A new approach to cluster-based SME development

A new approach to cluster-based SME development


Md. Joynal Abdin

The Daily Independent on November 19, 2011

The small and medium enterprises (SMEs) are familiar as the engine of growth in developing economies. They are helping in economic development from two dimensions. Firstly by producing goods/services.  Secondly by employing more labour with comparatively low investment. Employment generation and GDP growth both are very much important for sustainable development of an economy.   Bangladesh is maintaining 4 – 6.5% GDP growth during last two decades.  It experienced several downturn of GDP growth in the same period. But we do not know why this downturn occurred. Sometimes we blamed natural disasters, political unrest and so on. But we actually never try to find out the real cause and take actions to avoid any further downturn. As a result, till now we are in and around 5-6 % growth. Composition of our economy is agriculture: 18.4%, industry 28.7% and services: 52.9%. From industry’s  contribution to GDP viewpoint Bangladesh is the 73rd economy among 165 economies of the world.  The position may be not bad due to  our position at nearly mid point in the list. But when we  compare our companions in 1980s like Vietnam (33rd), Korea, South (35th) and Iran (23rd) then we can realize our progress  has been slow during last two decades.

From sector wise employment generation’s point of view agriculture is employing 45%, industry 30% and services 25% of Bangladeshi labor force. If we compare employment generation versus contribution to GDP then we can easily say that, agriculture not so much an efficient sector for Bangladesh because 45% people of the labour force are contributing only 18.4% of the GDP. That means we have to improve productivity in agriculture to ensure proper utilization of resources in it.

Industry is contributing 28.7% of the GDP by employing 30% of the labor force. That means we have space to improve productivity in industrial sector too. At the same time industry’s contribution to GDP has to improve up to 40% by 2021. According to vision 2021 Bangladesh should  achieve 8% GDP growth in 2013, increase it up to 10% by 2017 and continue in the same rate till 2021 to meet the stated goals.

Bangladesh achieved 5% GDP growth for the first time in 1996. It turned back to 4.8 in 2001 and 2002. In 2011 we are scoring around 6.5. That means we spent long 14 years to increase 1.5% GDP growth. To achieve 8% GDP growth by 2013 we have 2 years in hand to increase the 1.5% rate of GDP growth. It means 14 years achievement have to be achieved by 2 years. It is really a  tough target for us where existing industries are facing gas rationing, new electricity connections stopped for last few years.

Thus, SME can be the best option to increase GDP growth rate and generate employment with minimum investment. We have a misconception  private sector will do business for their own profits. So, what government can do for them? Ensuring basic needs to all citizens is the primary duty of the state. So, government will create congenial entrepreneurial environment for maximum employment generation so that basic need of a family reaches via an employed citizen. The government of Bangladesh has enacted the National Industrial Policy 2010 and SME Policy Strategies 2005 to boost up industrial development and provide necessary assistance.

But how these policies can be implemented?   Who would be the appropriate groups to get government’s support? What are the appropriate fields for interventions? In many countries specially in neighboring India cluster based development interventions get popularity due to its effectiveness. Because cluster based intervention help us to select the most appropriate groupS without corruption and ensure best utilization of limited resources.

The SME Foundation, Bangladesh is currently working hard to identify SME clusters in Bangladesh. Primary identification of the clusters in 64 districts has been completed. Now in-depth analysis of each identified clusters and GIS mapping is going on. After successful completion of the task we can easily select the most promising clusters for development interventions throughout the country. This will help to expand existing enterprises, increase their productivity and establish new enterprises in each of the clusters. It will help us to achieve the projected GDP growth.

Now come to the point : what is a cluster? Why cluster based intervention can be more result worthy? What is the best approach of cluster policy making? Cluster is defined with different  indicators in different countries. Clusters are usually  located in a particular adjoining area and producing similar group of products. There was no unified definition of cluster in Bangladesh. SME Foundation along with key stakeholders reached a decision that if there is about 50 similar production units in a 5km diameter then it will be termed as a cluster.

Generally, a cluster produces similar (not same) products. Necessary support services or inputs are available in the same location. A cluster generally develops through learning, creating  and upgrading processes. Cluster based development intervention can be the best possible way to ensure maximum utilization of our existing resources.

For example, a central ETP or a lab can serve 100 enterprises of a particular industry located at the same place. Similarly,  it is easier for the government to facilitate required services in a particular location for a group of similar enterprises.

Hopefully, SME Foundation’s initiatives will get all stakeholders attention and required support to develop SME clusters in different locations of Bangladesh to promote employment and economic growth.


Published by

Md. Joynal Abdin

Development Researcher, Columnist and Author

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