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

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
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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.
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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. 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.
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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.
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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)

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Garment: Cut the clothes in a factory in countryseat
Put out the production in village workshops.
Factory owners have market orders.

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.
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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.
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10. Major Potato Production Centers in China
Anding potato cluster
Zhang and Hu, 2015, World Development 10

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.
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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.
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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
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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
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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
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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.
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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.
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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.
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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.
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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.
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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
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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.
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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. IFPRI – ECES Cluster-based Development
Research Project
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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
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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.
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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
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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
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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.
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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
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32. Stage 1: Structured Expert Interviews
• Criteria to narrow down the choice of
cluster
• Geographical focus: Upper Egypt?
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33. Stage 1: Structured Expert Interviews
• Promising sectors
– Furniture and wood manufacturing
– Agroindustry
– Handicrafts
• Common bottlenecks
• Suggested government intervention
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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
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35. Stage 2: Stakeholder Workshop
• Having an industry focus:
– Furniture and wood manufacturing
– Agroindustry
– Handicrafts
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36. Next Steps
• Stage 2: Field work
• Stage 3: Determine how the GoE can help
and further promote the growth of these
industrial clusters
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37. Thank you
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