Policies of Import Substitution in Nigeria
Chapter One
Preamble of the Study
Import substitution, in layman’s terms, implied the substitution of home manufacturing for foreign imports. This meant “reducing reliance on imported goods by substituting them with locally produced goods” (Osei-Hwedie, 2005, p1). Imported commodities from industrialized economies were to be skipped in favor of those produced domestically under the import substitution industrialization strategy. The import substitution industrialization(ISI) main goal was to help the local market develop to the point of self-sufficiency in the manufacturing of commodities that were suited for and dictated by the local market. The majority of ISI policies were based on the infant industry concept, in which local industries were forced to function under protectionism in order to develop inwards.
The formation of global markets and the worldwide competitiveness of entrepreneurial structures does not bring benefits in terms of optimizing production and distribution processes, and it is fraught with dangers, one of which is the question of ensuring national economic security. It expands as highly competitive foreign corporations enter domestic markets, displacing domestic manufacturing.
Long-term, the country’s reliance on imports develops, which, in the event that global economic relations are severed, could result in an acute deficit with bad social effects. As a result, import substitution is becoming more relevant as a means of bolstering national economic security in the face of globalization. The goal of this essay is to examine current import substitution policies as a key component of Nigeria’s growth plans.
Chapter Two
Literature Review
Food import bans
Nigeria’s repeated failure to resurrect its agriculture economy appears to indicate that import substitution plans have been flawed. However, when looking at how the Nigerian government implemented these policies, it becomes evident that the objectives and intents of Nigeria’s import bans the country’s primary policy tool were primarily not to boost the sector’s growth.
According to a study of Nigeria’s trade policy by the World Trade Organization (WTO), there have been a variety of motivations for import limitations that do not match the justifications supplied by the Nigerian government. While the government maintains that its import prohibitions are intended to help local agriculture and manufacturing, the timing of various import bans over the years has corresponded with drops in oil prices. The pattern implies that there are conflicting goals when it comes to banning agricultural imports. When oil prices fall, these restrictions appear to protect foreign currency reserves rather than boost domestic production.
Nigeria cut imports during the first big oil-era economic crisis in 1982, citing a section in the General Pact on Tariffs and Trade (a 1947 multilateral trade agreement that lasted until the formation of the WTO) that allowed a country experiencing balance-of-payments difficulties to do so.
By the end of 1983, the restricted policy had been expanded to include the licensing of all imports and the closure of Nigeria’s border. The next government, which took office in 1985, eased the earlier limitations but maintained the protectionist tendency by levying 30% tariffs on all imports. When President Sani Abacha came to power in 1993, he instituted new trade regulations and controls, easing some quantitative import limits. In the 1990s, the country continued to reduce import restrictions in general. However, following the collapse in oil prices as a result of 9/11, the trend was reversed in late 2001, with an increase in import restrictions that lasted until 2004.
Oil prices have dropped about 60% since mid-2014, resulting in a huge loss in oil profits, which make up the vast majority of the country’s export revenues (91.2 percent in 2014). As a result, the oil-dependent government has battled to contain the depreciation of its currency and retain sufficient foreign currency reserves for import purchases. In June 2015, a year after the start of the oil crisis, fresh import limitations were enacted, following the trend. Import bans on 41 products were imposed by the government, removing the need to deplete foreign currencies in order to import such commodities.
Nigeria has recently proved its continued commitment to existing import prohibition strategies. Nigeria’s Comptroller General of Customs, Ahmed Ali, ordered the country’s rice import ban to be lifted immediately in October 2015. Policymakers and governing bodies, including the Senate, promptly questioned expressed suspicion about the restriction. Senator Adamu Aliero contended that Comptroller Ali lacked the authority to lift the import prohibition unilaterally. This ruling was overturned in March 2016, and rice import bans were reinstated. The Comptroller’s Office admitted that revenue had fallen far short of expectations, and importers blamed a lack of access to foreign currency for the shortfall. Following the lifting of the embargo in October, smuggling across land borders rose significantly. Nigeria then imposed an import ban on foreign beans in February 2016, broadening the scope of the ban.
Nigeria’s domestic food production has not increased considerably, and its food import bill has only climbed, as a result of these short-sighted import limitations to rectify its balance of payments, for which Nigeria has been rebuked by other WTO members.
The Agricultural Transformation Agenda takes a more holistic approach.
Nigeria’s policymakers gradually began to take to heart the idea that they urgently needed to address the country’s food import dependency, prompted in part by the instability of oil markets during the financial crisis, and began to rethink their approach for feeding the country.
President Goodluck Jonathan’s Agriculture Transformation Agenda, which he unveiled in 2011, is at the heart of this policy shift. The Agenda was created with the goal of addressing the country’s agricultural inefficiencies on a broader scale. The Agenda’s broad goals include promoting agribusiness, attracting private sector investment in agriculture, reducing post-harvest losses, and adding value to local farm products. The Agenda emphasized employment creation and increased efficiency in the growing and production of Nigeria’s essential staple crops, particularly rice and cassava, by imposing reciprocal import bans on other imported staples like wheat. The Agenda, in particular, was launched with the goal of adding 20 million tonnes of food to the domestic supply by 2015 while also creating 3.5 million jobs, “driving import substitution by accelerating the production of local food staples, to reduce dependence on food imports and turn Nigeria into a net exporter of food.”
The Agenda’s policies address a wide range of concerns across a variety of agricultural value chains. The Growth Enhancement Support Scheme (GESS), for example, aims to de-regulate the seed and fertilizer industries, allowing farmers unprecedented access to fertilizers to boost yields. Within a year, 880,000 farmers have registered for the GESS in 34 of Nigeria’s 36 states. Farmers that engage in the program receive a 50% subsidy on fertilizers and other inputs, with the goal of increasing agricultural yields through subsidizing farming inputs. The government distributes these inputs through an electronic wallet system, which helps to reduce the possibility of subsidy fraud. In the seed market, there has also been a major response: the number of seed suppliers has expanded from 11 before the reform to 77 in 2013.
Chapter Three
Conclusion
Despite being a strong theoretical model, the results of implementing import substitution strategies in various world economies have been uneven. Combining import substitution policies with an increased emphasis on a “export push” has been beneficial in East Asia. China is a shining example of this impact, as import substitutes helped China’s economy take off in the 1970s, allowing it to grow to become the world’s largest economy and modernize quickly. Many other developing countries, on the other hand, have been unable to considerably expand their own industries solely through import substitution programs.
The reasons for different levels of success and failure are complex and hotly contested. Some researchers argue that the intent industry is unprepared for international competition due to a combination of high protection and import dependency; others argue that effective import substitution necessitates conditions that promote innovation and new thinking, which may be lacking in the country.
Nigeria stands out as an example for two reasons. First, import bans have proven to be ineffective in increasing agricultural output and helping local farmers reclaim market share lost to imports for decades. Second, the Agenda’s holistic approach looks to have been extraordinarily successful in this regard thus far. Nigeria is still far from being able to provide all of its own food, despite the Agenda’s inception in 2011. However, if it continues on this path, it may one day become a model for raw material exporters, particularly in Africa, seeking to break free from food import dependency.
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