Growing the Economy through Import Substitution 

Amid the positives being recorded in the nation’s oil sector, accretion to the foreign reserves and brighter prospects for the economy, Olaseni Durojaiye reiterates the need to sustain the import substitution policy for economic development

The incipient cheery news emanating from the country’s oil sector as evidenced in the swelling of the  foreign reserves and improvement in the forex market as seen in the local currency appreciating against other foreign currencies, particularly the dollar are signs that the economy may be  on the path of  recovery and growth. Also strategic to economic recovery and growth  is deepening of  the backward integration policy. 

However, the importance of keeping track with the backward integration policy, particularly its import substitution component could not be overemphasised considering the country’s knack for policy inconsistency and the temptation to dump the initiative at a time like this when the economy is beginning to show  positive outlook.  Given the country’s attempts at adopting backward integration as a policy to develop the economy and the outcomes of such attempts before now, makes the call more instructive.

One of Nigeria’s attempts at building a virile industrial base through import substitution depended on importing processed materials for assembling but the strategy merely bequeathed to the nation a number of assembly plants that were dependent on completely knocked down (CKD) components imported from industrialised nations while essential materials needed for local production in different sector of the manufacturing industry were being imported.

Benefits of Import Substitution

Development economists argue that import substitution remains one of the ways to grow an economy even in developed markets. Economic policy analysts posit that one of the policies and strategies employed by developed economies to grow their industrial base is import substitution. Import substitution industrialisation strategy (ISIS) involves producing locally, goods that were formerly imported.

An economist and research analyst, Rotimi Oyelere, told THISDAY that, “ISIS is a trade and economic policy that advocates replacing foreign imports with domestic production as well as looking inwards for raw materials for production process particularly in the larger agriculture sector. The benefits of looking inwards include reducing a country’s dependence on imports and as such conserve forex?

The latter reason gained ascendancy at the height of the country forex challenge when the greenback rose to historic heights in exchange with the naira.

Though some analysts insist that for all its benefits, import substitution is not free of drawbacks arguing that its benefits can sometimes be difficult to measure since it is often lumped with other economic and trade strategies. Nevertheless, they maintain that it is a policy worth pursuing with vigour and beneficial to any economy that does so.

Even then, some argue still that one of the ways to prevent scarce forex from leaving the country under the guise of importation is to connect manufacturers with local growers of some of the raw materials that the manufacturers use in their production lines. The argument is supported by claims that substitutes abound for good number of the raw materials that businesses in the Fast Moving Consumer Goods sector need can be sourced locally.

However, due to reasons ranging from capacity and quality, those materials were being imported before the forex problems arose. This represents flight of capital from the system. But by looking inwards for those raw materials, developing economies like Nigeria can retain such capital for use within the economy, including increase capacity and improve quality.

According to Port Harcourt, Rivers State-based economist, Ezeh Wordu,“Despite arguments against it, import substitution strategies helps to reduce import dependency, conserve scarce foreign exchange and grow local industry. When you look inwards for your raw materials, you not

only cost of production and help to grow the local production of that material; it also has spiral effect on the economy, via internally generated revenue for government, improved socio-economic standards of the growers. With consistency and appropriate developmental plan it will increase a country’s export receipts.”

The NB Plc Example

Nigeria Breweries is already consolidating  its local sourcing of inputs for its operations as it announced that it has reached 55 per cent local input sourcing adding that it has fast-tracked its plan to attain 60 per cent local input sourcing to 2018 as against the initial 2020 target. Besides, the company noted that currently its product packaging is 95 per cent locally sourced.

The disclosure came at the commissioning of three newly upgraded facilities at its Ota Brewery located in Ota, Ogun State. The three facilities, which included a pet line which is described as the best in the Heineken world today, a modern water treatment plant and a state-of-the-art, waste water treatment plant (WWTP). The Corporate Affairs Adviser of the company, Kufre Ekanem, who made the disclosure, added that it was in line with the foremost brewer’s corporate philosophy of “winning with Nigeria” and a commitment to helping to grow and develop the local economy.

Earlier in his welcome address, Chairman of the company, Chief Kola Jamodu, stated that, “These investments, totalling over N11 billion stand out as a testimony to our corporate philosophy of Winning with Nigeria and they reflect our company’s bold confidence in Ogun State and Nigeria as an investment destination.”

Jamodu noted that the projects signpost the contributions of the company to economic development of Ogun State, which also play host to another of its brewery in Ijebu Ode and many of the ancillary industries that the company supports.

Continuing, the frontline industrialist and former Minister of Industry added that, “The tremendous transformation the brewery has witnessed stands as another milestone in our company’s socio-economic development journey with Ogun State and Nigeria. Among the investments we have made in Ota are the three facilities which will be commissioned today by His Excellency,  the three facilities to be commissioned today are the multi-billion naira PET line which is the best in the Heineken world today utilised to deepen availability of our non-alcoholic product portfolio, a modern water treatment plant to ensure the continued excellent quality of our brands and a state-of-the-art, waste water treatment plant (WWTP), which further contributes to the success of our sustainability agenda of Brewing a Better World.

“As part of our commitment to Winning with Nigeria, we have made a public commitment to ensuring sustainable local sourcing of input materials to our operations. Currently, our product packaging is 95 per cent locally sourced and a lot of the ancillary companies, who we have utilised to attain this highpoint in our value chain are based in Ogun State. From bottle makers, can manufacturers, crown cork producers, shrink wrap providers, preform makers for our PET lines, labels, crate-makers, distributors, wholesalers, retailers, hoteliers, etc., we have so many companies in our value chain based in the state with multi-billion naira revenues who are also creating employment and paying taxes to the government.

“While Ogun State has been a good host to our operations, I am happy to inform you that the state has also been a consistent recipient of our social investments and our commitment to Growing with Communities. These include the donation of a block of 6 classrooms, a library, toilet facilities and principal’s office to the Gateway Junior Secondary School, Ita Iyalode Abeokuta and the donation of a block of 6 classrooms, a sick bay and toilets facilities to the Baptist Primary school, Ereko, Ijebu-Ode. Others include the renovation of the science laboratory of the Imagbon/Imaka community school, Imagbon; donations of books to the libraries of Imagbon/Imaka Community School; donation of a block of 6 classrooms and library to African Church Grammar School, Ita-Eko Abeokuta; and the provision of electricity transformer to Isaka community,” he concluded.