Lack of Scale and Aggregation
Recent research published in Sustainability (2026) through MDPI reinforces a consistent finding across industrial development literature: firm size and scale are critical determinants of productivity, efficiency, and investment viability. The study highlights that smaller, fragmented production units face structural constraints in achieving cost competitiveness, adopting advanced technologies, and complying with increasingly complex environmental and governance standards.
A central insight is that scale is much more about output volume than it is about operational efficiency, resource optimization, and the ability to absorb fixed costs, including compliance, certification, and infrastructure investments. Larger or aggregated firms are better positioned to internalize these costs, while smaller enterprises often face disproportionately higher per-unit expenses.
The research also emphasizes that sustainability and compliance requirements are inherently scale-sensitive, requiring systems and investments that are difficult to implement at small operational levels.
From an investor perspective, scale is a foundational criterion for capital allocation. Institutional investors, private equity firms, and development finance institutions require opportunities that can absorb significant capital while delivering predictable and scalable returns.
Sub-scale operations present several challenges:
- Limited capacity to deploy capital efficiently
- Higher operational volatility
- Reduced ability to meet compliance and reporting requirements
As a result, investors often prioritize opportunities that demonstrate either existing scale or a clear pathway to scale through aggregation or expansion. Aggregation mechanisms such as industrial clusters, vertically integrated platforms, or consolidated supply chains are particularly attractive because they reduce fragmentation and improve operational coherence.
Without scale, even commercially viable projects struggle to meet the thresholds required for investment, as transaction costs, due diligence efforts, and monitoring requirements become disproportionately high relative to potential returns.
For Africa’s CTA sector, the lack of scale and aggregation represents a structural barrier that limits both competitiveness and investment inflows. A large proportion of firms operate as small or medium-sized enterprises, often independently, with limited coordination across the value chain.
This fragmentation at the firm level compounds the broader value chain fragmentation discussed earlier, resulting in a sector that is rich in activity but limited in investable platforms. Individual enterprises may demonstrate capability and potential, but without aggregation, they remain below the scale required to attract institutional capital.
The implications are particularly significant in the context of rising compliance requirements. As environmental and governance standards become more stringent, the cost of compliance increases, further disadvantaging smaller firms. This creates a widening gap between firms that can scale and those that cannot.
However, the research also points to a pathway forward. Aggregation, whether through industrial parks, cooperative models, or vertically integrated enterprises, can enable smaller firms to collectively achieve scale, share infrastructure, and reduce costs. Such models not only improve competitiveness but also enhance investment attractiveness by creating larger, more structured, and lower-risk opportunities.
The study highlights a growing alignment between sustainability, industrial policy, and investment trends. There is increasing recognition that achieving both environmental and economic objectives requires scaling up production systems rather than relying on dispersed, small-scale operations.
A key signal is the emphasis on economies of scale in sustainability compliance, where larger entities are better equipped to implement energy-efficient technologies, manage waste, and track emissions. This aligns with broader global trends, where buyers and investors are consolidating supply chains and prioritizing fewer, larger, and more capable partners.
Another important signal is the role of policy and institutional frameworks in enabling aggregation. Governments and development institutions are increasingly investing in industrial clusters and shared infrastructure to overcome scale constraints and facilitate investment.
This implies that capital flows toward opportunities that can absorb investment efficiently, operate predictably, and meet compliance demands at scale. Sub-scale operations, regardless of their potential, struggle to meet these criteria. Without aggregation and pathways to scale, much of Africa’s CTA sector will remain below the threshold of investability.