“When the African begins to deliberately and as much as possible produce what she consumes and consume that which she produces, only then can we begin to see the rise, the re-industrialization, the development and creation of value for the continent.”

The idea of recapturing certain imports into the country seeks to reduce competition from cheaper imports so that local industry can occupy that space and reduce the import bill. It is a fact that each time we import as a country we are effectively creating jobs elsewhere and therefore working against ourselves. Many countries protect their economies from competition so that they can maintain and develop their industrial base, protect local jobs and encourage local investment in those specific sectors.

Countries that became rich by creating higher incomes and high investment returns for investors at some stage protected and nurtured their manufacturing sectors. An example is the West which deliberately banned the manufacture of specific goods within colonies, thereby allowing them to add value locally to raw materials imported from the colonies and retain that value within their economies.

Rwanda through its “Made in Rwanda” policy has clearly articulated its intentions of reducing imports to deal with the trade deficit and add value and beneficiating its raw materials, especially in the agriculture and mining sectors. This will allow the creation of high-value local jobs and retention of value within the local industry and economy.

On the other hand, while local industry must be protected from cheap imports, local consumers mustn’t be the losers. The protection of local industry from imports can also lead to price monopoly and reduced competition, especially where a few players are producing specific goods or services.

It is also critical that consumers in general deliberately buy locally produced goods and understand the positive economic impact of doing so.

In cases where the local industry does not have or has not developed the adequate capacity to meet local demand, this can lead to shortages and price hikes to the detriment of the consumer. The lack of foreign exchange to import essential input raw materials can also result in local industries being unable to meet local demand and that has been the case. This means that even if they may have the capacity, they are unable to fully utilize that capacity to meet market demand.

What is the best way forward?

It is critical to plan effectively. The best route, in my opinion, is to aggressively invest in and develop the manufacturing sector to replace imports over the medium to long term. When we commit to developing local industry, they must have access to adequate capital and the requisite skills and technologies over an agreed period. It is also key that we ensure that there is adequate competition within these sectors so that we do not inadvertently create monopolies.

Some very thought-provoking insightful research has been done on how to industrialize and I want to point out to my readers the work done by Professor Erik Reinert in his book “How rich countries got rich and why poor countries stay poor.” Central to his insights, is that countries who wish to industrialize must endeavor to emulate industrialized countries and rather look and understand what they did to industrialize as opposed to what they may prescribe to other countries who wish to take the same path. Professor Reinert studied 500 years of economic development policies in what are now industrialized countries and what is indeed striking, is that the now industrialized countries took a route that they now actively discourage developing countries to take.

In his book, Reinert suggests what he terms “the toolbox for economic emulation and development” for those countries who wish to implement sustainable development policies through industrialization. His advice is informed by the policies which the now industrialized countries implemented.

  • First it is important to target support and protection of economic activities which render increasing returns. The export of primary products to developed economies keeps poor countries poor and they must move away from such economic activities which create decreasing returns and move towards manufacturing and services sectors which create increasing returns. Decreasing returns occur when unit costs of production increase with increased volumes while increasing returns are those activities where unit costs decrease with an increase in volumes.
  • Second, temporary monopoly rights, patents, and protection must be provided for local companies which are involved in increasing return activities including geographical exclusivity. It is necessary to provide all the necessary support and to protect such economic activities from foreign competition until these sectors can compete globally. This allows such economic activities to grow and build the necessary economies of scale.
  • Third, establish a manufacturing sector at all costs. “It is better to have a badly managed manufacturing sector than none at all.” The synergies or direct and indirect linkages created by a manufacturing sector are critical for development. A manufacturing sector increases value addition and GDP increases employment levels and incomes, and also solves the balance of payments.
  • Fourth, offer tax breaks for targeted activities thus easing the cost of doing business. Also, offer cheaper credit and export incentives for value-added exports to encourage their local manufacture.
  • Fifth is to establish export taxes for raw materials thus making it unattractive to export raw products and more expensive to foreign buyers. This must be coupled with string promotion of import substitution and deliberate consumption of locally made goods. It will be necessary to develop local manufacturing capacity using these raw materials.

Doing these will ensure an economy begins the process of localized industrialization. The protection, promotion, and support of those economic activities which create local value and higher incomes are the underlying principles. A clinical, well-researched and effectively implemented local industrialization strategy is therefore key.


SOURCE: NewsTimes

Leave a Comment