set of natural resources, including metals and minerals as well as agricultural produce.
These resource endowments drive industrial development in the continent through clusters which have a competitive advantage when they combine the use of locally abundant raw materials with labour from rural communities. A new institutional framework for industrial clusters is emerging globally that replicates best practices from other parts of the world where successful experiences have been documented across sectors. These include strategies that strengthen local business ownership and market linkages, and improve productivity and quality through research, development and innovation.
A critical component of this emerging framework is the need for governments to create a seamless continent-wide market for industrial clusters in Africa. This requires building a functional continental fibre-optic backbone that connects every country on the continent to one another as well as to international markets. The backbone network should complement rather than compete with existing terrestrial technologies such as wireless and satellite networks. In addition to building this fibre-optic backbone, policies should reduce the costs of doing business by reducing taxes on investment, increasing electricity access, improving access to credit, and improving logistics services which are often inadequate or unreliable. The policies should also promote participation from the private sector through tax incentives, deregulation of ownership, and allowing for international collaboration on R&D.
Creating a seamless continent-wide market for industrial clusters in Africa is a crucial step toward economic development and integration on the continent. Industrial clusters, which are geographic concentrations of interconnected businesses, suppliers and institutions in a particular field, have the potential to drive economic growth and competitiveness by creating synergies and economies of scale. However, for these clusters to reach their full potential, it is essential that they be able to access and serve a large market.
One of the key challenges in creating a seamless continent-wide market for industrial clusters in Africa is the lack of infrastructure and connectivity between countries. Many African countries are landlocked, which makes it difficult and expensive to transport goods and materials across borders. Additionally, many countries lack adequate transportation and logistics infrastructure, which makes it difficult to move products to market. To overcome these challenges, there needs to be a greater focus on building and upgrading transportation and logistics infrastructure as well as on removing trade barriers and tariffs.
Another challenge is related to the lack of harmonisation of standards and regulations across the continent, which can make it difficult for companies to do business in multiple countries. Different countries have different regulations, standards and certifications, which can create additional costs and complexities for companies looking to expand into new markets. To overcome this challenge, there needs to be a greater focus on harmonising standards and regulations across the continent as well as on creating a more predictable and transparent business environment.
In addition, industrial clusters in Africa lack access to capital, technology and management expertise, making it difficult for them to expand and upgrade their operations. To overcome these challenges, there needs to be a greater focus on creating access to finance and other forms of capital as well as on building the capabilities of local companies and entrepreneurs through training, education, and research and development.
Creating a seamless continent-wide market for industrial clusters in Africa is essential for driving economic growth and competitiveness on the continent. By addressing the challenges of infrastructure and connectivity, standards and regulations, and access to capital, technology and management expertise, it will be possible to create a more integrated and dynamic market that can support the development and expansion of industrial clusters across Africa.
Widening African markets for the facilitation of industrial growth
Unlocking Africa’s economic potential starts with creating a seamless marketplace for its industrial clusters. These clusters, made up of interconnected businesses, suppliers and institutions in a particular field, can drive growth and competitiveness through synergies and economies of scale, but only if they can access and serve a larger market. This is possible with the help of the AfCFTA. The African Continental Free Trade Agreement (AfCFTA) is an important step toward creating a seamless marketplace for industrial clusters in Africa as it aims to promote trade and economic integration among African countries. African countries can leverage the AfCFTA to create a seamless industrial trade market for clusters, such as the automotive industry, textile industry and pharmaceutical industry in the following ways:
- Tariff reductions: One of the key elements of the AfCFTA is the reduction of tariffs on goods traded between participating countries. By eliminating tariffs, countries can make it easier and more cost-effective for companies in the automotive, textile and pharmaceutical industries to export their products to other countries on the continent, thus expanding their market opportunities.
- Harmonisation of standards and regulations: The AfCFTA also includes provisions for the harmonisation of standards and regulations across participating countries, which will make it easier for companies in the automotive, textile and pharmaceutical industries to comply with multiple countries’ regulations, and thus, expand their market opportunities.
- Facilitation of cross-border trade: The AfCFTA is also designed to facilitate cross-border trade by removing non-tariff barriers and streamlining customs procedures. This will make it easier and more efficient for companies in the automotive, textile and pharmaceutical industries to transport their products across borders, which can help to overcome infrastructure challenges that can limit market opportunities.
- Promotion of regional value chains: The AfCFTA also aims to promote regional value chains, which are the interconnected networks of businesses, suppliers and institutions that are involved in the production and distribution of goods. By fostering regional value chains, the countries can help companies in the automotive, textile and pharmaceutical industries to form a network of suppliers, partners and customers to bring more business opportunities.
- Investment and technology transfer: The AfCFTA also encompasses provisions for investment and technology transfer, which will allow countries to leverage external capital and advanced technologies to upgrade their industries, thus increasing their competitiveness and efficiency.
- Providing access to a larger market: By eliminating tariffs and other trade barriers, the AfCFTA will create a larger market for companies in industrial clusters to sell their products, and thus, help to increase their competitiveness and expansion potential.
In sum, a seamless market for industrial clusters can have a huge impact on the development of Africa, boosting local economies, creating jobs and fostering innovation. To this end, there needs to be more cooperation between governments, private sectors, and international organisations to address the challenges and leverage the AfCFTA and other opportunities to develop and strengthen industrial clusters in Africa.
The writer is an award-winning financial advisory, trade and transformation consulting professional with almost two decades of enterprise leadership experience across EMEA.
