Abstract
Small and informal enterprises are preponderant in Africa’s manufacturing sector. Their growth is negligibly low except when young and small, but little is known beyond this. This paper reports the results of our field study of a metalworking cluster in Nairobi. As competition was intensified by the entry of new enterprises, the education level of entrepreneurs became important in determining enterprise performance, which is reminiscent of East Asian experiences. Recently, some enterprises have left for formal industrial areas partly because their original sites have become too congested for them to grow and partly because being formal facilitates marketing and further growth.
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Notes
The literal translation of Jua Kali is “hot sun,” and this term refers to informal-sector artisans because they work outside under the hot sun. See King (1996) for detailed descriptions of the activities and history of the Jua Kali sector in Kenya.
Rocha (2004) points out that more research on the impact of entrepreneurship on cluster development is needed.
There are several studies which compare the performance of formal and informal enterprises using cross-sectional data from Sub-Saharan Africa. Goedhuys and Sleuwaegen (2000) find the positive effect of formal registration on the growth of firm size in Côte d’Ivoire, whereas McPherson and Liedholm (1996) demonstrate the positive effect of firm size on formal registration in Niger and Swaziland.
Those enterprises on the other side of the main roads that surround the Kariobangi Light Industries are excluded from this number as well as from our sample.
In Nairobi, there are other Jua Kali clusters, including the Kamukunji metalwork cluster, whose activities and history are described by Kinyanjui (2007).
There are transactions between parts suppliers in Kariobangi and at least one of the leavers, however.
For the parts suppliers, the most important type of customers is metal product fabricators in the cluster, but sales to individuals account for a quarter of their revenues, because they accept repair work orders from individuals and sell simple car repair parts to individuals.
The data shown in Table 1 exclude the hardware shops and miscellaneous service providers since they have low percentages of marketing to quality-conscious customers due to the nature of their lines of trade.
The lower portion of Table 1 also excludes the hardware shops and miscellaneous service providers. The hardware shops procure steel materials from Mombasa. Hence their percentages of direct procurement are much higher than those of other types of businesses. Some of the miscellaneous service providers are recycling businesses, whose direct purchase is difficult to define.
In order to save space, we do not report the results of the first-stage regression of the enterprise size. See Sonobe et al. (2009b) for the estimation results.
We also ran panel fixed-effects regressions to examine the effect of the relocation from the cluster to a formal industrial area. The dependent variable is the number of workers, and the main explanatory variable is the dummy variable that indicates whether the enterprise remains in the Kariobangi Light Industry or in a formal industrial area in the year. The result shows that the relocation is significantly associated with an increase in the number of workers (Sonobe et al. 2009b).
In collaboration with the World Bank, such a training program was offered in Kariobangi in April 2008. It is too early to judge, however, how effective such a program will be.
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Acknowledgements
This paper has benefited from the helpful comments and suggestions of an anonymous referee of this journal. Many thanks are also due to Paul Kandasamy for helping us editing the paper. Also financial support of the Global Center of Excellence project funded by the Ministry of Education and Science of the Japanese government is gratefully acknowledged.
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Sonobe, T., Akoten, J.E. & Otsuka, K. The growth process of informal enterprises in Sub-Saharan Africa: a case study of a metalworking cluster in Nairobi. Small Bus Econ 36, 323–335 (2011). https://doi.org/10.1007/s11187-009-9222-6
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DOI: https://doi.org/10.1007/s11187-009-9222-6