Thesis Defense Summary

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Contrary to the popular belief that Africa “cannot” industrialize, attempts are being made at multifaceted innovations in product developments, marketing, and investment in capital equipments in a large cluster of metalwork and vehicle repairs in Ghana, which suggests that there are bright prospects for industries in Africa. Using primary data collected on 307 enterprises engaged in manufacturing, machining, blacksmithing, and vehicle repairs, this study finds that that formal education and training has recently been assuming importance in the cluster. Those enterprises operated by highly educated and formally trained entrepreneurs perform better than the others by adopting new methods of production, marketing, and so on. It is also found that among such entrepreneurs, traditional apprenticeship is no longer the dominant institution of skill formation. The study explores the implications of these recent changes for industrial development and industrial policies in Africa.
　
Ⅲ．
Industrial development is indispensable for poverty reduction and economic development, as the historical experiences of the developed countries and the Asian countries indicate clearly, and this has long been recognized by policy makers as well as researchers. A number of empirical studies have empirically established that poverty is alleviated primarily through increases in non-farm incomes rather than increases in farm incomes, even though the majority of the poor in the developing countries live in rural areas. On the one hand, the expansion of agricultural production does not enlarge employment opportunities much, according to the careful empirical studies of the impacts of the Asian Green Revolution on the employment and income in the village economy. On the other hand, labor-intensive industries have immense capacity to generate employment opportunities for the poor, as many case studies attest. Since the developing countries are abundant with low-wage labor, they are supposed to have comparative advantage in labor-intensive industries under laissez faire and free trade, according to the theory of international trade. Indeed, the development of labor-intensive industries and the rapid growth in the exportation of their products stated the remarkable economic growth in Japan, Taiwan, Korea, and China.
Such industrial development, however, has not taken place in Sub-Saharan Africa. A plausible reason is suggested by Sonobe and Otsuka, who find a common process of industrial development in different industries in different countries in East Asia.(*1) According to their findings, enterprises in the same are clustered in a small geographical area to take advantage of the benefits from agglomeration, such as information spillovers, the development of the division of labor, and the development of skilled labor market, and these benefits allows the number of enterprises to grow into quite a large number before profits are driven to zero by the increase in the total supply of their product, which reduces the product price and increases the material cost. While most industries in the developing countries cease growing commonly at this point, many industries in East Asia continued to grow by improving productivity, product quality, marketing, and management drastically. Sonobe and Otsuka hypothesize that this difference in performance arises largely from the insufficiency of rather basic knowledge of management and technology, the insufficiency of opportunity to learn such knowledge from more advanced regions, and the insufficiency of education in general of the entrepreneurs in stagnant industries. This hypothesis, if valid, offers a clear implication for an effective policy promoting industrial development toward poverty alleviation, which warrants considerable further empirical tests of the hypothesis to be added to the existing ones.
The present study carries out such an empirical test using the primary data on 307 enterprises that the author collected in one of the largest industrial clusters consisting of indigenous enterprises in Sub-Saharan Africa. The cluster is located in the area named Suame Magazine in Kumasi, the second largest city in Ghana. The Suame Magazine cluster was formed spontaneously in the 1930s by blacksmiths and garage mechanics and later expanded into a giant cluster to include manufacturers and machinists. It has supported the livelihood of a large number of people: it is said that there are about 80,000 persons and about 9,000 enterprises engaged in productive activities in the cluster. This cluster has grown so large in terms of the number of enterprises and persons engaged, without any assistance from the government. Rather it was occasionally harassed by the government because most enterprises have only temporal structures, making the cluster appear to be a huge slum. It is known, however, as a cluster of masters of garage work throughout the country and even to the neighboring countries. Manufacturers in the cluster as well attract traders from the neighboring countries. The cluster is full of young apprentices, who gaze intently at every motion of their masters to learn or steel skills. The overwhelming majority of the operators of enterprises, whom this study call entrepreneurs henceforth, came from Kumasi and its neighborhood to the Suame Magazine as apprentices, but many of current apprentices come all the way from far regions to become prominent masters who attract customers from foreign countries and earn high incomes. Thus, the air in the cluster is suffused with energy.
The issues to be addressed in this study are classified into two sets: one is to explore what has driven the development of the Suame Magazine cluster so far, and the other is to examine the cluster’s growth prospects. According to Sonobe and Otsuka’s theory of cluster-based industrial development, a driving force of industrial development in its early phases is agglomeration economies, which create a favorable circular causation in which an increase in the number of enterprises increases profitability, thereby increasing the incentive of teenagers to learn skills from master craftsmen (i.e., entrepreneurs). Therefore, enterprises can attract apprentices, for whose labor enterprises do not have to pay much. When apprentices complete training and start their own businesses, they copy the product, production process, and marketing channels of their masters. Thus, enterprises producing similar products and services proliferate, which creates strong competitive pressure in the cluster, making the enterprises remain micro- and small-scale. As a result, the industrial cluster has grown remarkably in terms of the number of enterprises but little in terms of enterprise sizes, product quality, and productivity. Thus, the apprenticeship is a mechanism that enhances the quantitative expansion of the industry but hinders the quality improvement or upgrading of the industry.
Does the apprenticeship continue to be the dominant institution of skill formation in the cluster? To answer this question, this study examines the demand for and supply of apprenticeship training. It finds that enterprises in the capital-intensive sectors of the cluster, i.e., the machining and manufacturing sectors pay more to apprentices than those in the vehicle repairing and blacksmithing sectors, but the former cannot attract as many apprentices as the latter, because it is financially more difficult for apprentices to start more capital-intensive businesses. Among the machinists and manufacturers, those with high education and formal training are found to have a smaller number of apprentices and shorter duration of apprenticeship. Thus, the institution of skill formation has begun changing at the enterprises operated by highly educated and formally trained entrepreneurs in the relatively new and capital-intensive sectors.
Are such entrepreneurs going to lead the industrial development in the cluster? To answer this question, this study examines the effects of formal education and training on the various aspects of enterprise behavior and enterprise performance, such as material procurement, marketing, subcontracting with machinists, equipment investment, and enterprise size in terms of value added. The major finding is that such educated entrepreneurs in the machining and manufacturing sectors are attempting multifaceted innovations in product quality, final product marketing, and production organization. Manufacturers with higher levels of education are able to explore new methods of production, such as mechanization and subcontracting, and new marketing channels, such as traders and own retail outlets, to add greater values to their products and improve profitability. Similarly, the ability to read and interpret technical drawing helps machinists attract equipment investments from relatives and friends living abroad and lucrative orders for repairing machine parts from large lumber mills and mining companies outside the cluster.
Thus, in this large industrial cluster consisting of small indigenous enterprises, the need for upgrading products, production processes, and marketing is now keenly felt, and accordingly the engineering knowledge and the high level of general human capital obtained through formal education and training is assuming greater importance. These findings are in sharp contrast to the widely held view that the prospect of industrial development is bleak in Africa because the enterprises there are not even motivated to grow. Such a pessimistic view would come from the fact that African enterprises have remained small for many years whereas their East Asian counterparts have grown rapidly and the premise that it is not difficult for enterprises in the nascent stage of industrial development to acquire knowledge conducive to enterprise growth because their production technologies and marketing activities are very simple. In reality, however, technology borrowing is not that easy. If enterprises fail to borrow technology from abroad, it does not follow that they are not motivated to do so.
The analyses of this study clearly indicate that the machinists and manufacturers in the Suame Magazine cluster are now motivated to absorb the knowledge conducive to industrial upgrading. At a glance, it is established that their technology and management are still primitive from the viewpoint of engineers and businessmen in the developed countries and that knowledge conducive to their upgrading is of public goods in the developed countries. Therefore, the provision of technical and managerial knowledge to machinists and manufacturers in this cluster is likely to cause their transition from the quantity expansion phase to quality improvement phase of industrial development. It may well be true that some other industrial clusters in Africa with long history have reached the same stage as the Suame Magazine cluster and hence want knowledge necessary for quality improvement. An effective industrial promotion policy toward poverty reduction is to implement training programs that offers such knowledge to entrepreneurs of indigenous enterprises in these industrial clusters.
　
(*1)Sonobe, Tetsushi, and Keijiro Otsuka, Cluster-Based Industrial Development: An East Asian Model, Basingstroke: Palgrave Macmillan, 2006.