Localization of industry is encouraged because of

1. Analyze the question Localization of industry means the concentration of firms in the same industry in one particular area, for example the textile industry in Kano or the motor-spare-parts trade in Nnewi. The question asks why this concentration is encouraged, that is, what attracts or supports it.

2. Explain the concept When firms of the same industry cluster in one place, they enjoy external economies of scale. These include:

• A pool of skilled labour
• Shared infrastructure such as roads, electricity, water, and communication
• Nearby suppliers of raw materials and spare parts
• Ready markets and support services such as banking, insurance, and transport

Governments and communities encourage localization because it leads to, and benefits from, better infrastructure. Firms in the cluster share the cost of facilities, and the area attracts further development.

3. Evaluate the options

• A. Low interest charges on loans: This is a general financial condition. It is not tied to firms clustering in one location.
• B. High standard of living: This is an outcome of development. It is not the main reason for localizing.
• C. Low foreign exchange rate: This relates to international trade and has nothing to do with where firms locate.
• D. Improvements in infrastructure: Localization is encouraged because it makes it economical to provide and share roads, power, water, and other facilities, and because the cluster benefits from such facilities. This fits the concept of external economies.

4. Answer The correct option is D. Improvements in infrastructure.

5. Exam tip Whenever you see "localization of industry," think of external economies of scale: skilled labour, infrastructure, and supporting services. Pick the option that links to these benefits, and you will usually get it right.