By Lawrence U. Ekeh
All over the globe Cluster development is now seen as the most effective industrial strategy to foster SME growth, regional/state development and employment creation. Just like states in Nigeria build more schools and universities in order to rectify a deficit in human knowledge, now that we have a shortage of employment opportunities, Imo State can make good the shortfall by collaborating with the private sectors to establish three new industrial clusters in the State – one plus the existing one in Owerri zone, one in Okigwe zone and one in Orlu zone. The six billion nairas the government proposed for youth empowerment can be used to set up four modern industrial clusters that will create jobs for the youths. In particular, the only existing Industrial Cluster at Naze is merely a misnomer and lacks the necessary infrastructure in an ideal Cluster.
Michael Porter, who is a Harvard University Professor, is known as the father of Clusters. In 1985 Professor Porter became President Ronald Reagan’s Advisor on Industrial Competitiveness. That appointment led to his study on national, state, and local competitiveness. In 1990 he published his book entitled “The Competitive Advantage of Nations” and since then clusters have become widely adopted as industrial strategies, and production structure in the world has been dynamically transformed. This is so because he demonstrated the link between clusters and economic success – regions that have clusters tend to be more successful than regions without. He defines a cluster as a “geographical proximate group of interconnected companies, suppliers, service providers and associated institutions in a particular field, linked by externalities of various types”.
From the above definition, it is clear that the Industrial Cluster is a State phenomenon and Cluster development should be one of the top priority issues for the Imo State government rather than the so-called youth empowerment programme. The cluster will generate employment, create self-employment through entrepreneurship development, revenue earnings and reduce poverty. How does cluster achieve these? Cluster is not only the concentration of output producing enterprises but also input suppliers, output buyers, various service-providers and in some cases, the government and non-governmental institutions. It provides competitive but mutually benefits to the enterprises to become more competitive and profitable.
This modern industrial strategy is being adopted by both developed and developing countries and there is no reason why Imo State government should not embrace it as production system to accelerate economic growth and create jobs for its indigenes. However, it is necessary to know that the nature of clusters and the processes that make them competitive differ. Each cluster is situated in particular local conditions and the relevant policy interventions must be tailored to their distinct needs and particularly be market-driven. The Cluster that is suitable in Okigwe zone may not be appropriate for Orlu zone and so on. Also, cluster principles must be understood and applied if appropriate policy responses are to yield dividend. Fortunately, clusters have recently become very fashionable in some states in Nigeria but the basic concepts and management of clusters remain poorly understood hence the name industrial clusters in Nigeria remains a misnomer. Many successful industrial developments are cluster-based throughout the world and for most of them, the cluster concept and its methodology remain a national industrial secret. Silicon Valley in the USA, Modena in Italy, Dhaka, Taiwan, Denmark, Sweden, France, Germany, China, Vietnam and many developing countries have adopted industrial clusters as a promising driver of both regional and national economic growth. In fact, there is no European and Asian country that does not recognise that a cluster system has certain advantages over non-clusters. Imo State’s economic prosperity and job creation require resilient industrial structures. Strengthening Imo’s industrial base should be a key priority and competitive industrial clusters have a major role to play. It will provide new challenges and opportunities for firms to compete, innovate, create employment opportunities and lead to social capital that is lacking in most of our communities.
The modern mass production method of manufacturing goods was born in 1913 when the Adam Smith theory of specialization and division of labour was put into practice by Mr Henry Ford. It is the mass production system that chunks out most of the goods we use today. Where mass production is located, goods are manufactured in mass and merely transported to other members of the global village for consumption or as semi-finished goods. Although nowadays, partly because of their ability to create job opportunities and pay taxes wherever they locate, mass production technologies have become national treasures and their transfer to other nations has become an international political issue. We have all heard Donald Trump, the America President requesting the American citizens who own these mass-production technologies in other countries to bring them back home. Secondly, in order to reduce the cost of production further, technologies have become more automated and sophisticated – making the cost of technologies too expensive for developing countries. Thirdly, in order to monopolise the production of the goods, they artificially put the cost of patenting their product too high making it more difficult for developing countries to even produce the products in question. But these problems can now be overcome by bringing in small specialised machines and put them together in a local area in order that they can produce like the big mass production technologies.
Apart from manufacturing technology restrictions and their astronomical cost, there are other ways countries make their products competitive. For instance, some governments use subsidy incentives to dump goods manufactured in their counties into other countries. Such incentives and subsidies help their manufacturers to reduce the cost of production hence reduced the price of their product for a targeted country. What is the consequence? The producers of a similar product in a country where goods are dumped will be unable to continue operation and consequently close their businesses and dismiss their workers. A recent such international trade war is that between China and Europe. The European Commission discovered that Chinese Hot-rolled flat steel – a semi-product used for the production of steel tubes for construction, shipbuilding, gas containers, cars, pressure vessels, energy pipeline, etc had been sold in Europe at “heavily dumped prices”. What does the Chinese government want to achieve? Simple – to make the European domestic makers of hot-rolled flat steel be uncompetitive so that they will close their businesses. British steel industry suffered this faith. Of course, such closure of businesses leads to an increase in unemployment and social consequences. You may want to know how the European Commission reacted to this finding. EU imposed new import duties on hot-rolled flat steel from China from 18.1% to 35.9%. This is just a tip of the iceberg of international trade wars that affect Nigeria hence there are no jobs for our youths. These countries promote clusters in their localities and use it to dominate the world. It is time Imo State leaders woke up to the economic localities of the world otherwise the future generation will not forgive the current leaders.
Industrial Cluster initiatives will overcome all these problems. It is now the modern engine of growth and development for many countries. As for its benefits, the picture is usually clearest when the lens is placed on those places that host clusters. It is not possible for me to list all regions or states that are currently benefiting from clusters all over the globe in this write-up but what is certain is that within these states or regions, their cluster developments are associated with productivity increases. Productivity increases lead to localised external economic benefits. Productivity increases lead to reduced cost of production per unit and price competitiveness of local enterprises. Productivity increase arises due to productivity interrelationship. Similarly, there are savings in clusters due to;
· Market interrelationship
· Procurement interrelationship
· Technological interrelationship
· Infrastructure interrelationship
· Large scale networking
· Finance interrelationship,
· Innovation and R & D interrelationship,
· Joint lobbying and Political Power, etc.
Let us use Infrastructure interrelationship for example, apart from savings to be made by firms in the cluster, it is very easy for a State government to provide industrial infrastructure such as constant power supply in a particular cluster with say 200 SMEs than the same number of enterprises that are scattered in many locations. With all these savings, the costs of products are reduced in the cluster, making products from clusters to compete both in price and in quality. As soon as productivity increase is achieved the next stage is to get clusters’ products into the global network which will subsequently take the cluster into the global production system – occupying market share and making profits. How do we do it? It is not impossible that the States in Nigeria can replicate what the Chinese national and local governments did in 2001. The so-called ‘China Shift’ was as a result of low cost of production which led manufacturing companies in Japan to relocate to China. How did China do it? The Industrial Cluster Plan announced in 2001 was used by both national and local governments in China to set up Industrial Clusters. Note here that cluster plan was used by both national and local governments. In order words, it must not be an industrial strategy for the federal government alone. Also, the World Bank is currently on Nigeria soil promoting clusters in some States in the name of GEM Project. Is Imo State benefiting from it? Growth and Employment in States (GEM) is an employment project supported by Nigeria’s Federal Ministry of Trade and Investment (FMTI) and funded by the World Bank and the United Kingdom’s Department for International Development (DFID). The World Bank is providing a concessionary loan of $160 million while DFID is providing a grant of £90 million. The programme targets six sectors for intervention to support SMEs. These sectors are Information and Communication Technology (ICT), Entertainment, Wholesale and Retail, Construction and Real Estate, Hospitality and Tourism, and Meat and Leather. Again, I am mystified as to why only these sectors. This is because apart from the two of them, the rest will not help us in our struggle to stop the importation of foreign-made goods. They will also neither help us embedded in the global production system nor attract foreign investment into Nigeria. The clusters we want should be world-leading sector driven. Such sectors will meet the priorities such as productivity increase, import substation, export-driven, innovation upgrading and the World Bank and DFID should help them integrate any such sector into the global market while the sector association should also make “sector deal” with their state government. Because this issue is not the subject matter here, I shall have to jack it in. On the other hand, many countries in Africa have now opened up their economy to external competition through trade. These countries (include members of ECOWAS) have free movement goods policy, which includes made in Nigeria products. Even the ECOWAS, which is promoting economic integration in all fields of activities of constituting countries, might have also been making regional trade arrangements with other parts of the globe too. Not only the trading opportunities, but cluster is also the modern way of attracting soft loans and foreign investments. For example, in 2017 the Abia State Government brokered a $1.5 billion project for the establishment of a shoe industry in Aba by Chinese Huajian Shoe Industry. The Abia-Huajian Shoe Industry will have the capacity to produce 5,000 shoes per day and employ about 10,000 people directly and indirectly. But what attracted the Chinese company to come to Abia State? Their attraction is the Aba Leather Cluster which has even benefited from the UK DFID, Bank of Industry funding and now attracting foreign investment. From this scenario, one can see how transnational corporations come to States to invest their money. It is also necessary to note that states should avoid forming clusters which may carry on vicious competition among local clusters.
Launching the biggest tax cut in US history, the chief economic adviser of President Trump said: “Our objective is to make US businesses the most competitive in the world”. It would be encouraging to see Nigeria leaders and in particular, the Imo leaders thinking the same way. Cluster is a strategy to build a stronger economy and fairer Nigeria that could create jobs for everyone, not just the privileged few in government and political jobs. All hands must be on deck. The world is a market place and states governments in Nigeria should see it that way and map out clusters that can help them compete at both national and international levels. Imo State has to start by setting up a dedicated specialised body or at least a strong team to actively look after SME cluster development in the State. The government has to create awareness of this policy by conducting workshops and seminars for the stakeholders, policy-makers, local businesses, etc and seeking everyone support.
Lawrence U. Ekeh is a UK based Industrial Cluster Management Consultant. He is also the author of Industrialization, Patriotism and National Prosperity and Technical Director of Luzek Industrial Strategies, Abuja Nigeria. His YouTube message is titled THE THREE UNKNOWN SOLUTIONS FOR JOB CREATION. He can be contacted via email: firstname.lastname@example.org or email@example.com or tel. 44/7417554143