Increasing SME productivity in Uganda: Leveraging clusters to train and create linkages

This study conducts a unique experimental evaluation of an intervention that focuses on technical training and the creation of economies of scale among small enterprises to increase access to markets.

Low productivity is a major constraint to growth in developing countries (in both agricultural and non-agricultural sectors); a particular concern since Small and Medium Enterprises (SMEs) form a large share of the economic activity in most developing economies. Recently there has been a growing interest in the potential importance of business training designed to address a lack of managerial capital. This is supported by firm-level evidence that higher levels of training are associated with higher productivity. Even if firms have the potential to increase productivity they may not train as the result of market failures such as credit constraints, information constraints, and the cost of employee turnover. Government programmes designed to alleviate credit constraints to firm training (tax deductions, grant-levy programs) have typically failed to reach SMEs, suggesting that information constraints and the “failure to notice” may be binding constraints that prevent SMEs from training even if it is optimal for them to do so.

The Ugandan Investment Authority in collaboration with Makerere University has developed the Innovation Systems and Clusters Programme-Uganda to help SMEs grow. This programme identifies and trains a cluster leader from each group of SMEs, conducts technical training with SMEs, and supports SMEs in creating economies of scale to purchase inputs and access markets. For the first stage of the experiment, the researchers intend to evaluate the programme’s impact in two sectors: pineapple and metal fabrication. In the pineapple sector, the intervention uses agricultural experts to help farmers reach quality standards (through access to shared capital and technical training) and economies of scale (i.e. coordination among farmers in terms of shipping) required to export internationally within East Africa. In the metal fabrication sector, in addition to technical training from experts, SMEs are supported in creating economies of scale in purchasing inputs and strengthening supply chain linkages.

The intervention being studied is an ongoing programme that is jointly led by the Ugandan government and is already partially scaled-up. This leads to two direct policy translations of this evaluation: (i) it will provide evidence of the effectiveness of the current program to SMEs, the government, partners at Makerere University, and international donors, and (ii) it will inform the future scale-up of this programme and, potentially, similar programmes in other countries.