Recent calls for the Federal Government of Nigeria to support the establishment of an industry cluster in Aba, is by no means out of place. Aba is a model metropolis, boosting arrays of opportunity, untapped talents and economic potentials. There are many reasons to be upbeat for an industry cluster in Aba. We know that industry clusters fuel economic growth, firms located in clusters are potentially more productive compared to other firms because of the agglomeration advantages ( e.g. networks, knowledge spillovers, human capital mobility, etc). Also, Aba has a municipality advantage, ranging from increased property and asset values, increased revenue generating capacity, and skilled work force.
Since it was first proposed in the1990s by Harvard professor, Michael Porter, governments across the globe have turned to cluster initiatives to stimulate urban economic growth. This is because a standard cluster economy models a synergy, a dynamic relationship, and a network between not only the businesses that make up the cluster, but also the successful partnering of interest groups and stakeholders – governments, research hubs, enterprise agencies, and the investor community for the purpose of wealth creation.
Nigeria needs to be doing sometime to attract investors, and a cluster is one of such magnates. In this article, I look at the benefits, and challenges of developing an industry cluster, and propose specific conditions necessary for establishing one in Aba.
Development experts view industry cluster as a converge of collaborating similar and related firm groups in a defined geographic area, usually to share common markets, technologies and worker skill needs. Two factors come to mind, when thinking about how cluster benefits an economy, particularly in the case of Aba.
First, industry clusters have the potential to motivate a start-up revolution by encouraging new generation of entrepreneurs to develop a taste for owning their own business, thus growing the national economy.
Second is the idea of serendipity economy, which offers a new lens in the way we view economic development. Urban centres where talents converge do not only give a facelift to place, but the cross-pollination of talent and innovation in hub proximity has now become an ideal strategy for sustainable regional economic growth. Enterprise hubs are established to support innovation generation. Innovation generation in itself is the most valuable asset of the future.
Aba, therefore, is more than a start-up ecosystem. Aba’s economic potential has to be rightly placed. The city had once been, and could even further become ‘a congregate of innovation’ and a hub for enterprise in Nigeria.
The benefits of industry clusters illustrate why place still matters in the global economy. However, experience shows that establishing one comes with more challenges. For example, lack of investment funding is a major stumbling block for regions aiming to leverage the agglomeration advantage of clusters, as industry clusters do not only survive by public goodwill.
And, while cluster initiatives can potentially transform local economies, investors often see such as high risk propositions, except where there is willingness for public private partnership (PPP).
Further, local communities may challenge the idea of siting clusters close to their area, and may campaign vehemently to frustrate the idea, or might even refuse to make land available, even when investors are ready to take the risk.
It’s also true that industry practitioners may not want to move from their ‘current’ location to a new cluster site, if the plan is to develop the cluster in a new location. They tend to altruistically connect with place, notwithstanding commercial disadvantage.
Worse still, the dynamics of local politics can play against a cluster initiative, particularly, if the ruling party does not command clear majority in parliament, or do not belong to mainstream power. In such case, politicians may deliberately work to stomper cluster projects to score points. The role of government is to provide a safe passage, to assuage the various competing interests, and to seek united effort.
With years of experience in delivering cluster projects, backed by international evidence, five important steps can be taken to establish an industry cluster in Aba, and to attract the right investors and stakeholders to the initiative.
One, while annotated evidence suggests an industrial cluster may suit a city like Aba, a thorough understanding and analysis of the local economy, structure, opportunities, current situation and foreseen challenges is crucial. Any investor being approached would want to see a concise and clear print of opportunities and challenges. But also such document would help target the wealth creating sectors, and prioritise support where it is most needed.
Two, the cluster concept represents a new way of thinking about how an economy is grown, and signifies new roles for government and business. But emerging clusters are technology driven in terms of functionality. They do less with manpower. Hence, a cluster project must be supported with an innovation centre, strong intellectual capital, and state of the art technology.
Three, for a cluster initiative to gain quick wins, it must have the right human resources. As often said, the people that lead a cluster initiative are as good and enterprising as the project itself. Aba can learn from the City of Edinburgh in this area. The city’s industry clusters now has over £4billion turnover , combining successes with the Interspace group, Edinburgh Science Triangle, Bioquarters, and new developments in Leith Creative Exchange. None of these would have been possible without the right people in charge.
For example do they have the capacity, broad knowledge, and contacts, to attract the right investors? To identify and negotiate financing rounds, etc. These are factors that must be carefully weighed. A cluster development team are no political appointees; they are a syndicate of experts with exceptional competency in cluster development and management. They create the plan, raise the funds and deliver the project. The new Abia State Economic Advancement Team (ABSEAT) should at least have people with some of these capacities, even in advisory role.
Four, while an industry cluster can be a ready-made proposition that appeals to international investors, it has to literally make a bold statement for investors to take it seriously. If there is no agreement for a broad shaped future, obviously the cluster will find it difficult to attract the right investors. Usually industry clusters have long term goals, and investors would want to know from the onset how long it will take to turn their investments into profit. This is where an experienced cluster development and management consortium comes handy.
Five, and perhaps the most crucial in establishing an industry cluster, is separating the cluster initiative from political influence. Setting up an industry cluster as an independent enterprise is ideal to facilitate self-funding, but also to allow the project to get on. Quite clearly, government’s role is to provide the enabling environment and initial funds to get the project up to a good start. The longer term plan should see public finance play less role in funding such initiative.
It is absolutely true that Abia State will need capacity to deliver a world class industry cluster in Aba, which can be further enhanced by support from the Federal Government of Nigeria. Since the coming of the new government, a lot of goodwill now exists both from experts in Diasporas and those at home. Abia State needs to tap into this goodwill, to develop a financial package for an industry cluster in Aba.
(Iyke Ikegwuonu is a development expert in Edinburgh Scotland, and has supported development of some of the leading global industry cluster projects. Follow me on Twitter @yekaka)