The Egyptian government has prioritized the idea of cluster-based development-that is, the geographic concentration of specialized firms, such as in this case, those producing similar or related products. The establishment of such clusters, however, presents significant challenges, bottlenecks, and obstacles. Based on primary field work, this paper focuses on two case studies of the impacts of shocks on business clusters. The first study involved the relocation of an established leather cluster from Cairo to a newly created industrial park, Robbiki Leather City, which was promoted by Egypt’s Ministry of Trade and Industry. Although the relocation partly solved the existing issues of water contamination, new challenges emerged relating to increased production and transportation costs, and unforeseen impacts on the community. The second study assessed the short-term impact of the COVID-19 pandemic on a business cluster producing medicinal and aromatic plants. Overall the MAPs sector was resilient to the outbreak and there are opportunities to offset any negative impacts of the pandemic by taking advantage of new markets for Egyptian MAPs stemming from supply disruptions in other countries; increased global demand for MAPs due to their pharmacological and health properties; and increased international demand for organically grown MAPs. Findings indicate that it is essential for governments to develop policy responses to the challenges-and especially barriers-to the development of business clusters, while simultaneously supporting and creating incentives for the cooperation, entrepreneurship, and collective action needed for business clusters to thrive and grow. As anticipated, challenges and obstacles-whether overarching or in response to shocks-are unique to specific sectors, contexts, and times, and hence need to be dealt with as an ongoing facilitation process.

Clusters – the geographic concentration of specialized firms that are working in similar or related activities and are interdependent – have played an important role in the industrial development of many countries, including in Europe, the Americas, and Asia. A large part of these successes can be explained by the ability of clusters to build on existing strengths of local communities, such as social capital and abundant labor, to overcome common constraints to economic expansion, such as weak financial markets and institutions. Realizing the potential for cluster-based development and the long history of clusters in the country, the Egyptian Government has made cluster-based industrialization a key pillar of Egypt’s sustainable development strategy to 2030. The timing for a cluster-based industrial development model for Egypt seems favorable as macroeconomic reforms in recent years have made Egypt’s economy more competitive and the country’s young labor force provides a comparative advantage for labor-intensive sectors. The objectives of this paper are to take stock of existing clusters in Egypt; to identify a set of promising “organic” clusters; and to make high-level recommendations for the further expansion of agribusiness and handicrafts clusters based on an innovative analysis of economic census data, a review of previous cluster studies in Egypt, and information obtained from expert interviews and a stakeholder workshop. Our findings suggest focusing cluster development efforts on Upper Egypt, which has a comparative advantage in several sectors, especially in labor-intensive sectors. However, the current cluster density in Upper Egypt is low, particularly in rural areas. Expanding the number and density of clusters there will likely require improvements in infrastructure, institutions, and services. The most promising clusters identified through the analysis include medical and aromatic plants, sugarcane, and tomatoes in the agribusiness sector; ready-made garments and carpets in the handicrafts sector, and furniture. These are all promising organic clusters based on their high market demand, export potential, labor intensity, and historical roots. We develop several recommendations for the agribusiness and the handicrafts sectors, especially highlighting the important facilitating role that local governments should play in cluster-based development by providing necessary basic public goods and services. In-depth case studies for specific, promising clusters should follow to help local governments and entrepreneurs to fully harness the unique opportunities that clusters can provide for local industrial development and job creation in Egypt.