Transforming the agrifood processing sector in Africa: The role of industrial clusters

1. Associate Professor, Kwame Nkrumah University of
Science and Technology (KNUST)
Transforming the Agrifood Processing Sector
in Africa: The Role of Industrial Clusters
Daniel Sakyi (PhD)

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Why Agrifood Processing
Clusters Matter for Africa?

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Why Agrifood Processing Clusters Matter for Africa?
• Agriculture and the agrifood processing sector play an important role in many
African economies.
• According to the World Bank (2022):
―Agriculture accounted for approximately 53% of total employment in sub-Saharan Africa
(SSA) while agricultural value added as a percentage of GDP stood at 17.2% in 2021.
• Agrifood processing is an important component of the manufacturing sector in
many African economies:
―Food manufacturing’s share of total manufacturing stood at 33% in Ghana in 2015, 14% in
Egypt in 2018, and 58% in Zimbabwe in 2017 (UNIDO INDSTAT, 2021).
• However, the agrifood processing sector in Africa is relatively underdeveloped.
―For instance, Africa produces about 70% of the world’s raw cocoa beans, but only 16% of
intermediate cocoa products that is worth more than the raw cocoa beans (AfDB, 2016).

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• In recent years, rapid urbanization and changes in dietary patterns have led to a
rise in demand for processed foods in Africa (Reardon et al., 2019a).
―Opportunities therefore remain in the agrifood processing sector for job creation,
development of agrifood processing capacity, revenue generation, and to minimise cost of
importing processed food products.
• We argue in this study that industrial (agrifood) clusters can provide a means of
achieving these important goals.
• According to Nogales (2010), agrifood cluster is the concentration of producers,
agribusinesses, and institutions in the same agrifood subsector that come
together to build value networks while addressing common challenges and
pursuing common opportunities.
―Clustering of such firms has the potential to facilitate coordination along the agrifood value
chain and can help reduce costs, increase profits, and facilitate market access (McCormick,
1999; Ulimwengu and Jenane, 2019; Reardon et al., 2019b)
Why Agrifood Processing Clusters Matter for Africa?

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• The theoretical foundation of the role of industrial clusters is linked to discussions
by Marshall (1920), Porter (1990, 1998, 2000), Otsuka and Sonobe (2011), among
others.
• A country’s competitive advantage lies not necessarily in its natural endowments but
in the productivity of factors of production and innovation capabilities of these
factors.
―Industrial clusters form the engine of productivity and innovation that deliver such competitive
advantage (Porter, 1998).
―Arable land availability and food crops production do not guarantee that African countries will
gain a competitive advantage in agrifood processing.
• Deliberate effort through clusters are therefore require to leverage these natural
endowments to enhance productivity and innovation in the agrifood processing
sector.
―Existence of social and political institutions as well as research institutions matter.
―Provision of specialized inputs and infrastructure to give countries a true competitive edge in
international markets matter.
Why Agrifood Processing Clusters Matter for Africa?

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Agrifood Processing
Clusters in Africa

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Agrifood Processing Clusters in Africa
• The literature is clear on how clusters can help small firms to overcome the
challenges they face in their growth (Oyelaran-Oyeyinka and McCormick, 2007).
―However, agrifood clusters form only a small percentage of the clusters studied.
• We look at the nature and contribution of agrifood processing clusters in Africa
using 2 case studies: fish processing in Uganda and Wine production in South Africa
(SA).
―Fish processing provides employment to more than 32,000 Ugandans and it is Uganda’s
second-largest source of foreign exchange (UFPEA, 2022).
―Uganda’s fish processing firms are characterised by lack of highly skilled workers and for this
reason complex tasks (e.g., product development) are often outsourced (Chandra, 2006;
Kiggundu, 2008).
―The linkage between research institutions and clustered firms is weak. National Fisheries
Resources Research Institute has not commissioned any research for the clusters.

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• South Africa is the world’s eighth largest producer of wine, and its wine industry
employs close to 270,000 people directly and indirectly [Wines of South Africa
(WoSA), 2022].
• The wine cluster has benefited from institutional support in terms of marketing along with
technical support (Wood and Kaplan, 2007).
• The Department of Viticulture and Oenology at Stellenbosch University offer courses that train
the relevant labor force for the wine industry.
• WoSA has a mandate of promoting South African wines on international markets (e.g.,
international trade exhibitions).
• The Uganda’s fish and SA wine clusters highlight differences between two exporting
clusters.
• While the Ugandan cluster lack adequate institutional support that will help improve
competitiveness on the global market, the SA cluster has well-developed institutions that
provide technical and marketing support.
Agrifood Processing Clusters in Africa

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A Closer Look at Firm
Level Data

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Firm Level Data
• We use the World Bank Enterprise Survey (WBES) data from nine African
countries to study the behavior of agrifood processing firms in Africa.
• The WBES does not necessarily collect data based on geographical concentration of firms in
a particular industry but rather brings together firms in different industrial clusters.
• Nonetheless, understanding the characteristics of these firms provide us with valuable
insights into key features of the clusters in Africa.
• In particular, the WBES help us establish the position of the agrifood processing sector
relative to nonfood manufacturing.
• The WBES focuses exclusively on firms in the nonagricultural sector but include
firms that add value to agricultural products or process them into final products.
• We draw distinctions between agrifood processing firms and nonfood
manufacturing firms in Africa in order to motivate our focus on the agrifood
processing sector.

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Firm Level Data

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Comparing Age and Size

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Conclusions and Policy
Recommendations

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Conclusion
• We have relied on the available literature and firm-level data to stress the
importance of clusters in the agrifood processing sectors in African.
• Though limitations exist, the theoretical literature is clear on the potential gains of
clusters for African countries to reap the full benefits of the AfCFTA initiative.
• Bottlenecks are however associated with clusters that experience a decline in
external demand due to a loss of international competitiveness and other supply-
side constraints (see Abdelaziz, Ellis, and Zhang, 2021; Abdelaziz et al., 2021).
• These bottlenecks include limited infrastructure, labor supply shortages, limited
innovation, and value addition, among others.
• These constraints require the collective effort of both public and private sector
stakeholders, such as the local government and business associations.

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Policy Recommendations
• The role of government: Provision of the enabling institutional environment such as legal
structures and policies, provision of fundamental infrastructure and the right signal and
incentives that will encourage the participation of private sector actors.
• The role of research and training institutions: To help develop the needed human capital
and new products and production processes. Innovation helps to enhance product quality
and improve efficiency in production, thus helping to make products more competitive in
the global market.
• Export-oriented clusters: Although domestic industries can develop successful clusters,
those that are export-oriented tend to be more profitable as the literature suggest. This is
due to less sophisticated demand in domestic markets as well as a lack of intra-cluster
cooperation in dealing with common challenges.
• Focus on SME development: “Entrepreneur-led, government backed approach”. Thus,
instead of spending on large state-owned factories, which may collapse due to
inefficiencies, government can facilitate the training of SME entrepreneurs in this sector to
form the nucleus for the development of a thriving agrifood processing sector.

16. THANK YOU