The Nigerian economy is supported by a single pillar instead of a multiple of pillars for more solidity and stability. As a monolithic economy with oil as the mainstay, accounting for 90 per cent of exports, 25 per cent of the Gross Domestic Product (GDP) and 80 per cent of government revenue, it is not shock-resistant, as such when the global oil market tumbles, the economy is distressed.
The situation is worsened by the national consumption attitude evidenced in the strong preference for everything foreign including goods and services that can be readily and conveniently procured locally; a trend which exacts undue pressure on the foreign reserves with adverse terms of trade, retards innovation and entrepreneurship, and stunts industrial growth. It also fuels unemployment and is one of the major factors for the non-inclusive growth pattern of the economy.
Reportedly, the average growth rate of the economy in the past decade was in the region of 7 – 8 per cent. Though it slowed in the last three quarters of 2015, recording only 2.35 per cent growth in the second quarter, the benefits of the impressive growth did not resonate. Poverty rate increased from 63 per cent in 2004 to 68 per cent in 2010 while unemployment rates spiked to double digits.
It is against this background that the intervention by the Central Bank of Nigeria (CBN) to define a new economic structure and direction is welcome. CBN shifted focus from just price, monetary and financial stability to being a ‘’Financial catalyst’’ in specific sectors of the economy with the focal points being to improve local food production, expand the country’s industrial base, create mass employment and conserve scarce foreign reserve.
For effect, the apex bank excluded 41 items from the interbank foreign exchange market, an inward looking policy which some analysts dubbed a partial import substitution policy. Import substitution policies aim to reduce foreign dependency of a country’s economy through local production of food and industrial products. The excluded items include tooth pick, palm oil products, palm kernel, cement, rice, margarine, private jets among others.
Research show that import substitution was popularized in the 1950s and 1960s as a strategy to promote economic independence and development in developing countries. In expounding the traditional view on local economic development, Avik Basu of the University of Michigan, in his piece in the ‘’Urban and Regional Planning Economic Development Handbook’’, noted that ‘’local economic development often focuses on attracting businesses under the assumption that the jobs generated by those businesses will generate local income and, in turn, local spending of such income’’.
He described the local economy with a ‘’leaky bucket’’ model in which the bucket represents the local region and money can both circulate within the bucket and flow in and out. According to Basu, ‘’money circulates within the region when money that is earned locally is also spent locally. And the ‘’leak’’ in the bucket that allows money to escape from the community is created when goods and services from outside the region are purchased with local money.
Therefore, going by this illustration it may be that the Nigerian economy is over leaking in view of the strong preference for foreign goods. And as Basu further noted, ‘’Import substitution constitutes one approach to plugging the leaks’’ which justifies CBN’s intervention. Basu concludes that ‘’it is typically assumed that a robust economy requires both the availability of capital and its circulation within a region’’.
One of the identified major advantages of import substitution is that it increases domestic employment and resilience in the face of global economic shocks such as recessions and depressions, while one of the disadvantages is that it creates inefficient and obsolete products as they are not exposed to international competition.
Protagonists of the Import Substitution Industrialization (ISI) policy posit that all countries which have industrialized went through a stage of import substitution in which investments in industry was directed to replace imports. They argue that ‘’all major developed countries used interventionist economic policies to promote industrialization and protected industries until they had reached a level of development when they were able to compete in the global market’’. Research show that even the United States of America was conscious of the ISI policy in the 1970s and used it as a means to promote national and regional developments in the ‘’Buy American Campaigns’’.
Sri Lanka used import substitution to improve local food production. In his piece on ISI Nimal Sanderatne, remarked that ‘’at the time of independence when the country had a population of only 7 million, the country imported nearly half of her food needs. This includes rice, many subsidiary food crops like chillies, onions, potatoes and poultry. There were also high imports of sugar, wheat flour, milk and lentils’’. But the country ‘’achieved impressive gains in food production through import substitution.’’
According to Sanderatne, ‘’Rice is perhaps the most spectacular success as the country is able to feed its near 21 million population with domestic rice and there has also been decreased consumption of imported wheat flour that is being substituted by local rice. In several other commodities too there has been significant substitution of local produce for imported ones. These include maize, potato, poultry.’’ However, he noted that ISI policies are often complemented with state-led economic development through nationalization, subsidization of vital industries and agriculture.
In accordance, CBN also evolved other complementary measures to stimulate local industrial production. These measures include the introduction of a broad spectrum of financial instruments to boost specific enterprise areas in agriculture and manufacturing, health and oil and gas. These instruments include the N220 billion Micro, Small and Medium Enterprises Development Fund (MSMEDF), N300 billion Real Sector Support Facility (RSSF), the N75 billion Nigeria Incentive Based Risk Sharing for Agricultural Lending (NIRSAL), N500 billion Non-Oil Export Stimulation Facility and N213 billion Nigeria Electricity Market Stimulation Fund.
But experts believe that agriculture has a most crucial role to play in the quest to diversify the economy. Professor Jude Ejike Njoku, a professor in Agricultural Economics, noted that ‘’Nigeria has its best advantages in the area of agriculture, and all we want to say is that agriculture is the mainstay of the Nigerian economy. There is no other area that will lend itself to the development of this economy than agriculture’’. Reportedly, agriculture contributed about 30 per cent, higher than the combined contributions of both the manufacturing and mineral sectors of the economy.
CBN, since 2014 dedicated 60 per cent of the Commercial Agricultural Credit Scheme (CACS) funds to six focal commodities namely, rice, wheat, cotton, sugar, dairy products and fish. CBN governor, Godwin Emefiele has also met with several stakeholders in the ailing production sectors in an effort to reverse the decline experienced over the past decades in such areas as palm oil, wheat, rice and textile among others.
Arize Nwobu Acs is a Business Journalist and Public policy Analyst. He wrote via arizenwobu@yahoo.com Tel: 08033021230
