The Need for Agro-Based Value-chain Industrial Clustering in Ethiopia

Economic development theory envisages that economies based on agriculture would promote productivity and production of the agriculture sector to become the backbone for the transformation of the economy from agricultural to industrialization. To realize this in a sustainable way, the development of industrial clustering of agro-based, value-chain industries are crucial. Clustering is a geographic concentration of firms, suppliers, support services, specialized infrastructure, producers of related products, and specialized institutions (e.g., training programs and business associations) that arise in particular fields in particular locations (Porter, 2007). Agricultural-based industrial clustering, therefore, refers to the geographic location of farms and processing firms directly involved with products from the farms. In Ethiopia, the Agricultural Development Led Industrialization [ADLI] policy required the development of medium and large scale industries dedicated to supporting agricultural industries. However, existing industrial zones around the country do not appear to possess the capacity to meet ADLI’s objective and, also the zones, as they are currently, configured do not exhibit the important qualities of clustering. Past studies failed to identify the shortcoming of existing industrial zones from the perspectives of clustering and the rationale for agro-based value-chain cluster of industries in the country is now at a high point. The objective of this paper is to evaluate the capacity of medium and large scale manufacturing industries from the point view of industrial clustering advantages and to identify the rationale for demanding exclusive agro-based value-chain clustering. The methodology for putting the paper together is by drawing from the ongoing doctoral research[1] by the author. That study is based on a mixed research approach using both quantitative and qualitative data. The research question addressed in the paper was what is the rationale for the future development of exclusive agro-based value-chain industrial clustering? The paper found from the study that existing medium and large scale manufacturing industrial zones were not concentrations of firms capable of generating multi-functional connections, i.e. value-chain. Another finding was that most of the firms dependent on local agricultural raw material had to source from farms at more than 100 kilometers away. Again, of the exporting firms surveyed in the study only 10.8 percent were exporting final products after adding value through processing. The paper is structured into five sections; the introduction, literature review, methodology, findings and conclusions. Keywords: Industrial Clustering, Economic Transformation, Agro-based, Value-chain, [1] Factors affecting the performance of Medium and Large Scale Manufacturing Industries in Ethiopia: Case study of selected cities in Ethiopia by the Autho