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Xiaobo Zhang & Fatma Abdelazziz • 2017 IFPRI Egypt Seminar Series: Unleashing Untapped Potential of Industrial Clusters in Egypt

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As part of IFPRI Egypt Seminar in partnership with the Egyptian Center for Economic Studies: "Unleashing Untapped Potential of Industrial Clusters in Egypt"

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Xiaobo Zhang & Fatma Abdelazziz • 2017 IFPRI Egypt Seminar Series: Unleashing Untapped Potential of Industrial Clusters in Egypt

  1. 1. Cluster-based Development in China: Implications for Egypt Xiaobo Zhang IFPRI and Peking University Workshop on Cluster-based development in Egypt December 20, 2017 1
  2. 2. China’s Industrialization • China has become rapidly industrialized in just four decades which took many European countries two centuries. • One key feature of China’s industrialization: industrial development is largely cluster based. • There are thousands of clusters all over China. 2
  3. 3. Major Industrial Clusters in China Huzhou, just down the road from Zhili, is noted for its bamboo products. The city of Wenzhou is famous for manufacturing a large share of the world's supply of cigare "The cluster-based model is labor-intensive. The real question is whether it can survive in the new environment of Huzhou, just down the road from Zhili, is noted for its bamboo products. The city of Wenzhou is famous for manufacturing a large share of the world's supply of cigare "The cluster-based model is labor-intensive. The real question is whether it can survive in the new environment of
  4. 4. Advantages of clusters • Use the existing strengths (social trust embedded in community and abundant labor) to overcome limiting factors, such as credit constraints and lack of formal institutions. – A production process is divided into many incremental steps, lowering the capital entry barriers. – Merchants often put-out the production to different family workshops. Producers are paid based on piece rate and don’t need much working capital. 4
  5. 5. Advantages of clusters • Easy for each other to learn technologies. • Better access to markets (both final goods and input supply). Save the sales and purchasing costs. 5
  6. 6. 6 Outdoor furniture industry in Pingyu county, Henan. Set up by a return migrant from the coastal area. Mainly for export. Main parts are manufactured in a factory in county seat. Assembled in 53 villages with kindergarten nearby. Employed 2,200 workers (1900 women)
  7. 7. 7 Garment: Cut the clothes in a factory in countryseat Put out the production in village workshops. Factory owners have market orders.
  8. 8. Major Experience • Having a market order is essential for the survival of the above two rural clusters. • The clusters take advantage of the abundant female labor in villages. • Rather good rural roads. • County’s support for setting up factories in industry park in the county seat, where the centralized production stages are located. 8
  9. 9. Specialization: Anding Potato Cluster • Anding of Gansu Province used to be one of the poorest places in China (poverty rate 78% in 1980) and didn’t produce potato until 1960s. • Now it has become one of the three largest potato production centers in China. • Potato accounts for two-thirds of the cropping area; Anding provides every Chinese with one kg potato per year. Farmers generate about 60% of their income from potatoes. 9
  10. 10. Major Potato Production Centers in China Anding potato cluster Zhang and Hu, 2015, World Development 10
  11. 11. Expand the Market • Establish trader and producer associations. • Update market information systems. • Set up a new system of local wholesale markets. • Apply for more freight car quotas. • Subsidize farmers to build storages. 11
  12. 12. Acquire and Spread Market Information • The potato association sends informants to live in major wholesale markets nationwide to collect market information. • The county broadcasts the information in local media (radio, TV, and newspapers) and on large monitors in major gathering places (central squares, railway and bus stations). • Greater market transparency makes it harder for traders to cheat farmers. 12
  13. 13. The Spatial Distribution of Markets Over Time ☆: Wholesale market ○: Village collection point Blue: Built 1996-2000 Red: Built 2001-2005 Yellow: Built 2006-2010 13
  14. 14. Overcome Transportation Bottleneck • Lobby for more freight car quotas (up from 1507 in 2003, to 3605 in 2004, and 6145 in 2009). Transportation cost to Shanghai: By car: 450 yuan/ton By train: 225 yuan/ton Anding to Guangzhou: Anding, China: potato train 14
  15. 15. Build More Storages (55% of annual output) Farmer’s storage: 0.36 million tons More than 2 storages per household Small natural ventilation storages: 0.185 million tons Centrally air conditioned: 10000 ton each Natural ventilation storages: Medium size 200 Yuan Subsidy/storage 15
  16. 16. Develop the Processing Sector • Local government intensified their effort to attract investors: – Provide free land – Help secure subsidized bank loans – Guarantee stable potato supply • The number of processing plants increased from 0 in 2003, 2 in 2004, to 12 in 2009. Now it can process about 1/3 of total output. 16
  17. 17. Develop the Processing Sector • In 2004, the first two plants produced only starch. • Quickly, the product lines have become more diversified: – Modified starch for industry use – Frozen French fries for fast food chains – Potato chips – Potato flour – Even export to the Middle East and Southeast Asia. 17
  18. 18. Summary • The size of potato cluster is determined by market size. • So one has to keep figuring out ways to expand the potato market. 18
  19. 19. Summary • As shown in the potato case, clusters are at the local level. Therefore, it is essentially to have locally tailored industry policy. • In China, local governments have played a key role in facilitating cluster formation thanks to their informational advantage. 19
  20. 20. How to Incentivize Local Governments? • In China, local governments have strong embedded interests in promoting cluster-based development: – Fiscal competition among local governments – Career competition among local officials • More research is needed to understand the incentive structures of local governments in other developing countries, such as Egypt. 20
  21. 21. How to Measure a Cluster? • An industrial cluster is a locality with a high concentration of firms in related businesses. • Large number of firms + relatedness 21
  22. 22. 22
  23. 23. Performance of the Clustering Measure • It outperforms all other clustering measures in terms of predicting the actual clusters. • Similarly, using economic census data, we can compute the clustering measure at the district level in Egypt. Next, we consult informants on about the major industries in the regions with high degree of clustering. 23
  24. 24. 24 My presentation is mainly based on the following publications: “Overcoming Successive Bottlenecks: The Evolution of a Potato Cluster in China,” (Xiaobo Zhang and Dinghuan Hu) World Development, 63: 102-112, 2014. “A Proximity-Based Measure of Industrial Clustering,” (Jianqing Ruan and Xiaobo Zhang), IFPRI Discussion Paper 1468. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2688022##
  25. 25. IFPRI – ECES Cluster-based Development Research Project 25
  26. 26. Cluster-based development as an opportunity for job creation and poverty reduction in Egypt • The CBD model is consistent with Egypt’s current stage of development • Labour intensive – Large population – High unemployment • Based on community strength • Overcomes credit constraints 26
  27. 27. Research Project Goal • Ensure that the existing potential is unleashed • Provide concrete solutions for how CBD can be scaled up, for job creation and poverty reduction in Egypt – USAID ARDII project area and other development projects. 27
  28. 28. Research Stages Stage 1: Identify the promising industrial clusters in Egypt Stage 2: Understand the bottlenecks that are leading to the clusters’ stagnation Stage 3: Determine how the GoE can help and further promote the growth of these industrial clusters 28
  29. 29. Stage 1 Stage 1: Identify the promising industrial clusters in Egypt – Clustering index & cluster mapping activity – Expert structured interviews Stage 2: Understand the bottlenecks that are leading to the clusters’ stagnation Stage 3: Determine how the GoE can help and further promote the growth of these industrial clusters 29
  30. 30. Stage 1: Cluster Mapping Activity Stage 1: Identify what are the promising industrial clusters in Egypt – Clustering index & maps – Expert structured interviews Stage 2: What are the bottlenecks that are leading to their stagnation? Stage 3: Identify how the GoE can help and further promote the growth of these industrial clusters. 30
  31. 31. Stage 1: Structured Expert Interviews • What defines an industrial cluster? “interconnected businesses that are geographically concentrated” – Common Goal & Identity – Interdependent – Degree of collective efficiency 31
  32. 32. Stage 1: Structured Expert Interviews • Criteria to narrow down the choice of cluster • Geographical focus: Upper Egypt? 32
  33. 33. Stage 1: Structured Expert Interviews • Promising sectors – Furniture and wood manufacturing – Agroindustry – Handicrafts • Common bottlenecks • Suggested government intervention 33
  34. 34. Stage 2 • Stage 1: Identify the promising industrial clusters in Egypt • Stage 2: Understand the bottlenecks that are leading to the clusters’ stagnation – In depth case studies, 2 – 3 clusters • Stakeholders’ workshop • Field work • Stage 3: Determine how the GoE can help and further promote the growth of these industrial clusters 34
  35. 35. Stage 2: Stakeholder Workshop • Having an industry focus: – Furniture and wood manufacturing – Agroindustry – Handicrafts 35
  36. 36. Next Steps • Stage 2: Field work • Stage 3: Determine how the GoE can help and further promote the growth of these industrial clusters 36
  37. 37. Thank you 37

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