Nigeria First Policy and Imperative of Import Substitution Industrialisation Policy

Dan Ashiekaa

The Nigeria First Policy, recently announced by President Bola Ahmed Tinubu, aims to strengthen Nigeria’s domestic economy by prioritizing local industries and reducing reliance on foreign imports. This policy framework is designed to foster industrialisation and import substitution, ensuring that government procurement and business activities benefit Nigerian businesses and workers.

Key Aspects of the Nigeria First Policy include:

1. Ban on Foreign Goods: Federal Ministries, Departments, and Agencies (MDAs) are now required to prioritize Nigerian-made goods and services when spending public funds

2. Procurement Rules: The Bureau of Public Procurement (BPP) will revise and enforce procurement rules that favor local content.

3. Technology Transfer & Capacity Development: Where foreign contracts are unavoidable, they must include provisions for technology transfer and local production.

4. Executive Order for Legal Backing: The Attorney General has been directed to draft an Executive Order to give full legal effect to the policy. To embed a sustainable Nigeria First Policy, the government must introduce bespoke monetary and fiscal incentives that encourage local industries to produce goods and services that replace imports. Some key recommendations include: Monetary Policy Incentives.

Preferential Credit Facilities: The Central Bank of Nigeria (CBN) should provide low-interest loans to local manufacturers to boost production capacity. For example, Brazil’s National Bank for Economic and Social Development (BNDES) offers subsidized loans to support local industries (BNDES, 2023).

Foreign Exchange Allocation: Prioritize forex access for industries involved in import substitution to reduce dependence on imported raw materials. South Korea’s approach to stabilising the won during its industrialisation phase can serve as a model (Korea Development Bank, 2023).

Exchange Rate Stability Measures: Implement policies that stabilize the Naira to reduce volatility and encourage local production. Exchange Rate Stability Measures To stabilize the Naira and reduce volatility, Nigeria could consider pegging its currency to the US Dollar, a strategy successfully employed by several economies including The State of Qatar, The Kingdom of Saudi Arabia, The Sultanate of Oman, and The United Arab Emirates (UAE). These countries have managed to achieve commendable economic stability through such measures.

There are multiple substantiated reasons for considering a currency peg including:

• Economic Stability: Pegging the Naira to the Dollar can provide a stable anchor for the currency, reducing exchange rate fluctuations. This stability can foster a conducive environment for investment and growth. For instance, Qatar’s economy has benefited significantly from such stability (IMF, 2023).

• Inflation Control: A currency peg can help control inflation by preventing the Naira from depreciating rapidly. This measure can ensure that import costs remain predictable, thereby controlling cost-push inflation. Saudi Arabia has successfully maintained low inflation post-currency peg (World Bank, 2023).

• Investor Confidence: By pegging the Naira to the Dollar, Nigeria can enhance investor confidence, knowing that their investments are protected from currency risks. The UAE has seen increased foreign direct investment due to its pegged currency (OECD, 2023).

• Trade Balance Improvement: Pegging the Naira to the Dollar can help improve Nigeria’s trade balance by making exports more competitive and imports more predictable in terms of costs. Oman has leveraged its pegged currency to boost export revenues (WTO, 2023). For the currency peg to work effectively, Nigeria’s Central Bank will need to:

• Maintain adequate foreign exchange reserves to defend the peg (IMF, 2023).

• Ensure fiscal and monetary policies support the fixed exchange rate system (World

Bank, 2023).

• Monitor and respond to global economic changes that could impact the pegged currency (OECD, 2023). On the inflation side of things, the Central Bank must clearly identify which type it is combating, whether it is Cost-Push or Demand-Pull Inflation. Initiatives should include: Cost-Push Inflation: Introduce measures to control cost-push inflation by reducing production costs which will include reducing rather than increasing interest rates. Brazil’s investment in infrastructure significantly lowered production costs and catalyzed industrial growth (World Bank, 2023). Demand-Pull Inflation: Implement policies to curb demand-pull inflation by managing excessive consumer demand. South Korea’s strategic investment in technology and innovation helped balance demand and supply by increasing productivity and efficiency, leading to a greater output of goods and services that met the rising demand. This approach ensured that the supply side could keep up with the increasing consumer demand, thereby stabilizing prices and preventing excessive inflation (OECD, 2023).

Interest Rate Stability: Establish stable, predictable, and favorable interest rates to foster a conducive business environment. Brazil’s Central Bank maintained favorable interest rates to boost manufacturing (Brazil Central Bank, 2023).

Reduction in Monetary Policy Rate: Implement a general reduction in the Monetary Policy Rate by the Central Bank of Nigeria to reduce lending rates by Deposit Money Banks, thereby spurring light manufacturing. South Korea’s Bank of Korea successfully reduced its policy rate to support industrial growth (Bank of Korea, 2023).

The fiscal authorities, such as the Federal Ministry of Finance, should prioritize the enhancement of existing fiscal policy incentives, while also considering the introduction of new measures to stimulate economic growth. Some of these include:

Tax Breaks & Subsidies: Offer tax incentives to industries producing essential goods locally. For example, Brazil provided tax exemptions and subsidies to its automotive industry, significantly boosting local production and reducing the need for imports (World Bank, 2023).

Import Tariffs & Restrictions: Increase tariffs on non-essential imports to encourage domestic production. South Korea successfully implemented high tariffs on imported consumer goods while offering protection to its infant industries, fostering the growth of local manufacturers (OECD, 2023).

Infrastructure Development: Invest in power, transportation, and logistics to reduce production costs for local industries. Brazil’s significant investment in infrastructure, particularly in transportation and logistics, through public-private partnerships, has greatly enhanced its industrial base (BNDES, 2023).

The major catalysts for successful import substitution include: Public-Private Partnerships (PPPs): Encourage collaboration between the government and the private sector to drive industrial growth. In South Korea, PPPs have played a crucial role in developing major infrastructure projects, including roads, ports, and industrial parks, which have supported industrialization (Korea Development Bank, 2023). Research & Development (R&D): Invest in innovation to improve the quality of locally produced goods. Brazil’s investment in R&D, particularly in the agricultural sector, has led to the development of new technologies and improved productivity, reducing the reliance on imports (World Bank, 2023).

Consumer Awareness & Market Development: Promote Nigerian-made products through campaigns and incentives. South Korea’s campaigns to promote locally made products have successfully fostered a sense of national pride and increased demand for domestic goods (OECD, 2023).

In conclusion, the Nigeria First Policy is a bold step toward economic self-sufficiency. By implementing targeted monetary and fiscal incentives, Nigeria can reduce its reliance on imports, save foreign exchange, and strengthen the Naira. However, successful implementation requires strong enforcement mechanisms, stakeholder collaboration, and continuous policy refinement.

.Dan Ashiekaa is an International Consultant, Policy Analyst, Oil & Gas Professional and

President/CEO, Bel Air Capital Int’l Limited