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Chapter Two: Building Learning Enterprises

2.1. PRELIMINARY COMMENTS

It is important to consider what is meant by a focus on learning enterprises. The theme structuring this chapter, the learning enterprise, focuses attention on the advantages that learning brings to enterprises and entrepreneurs and the potential role that learning-led competitiveness can play in enterprise development at the sectoral level. However, there are no claims that learning alone will solve the problems faced by SMEs. Therefore, the chapter will also consider some of the constraints they face. Given the "learning enterprise" theme, it will in particular seek to consider how education and training might contribute to overcoming these constraints.

A focus on the learning enterprise is not meaningful unless it sees the enterprise, and its learning, in network terms. Learning across enterprises is closely interconnected with learning within enterprises. One of the most important insights of small enterprise development thinking in recent years is the importance of moving beyond viewing firms purely in individual, unconnected terms. Therefore, we shall also consider the potential of linkages among enterprises as an element in a competitiveness strategy at the enterprise, sector and macro economic levels. There is also a growing awareness of the role of intermediary institutions in enterprise development. Most importantly for the SME sector, these include a range of business membership organisations, as a structure from within the sector. However, they also include external attempts by donors, governments and NGOs to encourage cooperative activities.

National policies for small enterprise or private sector development are supposed to be concerned with supporting and empowering SMEs. However, there is abiding suspicion within the sector about the motives and performance of the state, as we shall see below. We shall consider such policies with a particular focus on how they promote enterprises and their ability to learn and to compete.

Throughout the chapter, the focus on enterprise is framed by related issues in education and training. It will raise a number of issues of pertinence to those working in those sectors, and several of these will be returned to in the subsequent chapters when the focus turns more explicitly to sectoral concerns in those areas.

Our focus in this chapter and report is on the productive elements of the SME sector. However, in following such a focus, it must be noted that productive activities often account for a small percentage of overall sectoral activities. In Kenya, Daniels, Mead and Musinga (1995) found that only 16% of urban informal sector employment was in manufacturing in spite of the original popular image of the jua kali1 sector. In Chad, Muskin (1997) found that only 9% of those in N'Djamena's informal sector were involved in production. South African levels of productive SMEs appear to be particularly low by continental standards. A survey of Southern Johannesburg, for instance, found only 6% in production (Karungu et al 1997, cited in Rogerson 1998). However, the distinction between production and manufacturing across these surveys must be noted. Manufacturing may be a small proportion in many samples (though caution is necessary given the very large agglomerations of light engineering work in many African cities). However, our concern is with the broader grouping of those engaged in production rather than trade, as this is where our focus on technical training as well as enterprise development is most clearly seen. This broader focus includes construction, for instance, which considerably expands the size of the group under study. For example, Visser (1999c) quotes official data from the Western Cape which points to male "informal sector activities" as comprising 9% manufacturing, but 48% building-related. In many parts of the world it is construction and maintenance/repair work that are the principal areas in which large numbers of workers are expanding their skills and developing their livelihoods.

1 Jua kali (hot sun) in Ki Swahili was originally applied to productive informal sector activities but has stretched in meaning over time to encompass all informal sector activities in Kenya.
A reading of globalisation literature would suggest that the current trend worldwide is for the productive sector to lose importance relative to trade and services (Pedersen 1999). Support to productive activities should recognise this. Nonetheless, in so far as these productive areas are important for technological development, skills creation and industrialisation, they remain a valid policy concern.

We are focusing here on the learning enterprise. Whilst many of the SMEs subsumed under our study may have only one worker, we are not seeking to conflate micro enterprise and self-employment. In fact, SMEs include a large number of other workers. This is particularly the case for productive enterprises.

2.2. THE LEARNING ENTERPRISE

Research has placed increasing emphasis in recent years on the importance of learning for enterprise success (McGrath and King 1996; Manu 1999). This can be seen in debates about flexible specialisation (Piore and Sabel 1984); Post-Fordism (Mathews 1990); the learning organisation (Senge 1990); and the information age (Castells 1996). In such models, the ability to acquire and use knowledge is central to competitive advantage.

This vision makes clear the benefits of learning for enterprises. Whilst simple causal relationships do not exist between education and a range of factors, including economic ones, it is apparent that education does have an important overall contribution to make. Learning and the development of an information-seeking orientation enhance personal competitiveness of workers and employers. Learning can extend capabilities and can help enterprises spot and exploit niches. Learning enterprise thinking also focuses on the crucial role of improved collaboration for competitiveness. Moreover, it is argued that their smallness makes smaller enterprises more flexible and better able to capture many of the benefits of learning than their larger counterparts (Piore and Sabel 1984; McGrath and King 1996).

SMEs in many sectors within our project countries, as we shall argue in the next section, face very serious obstacles from poverty-induced constraints to demand and tendencies towards saturation of markets. To survive and succeed, the ability to exploit growing and higher value niches through learning is essential. Moreover, there is considerable evidence that, whether for surviving more securely or for achieving significantly greater prosperity, working together can be highly positive for smaller enterprises (see below). Also, it is through collective learning that many of the benefits of collective efficiency accrue.

There is also evidence, from across a number of African countries, that education and experience work in synergy. Mead (1999) argues that higher levels of education allow entrepreneurs to take better advantage of the learning from many years of experience, and vice versa. This is particularly important in responding to market changes and in finding new, more profitable niches. Thus, education and training can contribute to an ability to respond more effectively to technological and economic change.

Education and training equip SMEs to master a series of important challenges to their future growth:

· product development;
· product diversification;
· quality improvement;
· logistics; and
· marketing.
Education levels in the SME sectors of many African countries are apparently rising. This has led commentators (Birks et al 1994; Charmes 1999) to argue that inevitably there will be a positive effect on productivity. This argument seems to find confirmation from data in all three countries.

Oketch and Otieno's sample of entrepreneurs suggests that those with some secondary education are most likely to succeed, whilst those with less than 5 years of schooling are most likely to fail (Oketch and Otieno 1999). Indeed, there were no examples of success in the Kenyan sample for this latter group: a point worth noting in the face of claims that a little education can have a large impact (UNICEF 1999). Rogerson (1999b) reports on South African evidence that higher education levels do seem to be a factor in enterprise success. Afenyadu (1998b) notes growing education levels of apprentices in Ghana. He also reports that masters argue that increased education levels improve the situation by:

· allowing for higher levels of training;
· facilitating the keeping of business records;
· permitting production of better quality products;
· improving customer service (Afenyadu 1998b).
However, Afenyadu also argues that there are mixed views among Ghanaian masters regarding the worth of current schooling. This appears to reflect differences in sectoral sophistication. Carpenters, a lower skill trade, liked the orientation and basic skills provided by the school system. Engineers and refrigeration mechanics, higher skill groupings than carpenters in Ghana, argued that literacy and numeracy were inadequate at Junior Secondary School level (Afenyadu 1998b), an argument that reflects the low levels of attainment in national tests at this level (see Chapter Three).

The positive view about education levels in the SME sector does not take into account the serious questions that are raised about African education systems and the levels of attainment therein. Equally, caution is required about the negative view, as the experience of OECD countries points to a tendency by employers and politicians to talk down educational achievement for their own interests.

As we shall see in the next chapter, the positive side of such criticisms has been that they have started a greater policy focus on the detail of what education is on offer. This will lead us to focus on what we call a "curriculum for competitiveness", one which focuses more clearly on key knowledge, skills and attitudes for competitiveness and development. Such a notion parallels the views of emergent entrepreneurs in Ghana regarding some of the principal requisites for success:

· creativity and innovative capacity;
· theoretical knowledge, including literacy and numeracy;
· business skills;
· capital (Afenyadu 1998b).
A focus on a curriculum for competitiveness notes the major challenge for education of addressing the first two of these needs.

In responding to the educational needs of entrepreneurs and enterprises, it is important to note that much of the evidence referred to here has suggested that quite considerable levels of education might be needed to make a positive impact on livelihoods and productivity. As we shall consider in more depth when we turn to consider education in Chapter Three, the challenge of combining a concern with a curriculum for competitiveness with a drive towards education for all is a very serious one.

Turning to training, it has been argued that small scale artisans generally have low levels of demand for training (Maldonado 1989; Bennell 1999). This argument suggests that as growth internationally usually comes through replication of existing activities rather than developing new processes or products, there is a tendency towards low demand for skills (Rogerson 1998; Bennell 1999). Moreover, this argument states that training in itself cannot address the very real constraints faced by enterprises, outlined below. These need to be tackled before turning to training (Bennell 1999; King 1999). Education levels across Africa are also poor and this may be more significant in limiting enterprise's potential to benefit from training.

However, there is evidence from our project countries, and elsewhere, that there is considerable demand for training of all kinds (McGrath 1997a and b; Bennell 1998; Honny 1999). Afenyadu (1998b) importantly highlights a new trend in Ghana for young, emergent tailors and dressmakers to seek to move into the more attractive fashion and design niche through formal training. Thus, it appears that the negative picture provided above overstates the potential demand for training with SMEs and does not take into account the particular advantages accruing from training in some of the more promising market niches at present.

Moreover, the project has found some evidence (Afenyadu 1998b; King 1999; Oketch and Otieno 1999) that those with the best technical skills and concerns about design have had better quality formal technical preparation. Thus, whilst graduates of lower status technical institutes (e.g. youth polytechnics in Kenya) are most likely to end up in self-employment, they are less likely to be successful in exploiting high value niches than national polytechnic graduates. It is also apparent from both Ghana and Kenya that the pathways to successful self-employment will typically include skills and knowledge acquisition from school, training institute and work experience (often including explicit enterprise based training and in all sizes of enterprise) (Afenyadu 1998b; Oketch and Otieno 1999). In Ghana, it appears more likely that this pathway will include apprenticeship within the SME sector. Evidence to date from South Africa seems to point to the lack of an indigenous skills formation system that mirrors the Ghanaian or Kenyan approaches. However, it is entirely possible that such a system may develop, with or without the external influence of the government's learnership scheme (see Chapter Four).

From the enterprise perspective, it seems that many of those who succeed have had above average education and training. However, this is problematic in policy terms, as looking from the other direction, only a few graduates of training programmes appear to become successfully self-employed. The challenge, as we shall see in Chapter Four, is to make training provision more responsive to market needs and to improve selection and targeting procedures.

PROPOSITION 2.1.

Whilst they do not determine success entirely, education and training are important elements of the portfolio of assets of successful entrepreneurs and enterprises. This importance has increased as a result of global technological and economic change.


2.3. CONSTRAINTS FACED BY AFRICA'S SMALL AND MICRO ENTERPRISE SECTORS

Talk of flexible specialisation, Post-Fordism or learning enterprises seems very far from discussions of the conditions faced by most SMEs across Africa. We do not seek to underplay the reality of such a gap. However, the core argument of this report is that African countries are faced with no alternative but to enter such debates and to construct their own positive versions of the new enterprise approach. Nonetheless, this cannot simply be achieved through a focus on ambitious new goals. Rather, it must also take very careful consideration of the current state of enterprises and their environment. Therefore, it is important to examine some of the constraints that currently undermine the ability of SMEs in different parts of Africa to master learning-led competitiveness.

2.3.1. The health of the small and micro enterprise sector

There is some concern in research circles that the general crisis of African economies in the 1980s served to weaken SMEs. In this view, the decline in large firm and public sector employment led to saturation of the SME sector labour market. It also depressed household incomes, reducing the purchasing power of customers of smaller enterprises. These combined effects constrained the possibilities for SMEs to transform themselves. Crucially, their production was made even more price rather than quality sensitive (Muskin 1997; Adam 1999).

It is argued, further, that globalisation is intensifying these trends due to the SME-specific effects of the overall business cycle (Adam 1999). The labour force engaged in the sector in many parts of Africa appears to grow when the economy as a whole is depressed. It seems that lower level activities, concentrated in "family enterprises", home-based working and street vending are anti-cyclical and increase when economic growth is slowing down. Conversely, the more successful segment is pro-cyclical, growing when the overall economy grows as the result of new market opportunities (Charmes 1999; Mead 1999). However, the overall picture in Africa is one where growth is primarily through the creation of new enterprises rather than the growth of existing ones, the successful pro-cyclical group being in the minority in the sector as a whole (Mead 1999).

Nonetheless, it seems reasonable to argue that globalisation equally can have a positive effect on SMEs. This suggests that globalisation brings new opportunities as exporters and as suppliers to exporters. It can make the whole environment more entrepreneurial and increase the status of and opportunities for small enterprises. Moreover, state policy under globalisation tends to become less anti-enterprise. This further promotes enterprise possibilities.

Our research finds relatively positive views about the health of the sector in each of our project countries. Oketch and Otieno (1999) point to evidence which suggests that Kenyan rates for job creation within existing SMEs are high by African standards. King (1999), Afenyadu (1998b) and Rogerson (1999a) also provide a sense of a significant number of SMEs in all three countries that are developing successfully. Work in Kenya by Ueda (1999) also indicates considerable grounds for optimism on the basis of detailed longitudinal work that shows that there is good evidence, at least in the location being researched, of employment expansion, particularly of ex-apprentices, through the diversification activities of successful entrepreneurs.

There are also increasingly positive messages about the state of many African economies. Whilst caution needs to be used regarding these claims (Killick 1999), it is likely that better economic conditions will provide better niches for more sustainable enterprises. The phenomenon of "jobless growth" in South Africa (McGrath 1998a) suggests that employment growth in any putative "African Renaissance" will be primarily through smaller and less formal firms.

2.3.2. The effects of macro economic policies

Whilst macro economic policies are intended to improve the context in which enterprises operate, there is considerable criticism of their performance in a number of African settings. This focuses both on a criticism of the state for pursuing anti-developmental policies and an argument that the widespread use of structural adjustment policies has been unsuccessful and, indeed, counter-productive.

From her work in Ibadan, Nigeria, Adam (1999) concludes that structural adjustment programmes have adversely affected SMEs. Von Massow argues that

structural adjustment priorities inherently divert resources into export oriented production in industry, mining and plantation agro-industry rather than into strengthening local markets and purchasing power essential to flourishing enterprise, (von Massow 1999:105)
Looking at a wide range of experiences across Francophone West Africa, Charmes (1999) argues that structural adjustment programmes probably have reduced demand in urban areas due to reductions in public wage bills. Adam (1999) finds that the recession linked to the Nigerian programme is making people even more cost conscious. This means that quality becomes even less important and the scope for innovation and product improvement is undermined (Adam 1999). Bennell (1999) charts the effect of the structural adjustment-induced decline in demand, linked to increased imports. He notes how this increases market uncertainty. Therefore, he concludes that, in spite of its claims, structural adjustment does not stimulate SMEs’ demand for training.

In Ghana, Kenya and South Africa, our own data suggests that there are concerns amongst enterprises with the dumping of new and second hand clothes (Afenyadu 1998b; King 1999; Visser 1999a). The impact here has been on both large and small enterprises, although it is important to note that lay offs from the larger enterprises are likely to have knock-on effects on smaller enterprises, as noted above (King 2000).

In most African cases, demand problems are likely to be compounded by an increased supply of labour to the sector. Charmes (1999) notes that straddling between wage and self-employment has increased due to declining real wages in larger firms and the public sector. Adam (1999) points to a growth of unpaid labourers. The large numbers of new entrants into the SME sector are likely to go into areas with low barriers to entry. This leads to saturation and counters any demand stimulation that does come from adjustment (Bennell 1999). It is argued that the result of this combination of unfavourable trends on both the demand and the supply side is falling incomes and growing insecurity. In particular, von Massow (1999) concludes that structural adjustment has placed a disproportionate burden on women.

King's (1999) evidence from Kenya, as part of this project, (see Box 2.1.) suggests that jua kalis are generally in favour of both privatisation and liberalisation. In large part, their arguments mirror important elements of the classical justification for neo-liberal policies. They see the reforms as reducing the opportunities for corruption and bureaucratic delay, although they also note new forms of corruption emerging. Significantly, King suggests that liberalisation has enhanced technological confidence and led to the development of new products.

Box 2.1. Kenyan jua kali perceptions of adjustment policies

The evidence from Kenya suggests that there is a need for caution regarding an over-critical view of the effect of adjustment policies. Some Kenyan jua kalis are very concerned about the level of imports and the perceived irregularities in importation procedures that they see as explaining the very low prices of imported items. There is a particular problem with the importation of second-hand clothing, which is seen as having very serious effects on local clothing enterprises.

However, in other trades in Kenya, entrepreneurs are not afraid of competition. Nonetheless, there is an issue with quality, as people seek to undercut each other. Also, the margins of profit over against imported goods or those made in the industrial area are sometimes hard to maintain. In other cases, the sheer level of competition locally has meant that the locally manufactured item (e.g. a band saw) is half the price of an imported one.

King argues that the result of economic liberalisation and of the spread of technological confidence has been that in many areas there is now is a good deal of competition. Most noticeable in the Komorock area of Nairobi is the large number of people who are now making items such as weigh scales, paint, soft drinks and machine tools.

The view of jua kalis was that the reforms had removed some of the rent-seeking behaviour of the state officials. The jua kalis no longer had to spend as much time and money seeking licences for foreign exchange, or importation, etc. It meant that materials and supplies were much more available.

Privatisation in Kenya has not moved as fast as liberalisation. Jua kalis seemed universally in favour of more of it, though. They were aware that the parastatals and other government bodies were used widely as sources of patronage and that corruption was rife. The services of posts and telecommunication and of power and lighting were particular instances of the more general problem. The difficulty of getting adequate and fairly priced supplies from these service providers was a frequent theme.

Source: King (1999).


From the breadth of data across Africa, it seems to be the case that economic policies have often had a negative impact on enterprises of all sizes. The Kenyan case shows that whilst many of the elements of structural adjustment can be of considerable benefit to smaller enterprises, the international problems of sequencing and implementation (Stiglitz 1998b) have been present in Kenya and have limited the potential gains. It is crucial that economic policies and, more importantly, their implementation are more supportive of enterprises in fragile positions. In the context of this project, it is also important that such policies explicitly consider their likely impact on learning-led competitiveness.

2.3.3. The importance of niches

As we noted above, the experience of SMEs varies considerably. There is evidence from a number of authors (Barr; Mead; Oketch and Otieno; Adam - all 1999; Rogerson 1999a) about the importance of being in the right market niche. There are some niches occupied by smaller enterprises that are characterised by higher value products and quality differentiation. As our own research shows, these niches include fashion and design in Ghana, machine tools in Kenya and African clothing in South Africa (King 1996; Afenyadu 1998b; Rogerson 1998). In these niches, entrepreneurs are able to take advantage of higher levels of education and training. One of King's informants characterised himself and others with better education and training and a primary focus on profit and enterprise development as "jua kali with a professional approach" (King 1999).

However, other data collected during our research indicates that deskilling may well be taking place in other market segments, in spite of rising education levels. Such segments are characterised by low barriers to entry; market saturation; price rather than quality driven purchases; and a low skill component. Owners in these segments, which often are trade based or in more technologically traditional areas, may be motivated more by desperation fuelled by an inability to access or maintain wage employment than by a desire for entrepreneurship (Oketch and Otieno 1999; Rogerson 1998). This is worrying as evidence points to higher success rates for those who actively seek self-employment rather than those who experience "enforced entrepreneurship" (Mead 1999; Rogerson 1999a).

This group (the "survivalists" of the South African literature - Visser 1999c) often have an "impermanent portfolio of activities" (Buckley 1997), responding to market changes by shifting to new areas with low barriers to entry. This contrasts with those who behave more entrepreneurially, seeking new opportunities in high value areas that often exploit technological changes rather than avoid them (Oketch and Otieno 1999). The more successful entrepreneur is often one who is following a profit-oriented diversification strategy (Ueda 1999).

The survivalists are also currently ill-placed to add value, be competitive or export, in contrast to those accessing more sustainable livelihoods. One of the challenges for enterprise policy is to seek to prepare people better to access more dynamic value-added niches or to respond to the possibilities of pioneering new high value niches. Education and training are clearly important here for developing the skills and knowledge necessary to succeed. The ability to identify market opportunities and to access new niches also requires an information-seeking orientation amongst entrepreneurs. If education and training can promote positive attitudes and appropriate skills for accessing important information, then they will have done a valuable service for enterprise development.

There is disagreement from our data over the role that gender plays in influencing in which segment of the SME sector individuals and their enterprises are located, and their likelihood of success. From our South African data, it appears that male entrepreneurs tend on average to be more successful than their female counterparts and that men are more likely to be located in more profitable niches (Rogerson 1999a). However, Oketch and Otieno (1999) find that female-headed enterprises are more likely to be successful in Kenya. In general, the evidence from across Africa (e.g. Mead 1999) appears to support Rogerson's position, although this does not rule out the possibility of Kenya being an exception or the existence of a significant number of highly successful female entrepreneurs, even if they are not typical of women entrepreneurs on the wholse. Where women are successful, it may be that international exposure or contacts are significant in breaking through any gender barrier (Afenyadu 1998b).

2.3.4. Non-entrepreneurial goals

Part of the weakness of many of the existing modalities of enterprise support has been an over-reliance on assumptions about perfect entrepreneurial behaviour amongst those who are intended to benefit. Even among the upper echelons of the SME sector it should not be assumed that entrepreneurs are entirely focused on profit or growth maximisation. Oketch and Otieno (1999) chart the use that a sample of Kenyan entrepreneurs made of profits:

· household use 53%
· reinvestment 23%
· school fees 12%
· agricultural investment 6%
· others 6%.
Lack of reinvestment of profits limits enterprise success according to conventional criteria (King 1999; Oketch and Otieno 1999), although it may well be a product of success as measured by the entrepreneur. Whatever the view of entrepreneurs, it appears that often only a small fraction of profits are reinvested into firms (Oketch and Otieno 1999). It is important that policies for SME development take account of the often non-entrepreneurial motivations of those they are seeking to target, and include an awareness of the likely impact gender has in shaping such motivations.

2.3.5. Capital

Capital shortages for SMEs are typically found in most locations in Africa. Kenya reflects this problem, with high commercial interest rates and a reduction in the number of bank branches severely constraining access to services (King 1999). Lack of capital is significant as it turns would-be producers towards being maintainers or repairers (Afenyadu 1999). It undercuts the possibility of pushing forward technological barriers and the possibility of exploiting the intellectual capital of the enterprise. Our evidence from Kenya and Ghana also suggests that initial capital is very important as a success factor (Afenyadu 1999; Oketch and Otieno 1999). In these samples, the more successful group of entrepreneurs had average start up capital six times that of the less successful group.

2.3.6. Technological change

There are many examples of technological changes that undermine production by smaller enterprises. King (1999) mentions current Kenyan concerns with the decline in use of metals for packaging and the growth of use of plastics. Other important examples include the changes to the refrigeration maintenance industry resulting from the CFC reduction programme (Afenyadu 1999; McCormick 1999), or the effects on car mechanics arising out of the greater computerisation of electronic systems within vehicles (McCormick 1999). Such changes are inevitable. The challenge is how to respond. This can be in one of two ways. First, the enterprise can upskill to respond to new demands. However, in some cases, such as the shift in packaging, this is likely to be impossible. Therefore, a second strategy of seeking out new market niches is required. Both responses to technological change are clearly heavily knowledge-based.

2.3.7. Lack of information

Our research finds that a number of Kenyan entrepreneurs and policymakers identify information gaps as one of the key constraints facing smaller producers (King 1999). Concerns with inadequate dissemination of information are also at the heart of many current enterprise development interventions in South Africa, Ghana and Kenya (Mead 1998; Afenyadu 1999; International Centre for Economic Growth 1999; Visser 1999b).

2.3.8. The enterprise site

Our fieldwork reports that, in Kenya, a very large number of jua kalis are leasing their premises from the original owners of the land. In many cases in parts of Nairobi, such as Gikomba and Komorock, there are no title deeds. There are allocation letters but there have been problems recently about bribing to get allocation letters for plots owned by others. Land reform would allow for much more direct investment by jua kalis in their operations than what is already happening now (King 1999). Lack of security of tenure undermines the likelihood of investment in enterprises and the likelihood of learning-based growth strategies.

Given its apparent role in economic take-off in countries such as Japan, South Korea and Taiwan, the issue of land reform is clearly of broader relevance for development strategies, although it remains a highly contested area of policy, as is evident from South Africa and Zimbabwe at present.

Location is also important, with home-based enterprises being on average less successful than enterprises in discrete locations. Of South African non-household located enterprises, those which do best are located in formal urban areas rather than in rural settings or townships or informal settlements (Rogerson 1998 and 1999a). It seems that location is not only important for accessing better markets but may also be vital to learning strategies. As we move along a continuum from home-based activities to those based in thriving industrial locations, so the environment for learning to become more competitive improves.

Infrastructure is a major complaint in Kenya (McGrath 1997a; King 1999) and in Ghana (Barr 1999). It also is one of the factors in the advantages to location in central business districts noted by our South African research (Rogerson 1998 and 1999a). Inadequate roads, uncertain electricity supplies and unreliable telephone systems all undermine production and marketing and reduce the potential for learning from others elsewhere.

2.3.9. Corruption and trust

King (1999) reports that many jua kalis identify corruption as the most serious problem that they and the economy face. It affects access to services, land, loans and even advertising that they exist. The state's connections with the sector are perceived as frequently being in the form of rent-seeking rather than support. Corruption is given as the reason that they do not look to the state (or local government) for contracts or procurements. These are too much trouble and it is too difficult to get paid at the end of the work (King 1999). Whilst Kenyan entrepreneurs may be more open in their complaints about corruption, it is clear that such problems exist internationally (King 2000).

Trust also has been identified regularly in the literature on Africa's economic weaknesses. This is held to be particularly problematic inter-ethnically and at its least serious within easily identifiable "outsider" groupings, such as the Asian business community of Kenya (King 1999) or the Francophone African immigrants in Johannesburg (Rogerson 1998).

However, King (1999) finds considerable indication of positive attitudes towards Asians from African jua kalis. Their positive influence is seen in a number of ways. Asians are a source of second hand machinery at reasonable rates. This is particularly crucial for learning-led competitiveness, as it has allowed the leading jua kali enterprises to push forward the technological frontier of Kenyan small enterprise production. Asians also assist in this process in a number of other ways. These include providing training to future jua kalis as employees; serving as knowledge brokers for smaller enterprises; and providing loans to support enterprise expansion. Where jua kalis are selling either to larger firms or to wholesalers, the likelihood is that Asian capital is involved.

High levels of crime and political violence in both Kenya and South Africa clearly do much to undermine trust. Equally, the lack or weakness of institutions across all three countries makes contract enforcement problematic. There are some suggestions that non-payment of debts is seen as a legitimate part of "cunning practices" by some entrepreneurs (Adam 1999; King 1999). However, it also fundamentally undermines trust and makes inter-firm cooperation much harder.

Whilst the general argument about the lack of trust is amply reinforced by evidence from the jua kalis in King's (1999) sample, it is evident that there is scope within the Kenyan system for business considerations to overcome even the well-publicised ethnic tensions between Africans and Asians. As we shall see when we turn to consider the development of business linkages, there is also evidence of progress towards breaking down the racial tensions that have limited inter-firm cooperation in South Africa. This is important as is any progress in improving intra-racial levels of trust. The competitive strength that comes from cooperation with other enterprises and from inter-firm learning will not reach its fullest potential if trust and contract enforcement systems do not improve.

2.3.10. Lack of governmental support

In Kenya, there is widespread entrepreneurial suspicion of the state. Whilst there is some agreement that the state has at least partially delivered on its promises, governmental performance is viewed as inadequate and there is still a powerful legacy of mistrust. Many jua kalis perceive policy as being focused on outside audiences rather than as intended to guide action. Moreover, they view the government as acting primarily in the interest of the "big men", rather than the bulk of the people (King 1999).

The non-assisting state is one reason jua kalis use to justify non-payment of licenses and failure to charge VAT on their finished goods. As they see it, there is nothing they receive from the state. Therefore, there is little incentive to pay the rather costly licenses for manufacturing. However, small to medium enterprise can benefit from being registered, for example, with the Ministry of Industrial Development in order to be eligible for a certain scale of contract (King 1999).

In Ghana, it seems that such suspicion, which was mutual (Afenyadu 1997a and b), has declined as the Rawlings Government has become perceived as genuine in its commitment to private sector development. This can best be seen in the relationship with the Private Enterprise Foundation, which is now seen as an important partner in Ghanaian development. The state's relationship with the Council of Indigenous Business Associations has also prospered, not least because of the perceived political advantage of such a relationship. There is considerable effort to improve the state's relationship with small enterprise associations and the role of the National Coordinating Committee for Technical and Vocational Education and Training (NACVET) has been important here (Afenyadu 1999), as we shall see subsequently.

In South Africa, much of the perception of inadequate support from government stems from an apartheid legacy which leads many entrepreneurs to feel entitled to very considerable support from the state (Mead 1998; Visser 1999c).

It seems clear that the state can and should do more to assist SMEs. However, there is an obvious danger in going down the potential South African route of looking for major state interventionism. The lesson from East Asia seems to be that the state can only play a positive market "correcting" role if such "corrections" are time bound and tightly linked to promotion of competitiveness and a process of learning to industrialise (Lall 1987). Where the state also has an important role is in acting as the champion of learning, of enterprise and of competitiveness. This can be through awareness raising, information broking and the energising of private sector mechanisms to promote learning-led competitiveness, as well as through carefully targeted and tailored interventions.

2.3.11. Learning-led competitiveness and the constraints faced by African enterprises

The discussions of this section make clear the many constraints that face the development of learning-led competitiveness strategies for Africa's SMEs and macro economies. Nonetheless, it also suggests that many, if not all, of the obstacles are surmountable with effort. It is our contention that learning-led competitiveness is not a Utopian vision in African contexts but a pressing necessity. Putting learning at the heart of enterprise development strategies is essential but this must be accompanied by an analysis of and a response to the obstacles that lie in the way of enterprise, of learning and of competitiveness in the different parts of the continent.

PROPOSITION 2.2.

A focus on learning-led competitiveness is not an irrelevance in African contexts. If African countries do not address these challenges, then they are likely to fall even further behind economically and the social and economic costs of globalisation inevitably will be intense. Whilst it is true that enterprises across Africa face considerable obstacles to current competitiveness, or even survival, these must be seen as obstacles that need to be overcome through targeted efforts, rather than reasons for despair.


2.4. LEARNING THROUGH ENTERPRISE COOPERATION

There are many types and levels of relationships among businesses, both large and small. Cooperation, often characterised as business linkages, occurs across notional divides such as degree of formality, ethnicity and enterprise size. The importance of these relationships, in the context of this project, is in the opportunities they offer for access to the global economy, the learning and technology transfer opportunities that are inherent in good cooperative modalities, and the considerable scope for scaling-up due to the very normality of such cooperative relationships in mature and developing market economies.

It seems likely that education and training initiatives can take advantage of, and indeed encourage, the wide range of business linkages as a means of pinpointing where there is real, current and growing demand for skills. Where incentive structures are working adequately, the self-interest of the parties involved makes them efficient and willing partners in designing, delivering and assessing training.

In South Africa, our project has found evidence of powerful horizontal cooperation between enterprises of similar size, e.g. in West African clothing or jewellery (Rogerson 1998 and 1999a), although this is by no means a widespread phenomenon and is undermined by a lack of trust. Vertical linkages between enterprises of different size are also developing quite rapidly in South Africa (Mead 1998; Visser 1999b). Such relationships seem to be driven by both directly commercial, and more explicitly social responsibility, concerns. On the commercial side, there is concern that sub-contracting is being driven by attempts to circumvent health and safety regulations and trade unions, and to suppress wages and costs (Rogerson 1998). However, Rogerson notes that there are also more positive outsourcing reasons that can lead to healthy relationships between larger and smaller enterprises. Mead (1998) confirms this, noting that many sub-contractors are in fact unionised. His data seems to suggest that there is a "high road" of upskilling, quality conscious vertical linkage as well as a "low road" of cost-cutting and union busting.

South African sub-contracting, however, also has another powerful force at work. Corporate concerns about legitimacy in the post-apartheid era, and their genuine desire to be good citizens, have led to a wide range of social responsibility activities designed to show that large corporations are serious about issues such as black empowerment and poverty eradication (Mead 1998; Visser 1999b). Sub-contracting has also become part of this approach. When motivated by non-commercial concerns, such programmes seem to be of limited worth (Mead 1998). However, there is growing evidence of genuine skills development through some of these programmes, which are now evolving into more genuine linkages (Rogerson 1998).

As Mead (1998), Rogerson (1998) and Visser (1999b) all note, there is still a problem in vertical linkages due to the power imbalance, particularly in the all-too-common situations where there is an excess of small competing suppliers and only a few large buyers. Nonetheless, the corporate and political environment of South Africa is such at present that vertical linkages have a strong profile and considerable potential.

Barr's (1999) evidence from Ghana suggests that the benefits of cooperating vary sectorally with those in high value niches benefiting far more than those in traditional or survivalist market segments. However, Afenyadu's research as part of this project (1998b) points to the emergence of sub-contracting between different level niches in the clothing and textiles sector.

There seems to be less sub-contracting apparent in Kenya amongst even more dynamic jua kalis, although the furniture industry seems to be an exception (King 1999). Nonetheless, in the case of the Asian layer of the economy, it was clear that they had become important to the jua kali sector as clients, and as distributors of jua kali products. Asians were, for some of the jua kali, the only major purchasers of their products.

In the literature, major additional advantages are seen to come from membership of networks, clusters and sub-contracting relationships, all of which facilitate information acquisition. However, Africa has generally struggled to develop such positive examples. It must be remembered that in much of Africa, low initial levels of education and poor information dissemination mechanisms (Mead 1998; King 1999; Visser 1999b); an adverse macroeconomic climate (Adam 1999); lack of trust and a weak legal system (Barr 1999; King 1999); and poor infrastructure (McGrath 1997a; King 1999) are all constraints to effective linkages.

There has been a growth in projects (supported by governments, NGOs and donors) that are interested in better linkages between enterprises. This shows a growing recognition that there is an important distinction to be made between addressing the internal needs of enterprises and the addressing the relationships among businesses.

Such concerns are obvious in all three project countries and there are a wide number of projects and programmes. In both the South African (Republic of South Africa 1995) and the draft Kenyan (International Centre for Economic Growth 1999) small enterprise policies, there is increased attention to this topic.

Policies to support an improvement in the quality and quantity of business linkages appear to be one of the most useful elements of a small enterprise development strategy. Such programmes of support should emphasise learning. They must also address the constraints preventing linkages maximising learning and competitiveness.

The growing interest in inter-firm cooperation is a positive one. Where they are working properly, such relationships are in essence about competitiveness. They link enterprises and economies with the dynamic sectors of the global economy and are the access mechanism to the best markets for new and growing enterprises of all sizes and shades. For a learning-based competitiveness strategy, they also facilitate specialisation and technology transfer.

From our perspective, the challenge ahead lies in making learning more explicitly part of cooperative relationships. For educators and trainers, there are important challenges in conceptualising how their products can be better tailored to fostering cooperation and to reaping its benefits. At the core of this is the need to investigate more fully the degree to which linkages help identify real training needs, ones that have a competitive or global nature. The evidence also seems to point to the importance of brokers of information, standard setters and quality controllers in maximising the learning-led competitiveness of African economies.

PROPOSITION 2.3.

One of the most important new insights of small enterprise development in recent years is the acknowledgement of the crucial role of inter-firm linkages of various kinds. This perspective is important for its focus on the improvements to efficiency and competitiveness that can accrue from such relationships. However, it is important to place learning more centrally within this approach and to consider the explicit role that education and training can play in the promotion of pro-growth linkages.


2.5. INFORMAL SECTOR ASSOCIATIONS

Structural adjustment has led to greater agency and government interest in civil society and structures such as informal sector associations (ISAs). The Kenyan draft policy on small and micro enterprises, for instance, places considerable emphasis on ISAs (International Centre for Economic Growth 1999) and a number of donors have become involved in several countries (Haan 1999).

The scale of some networks of ISAs makes them powerful stakeholders with which the state needs to deal. In Ghana, the Council of Indigenous Business Associations (CIBA) has 2,4 million members in its affiliates (Afenyadu 1998a). It is little surprise then that the Government has cultivated links with CIBA. A dramatic manifestation of this is the role of CIBA as collectors of income tax for the state. This earns CIBA a commission, which is a major source of revenue for the Council. In Kenya, the Kenyan National Federation of Jua Kali Associations (KNFJKA) has 60 000 members in affiliates (King 1999). Nevertheless, taken together with the large number of artisans in non-affiliated associations, sectoral associations in Kenya also have a high profile. In South Africa, there are no equivalent structures of parallel influence and the small scale productive sector is generally far less developed.

In both Ghana and Kenya, there have been a number of successful small scale interventions focused on rapid market appraisal, fairs and exchanges (Haan 1999). ISAs also have had some success in lobbying and advocacy (Haan 1999).

The example of Ziwani Jua Kali Association in Kenya (McCormick 1999) points to the possibility of a future approach in which ISAs identify new market challenges and seek to develop networks to solve them. Here the members of the association, which is entirely comprised of car and lorry mechanics, have combined in an attempt to respond to the importation of new cars. They have identified a joint need for training, diagnostic equipment, and access to a different range of replacement parts and are seeking to find external support to address this need. As a result of the World Bank vocational skills project in Ghana (see Chapter Four), the National Electrical Contractors Association and the Electric Company of Ghana collaborated for training purposes (Afenyadu 1999). Also, through the Global Environmental Facility, the National Refrigeration and Air Conditioning Workers Association have begun to respond to the banning of CFCs (Afenyadu 1999). In Ghana, associations such as the National Tailors and Dressmakers Association are attempting to upgrade and standardise quality (Afenyadu 1999). Significantly, ISAs are also beginning in Ghana to become involved directly in the curriculum and certification of training. These examples powerfully illustrate the potential of ISAs to facilitate learning-led competitiveness.

It is important to note that evidence to date on ISAs is still quite limited, although stronger in the Francophone case, e.g. in Mali (Carton 1999). Whilst this is suggestive of their potential, in keeping with other aspects of the informal sector, concerns remain that interventions in some situations weaken rather than strengthen such structures. ISAs may represent the best available vehicle for articulating the needs of clusters of entrepreneurs and for interacting with the state and donors in cluster development. Therefore, serious attention should be paid to improving understanding of how ISAs can be strengthened and inserted into the core of small enterprise development strategies. In so doing, the importance of their potential for promoting learning-led competitiveness should be stressed. Equally, the possibility of developing this through better relationships between ISAs and formal sector chambers of commerce and industry is worth considering.

PROPOSITION 2.4.

The limited evidence on the performance of Informal Sector Associations (ISAs) highlights the need for caution in intervening in this area. Moreover, what evidence there is, points to the dangers of intervention for undermining their autonomy and self-reliance. Nonetheless, ISAs are a potentially important mechanism for promoting cooperation and change in small and micro enterprise sectors in different parts of Africa. Therefore, attention needs to be paid to ways of better involving them in policies and programmes for the sector.


2.6. POLICIES FOR SMALL AND MICRO ENTERPRISE DEVELOPMENT

Kenya has a well developed small enterprise development policy, at least on paper, and this is being developed further at present. The Sessional Paper of 1992 (Republic of Kenya 1992) sees the state primarily as a facilitator with a particular role in creating and enabling environment. Considerable emphasis is also put on the role of microcredit.

The current draft policy of the Ministry of National Development Planning (International Centre for Economic Growth 1999) has a strong non-financial services focus alongside microcredit and an enabling environment. It stresses links with larger firms and highlights the heterogeneity of jua kali activities. Whilst it is positive about the role of jua kali, it does point to the need to increase jua kali productivity.

The draft policy places considerable emphasis on the role of ISAs. These are linked to a new notion of Local Enterprise Centres (LECs). These will be based in enterprise clusters and will be encouraged to bring those clusters together through ISAs. These in turn are expected to liaise with technology NGOs in jua kali upgrading. As well as technology, LECs will have a key role in information and marketing. This approach is designed to address issues of learning-led competitiveness in the jua kali sector and shows a keen awareness of the importance of cooperation in order to improve competitiveness.

New structures are also envisaged to support enterprise development at national level. Within the MNDP, a new Department for Small Enterprise Development is proposed. Also there is a suggestion for a stakeholder body called the Small Enterprise Development Agency. However, responsibility for implementation of jua kali projects has been shifted out of the Ministry for Research, Technical Training and Technology into the Office of the President (King 1999). What this means for the draft policy is unclear. It may also threaten the articulation between jua kali concerns and the training sector, although it does have the potential of better inserting the sector into overall development strategies such as the poverty policy.

South Africa presents an interesting case of a policy reform that seeks to provide a more enterprise-friendly regulatory framework, but at the same time sees a major proactive role for the state (Republic of South Africa 1995). The South African policy shows a strong concern with target constituencies of historically disadvantaged groups. These are blacks, women, youth and rural people. However, this is married to a strong concern with competitiveness. This can be seen in an official interest in linkages, tendering and procurement. It is also evident in the attempts to develop Manufacturing Advisory Centres focused on clusters of more dynamic enterprises and with a powerful learning focus (Visser 1999c). Concerns were raised in the first five years of the new South Africa that there was insufficient clarity in the way that multiple goals have been operationalised (Rogerson 1999b) and this is a weakness that the Department of Trade and Industry is itself seeking to address.

South Africa's small, micro and medium enterprise development policy articulates with a number of other sectoral policies. For instance, the Department of Trade and Industry is also behind the spatial development initiatives designed to promote holistic development in regions and along major transport corridors. In all of these initiatives, there is a focus on encouraging smaller contractors and in promoting small enterprise activities such as eco-tourism. One of the key challenges here is to tighten the relationship between the training demand generated by such initiatives and that provided by the training system.

Ghana is still in the throes of developing a small enterprise policy. The Ghanaian Vision 2020 document (National Development Planning Commission 1994) envisages the eventual evolution of micro enterprises into formal small firms as the economy achieves medium term take-off into middle income status. In the meantime, it is perceived that SMEs can play a crucial role in expanding the export focus of the Ghanaian economy, particularly in food processing. Additionally, the Government is keen to build on the strong existing tradition of micro artisanal production and repair work. SMEs are also seen as an important way of generating employment and inserting women into productive activities (Afenyadu 1997b). Learning is seen as a key aspect of these strategies. Enterprises are encouraged to learn to export and to improve their technology. This can be seen in a wide range of initiatives, such as the Export School, the Intermediate Technology Training Units and the World Bank vocational skills project (see Chapter Four for lengthier discussion of the latter) (Afenyadu 1997a and b).

There is a growing view that local government may be better placed than national government to provide much of the support SMEs need (Rogerson 1999b). This fits well with the Ghanaian decentralisation policy and the growing interest in South Africa with local economic development. Equally, the draft Kenyan policy's suggestion for local enterprise centres could potentially facilitate a new, more positive role for local government in enterprise development. Nonetheless, there needs to be caution in expecting local government to be a better partner of smaller enterprises than national government.

Each of the national policies reflects some of the current uncertainty about the relationship between poverty and growth. The shift of the Kenyan portfolio to the same Ministry as the poverty portfolio may be indicative of a desire for closer articulation between those two policies. In Ghana and South Africa, the location of SME under trade and industry seems to reflect the powerful national concerns in both cases with enterprise and competitiveness and with the eventual withering away of the notion of informality. Nonetheless, the South African attention to target groups and the Ghanaian focus on development for the poorest reflect the complex relationship between poverty and growth inherent in small enterprise policy.

There are signs that the growing competitiveness focus of small enterprise policy is also leading to the emergence of a stronger emphasis on the importance of learning enterprises, although this does not yet amount to an explicit core element of small enterprise development policy in any of the three countries. From the perspective of the project, developing such an explicit focus is an important challenge.

PROPOSITION 2.5.

National policies for small enterprise development are becoming more reflective of "international best practice". However, concerns remain about their relevance to and grounding in local issues. Although governments are trying to become more small enterprise friendly, there is still considerable suspicion of their motivation and performance. For policies to improve, and be more implementable, it is important that steps to consult stakeholders be continued and deepened. It is likely that ISAs will be important actors in such communications.

PROPOSITION 2.6.

Policies have recently addressed important weaknesses such as the lack of an adequate enabling environment, including a pro-enterprise legal framework. This will continue to be a central area of policy focus. However, a focus on globalisation points to the centrality of a competitiveness-orientation, and the contribution therein of learning, for the future health of the small and micro enterprise sector. Therefore, this needs to become a core policy concern.


2.7. CONCLUSION

The above discussion illustrates powerfully the challenges facing small enterprise development in our three project countries and beyond. It also points to the progress that has been made in all three countries in enterprise development by individuals, networks and governments. Although the challenges of globalisation and adverse economic conditions are great, there is considerable evidence of enterprises becoming better attuned to the challenge and the opportunities of competitiveness both in local and international markets. Moreover, at the heart of improvements in competitiveness is increasingly a focus on knowledge and skills acquisition and use. In spite of the poor baselines for both learning and enterprise development in much of Africa, the notion of a learning enterprise does seem useful for African countries that are seeking to increase enterprise competitiveness. Its role is in emphasising a goal to be achieved and in highlighting the changes that are necessary in order to achieve it.


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