Eco­nomics of im­port sub­sti­tu­tion

Chronicle (Zimbabwe) - - Business - Dephine Mazam­bani

THERE has been a lot of com­mo­tion and con­fu­sion over Statu­tory In­stru­ment 64 of 2016, which con­trols a num­ber of com­modi­ties from open im­ports with me­dia call­ing it a “ban”. It should be clear that this is not a ban, in the im­por­ta­tion of the prod­ucts,s, which in­clude baked beans, cof­fee cream­ers,s, build­ing ma­te­rial among oth­ers, but a con­trol.

Any im­porter who wisheshes to bring in prod­ucts­ducts stated in the SI should ap­ply for an im­port per­mit be­fore they­hey can bring the prod­uct.uct.

The li­cens­ing of im­portsm­ports is an ex­am­pleam­ple of the im­ports sub­sti­tu­tion ap­proach.h.

It ba­si­cally sub­sti­tutes ex­ter­nal­lyy pro­duced goods andnd ser­vices, es­pe­cial­lyy ba­sic ne­ces­si­tieses such as en­ergy, food and wa­ter, with lo­cally pro­ducedd ones.

The no­tion of im­port sub­sti­tu­tio­n­ion was pop­u­larisedsed in the 1950s and 1960s as a strat­e­gy­trat­egy to pro­mote eco­nomic in­de­pen­dence and de­vel­op­mentevel­op­ment in de­vel­op­ing coun­tries.s.

This ini­tial ef­fort­ef­fort failed due in large part to the rel­a­tive in­ef­fi­ciency of Third World pro­duc­tion fa­cil­i­ties and as a re­sult their in­abil­ity to com­pete in a glob­al­is­ing mar­ket­place.

Im­port sub­sti­tu­tion came into be­ing as a means to pro­mote na­tional (buy lo­cal cam­paigns) and re­gional de­vel­op­ment.

To un­der­stand the ra­tio­nale for im­port sub­sti­tu­tion, one must first un­der­stand the ba­sic forces at work in a lo­cal econ­omy.

Lo­cal economies are of­ten de­scribed by what econ­o­mist Avik Basu terms a “leaky bucket” model in which the bucket rep­re­sents the lo­cal econ­omy and money can both cir­cu­late within the bucket and flow in and out.

Money cir­cu­lates within the econ­omy when money that is earned lo­cally is also spent lo­cally. This re­quires that some money ex­ists in the bucket to be­gin with — one way this hap­pens is when lo­cal goods and ser­vices are pur­chased by con­sumers out­side the re­gion. An­other source of in­flow comes from busi­nesses which de­cide to set up shop lo­cally and gen­er­ate jobs that pay lo­cal work­ers. The “leak” in the bucket that al­lows money to es­cape from the econ­omy is cre­ated when goods and ser­vices from out­side the re­gion are ppur­chased with lo­cal money. It is typ­i­catyp­i­cally as­sumed that a roburo­bust econ­omy re­quires both the avail­abil­ity of cap­i­tal and its cir­cu­la­tion within an econ­omy.e Lo­cal eco­nomic de­vel­op­mende­vel­op­ment of­ten fo­cuses on at­tract­ing busi­nesses uun­der the as­sump­tion that the jobs gen­er­ated by those busi­nesses will gen­er­atege lo­cal in­come and, in turn, lo­cal spend­ing of suchsu in­come. In terms ofo the leaky bucket, it fo­cuses on en­sur­ing ththat money con­tin­u­ally flows into the lo­cal econ­o­mye so that there will be at least some aavail­able for cir­cu­la­tion. But con­tin­u­ous­lyc fill­ing the buck­etb is not the only op­tionop — one can also keep more money cir­cu­lat­ing within thet lo­cal econ­omy byb plug­ging the leak­age of cap­i­tal from the sys­tem.sy Im­port sub­sti­tu­tion con­sti­tutes one ap­proach to plug­ging th­ese leak­sleaks. Zim­babZim­babwe has been ex­pe­ri­en­ci­ex­pe­ri­enc­ing a se­vere cash cri­sis which has been partly at­trib­uted to a surge in iim­ports and ex­ter­nal­i­sa­tion. So by con­trol­ling im­ports, the cash leak­ages will to a cer­tain ex­tent be re­duced. In­for­ma­tion from Zimra clearly shows why im­port per­mits may be re­quired: Per­mits are re­quired by cer­tain min­istries as they form part of their ju­ris­dic­tion in pro­tect­ing their clients and in­ter­ests. For in­stance you can­not im­port agri­cul­tural prod­ucts with­out the knowl­edge of the Min­istry of Agri­cul­ture for wide-rang­ing rea­sons. They want to mon­i­tor whether one is not im­port­ing banned GMOs prod­ucts or in­va­sive dis­ease-rid­den ma­te­rial into the coun­try. In most cases, per­mits are re­quired to pro­tect the so­ci­ety. Say in the case off im­por­ta­tion of medicines, the Min­istry of Health and Child Care has to en­sure that proper, un­ex­piredd drugs are reg­u­larisedd upon im­por­ta­tion;n; or for ra­dioac­tiveve ma­te­rial, the im­port per­mit/li­cence is only granted too pro­fes­sional li­censedd and reg­is­tered han­dlers.

Per­mits pro­tect lo­cal in­dus­tries, for in­stance cer­tain agri­cul­tural prod­ucts re­quire per­mits so that they are not im­ported in ex­cess thus sti­fling sales of lo­cal prod­ucts.

Per­mits and li­cences en­sure that there is a c c ount abi l i t y and main­te­nance off peace in the coun­try.

For ex­am­ple to im­portm­port firearms­firearms you need a per­mit and li­cence and be­fore you can get that per­mit, your op­er­a­tions have to be reg­u­larised and au­tho­rised.

This saves the coun­try from in­fi­dels im­port­ing guns and other firearms as they wish.

Per­mits also as­sist other gov­ern­ment de­part­ments in rais­ing rev­enue for their op­er­a­tions and in col­lect­ing trade sta­tis­tics.

For in­stance the per­mits is­sued to oil com­pa­nies help the en­ergy and power de­vel­op­ment min­istry in pro­vid­ing eco­nomic sta­tis­tics like how much was im­ported and this helps reg­u­larise the sec­tor.

With the SI 64, the per­mits are to be is­sued to pro­tect lo­cal in­dus­tries, ac­count for im­ports com­ing into the coun­try as well as ad­dress the widen­ing cur­rent ac­count deficit.

The gov­ern­ment is im­ple­ment­ing a form of im­port sub­sti­tu­tion pol­icy.

In terms of the le­gal­ity, the WTO says that the agree­ment on im­port li­cens­ing pro­ce­dures says im­port li­cens­ing should be sim­ple, trans­par­ent and pre­dictable so as not to be­come an ob­sta­cle to trade.

For ex­am­ple, the agree­ment re­quires gov­ern­ments to pub­lish suf­fi­cient in­for­ma­tion for traders to know how and why the li­cences are granted.

It also de­scribes how coun­tries should no­tify the WTO when they in­tro­duce new im­port li­cens­ing pro­ce­dures or change ex­ist­ing pro­ce­dures.

The chal­lenge then arises when other coun­tries re­tal­i­ate by im­pos­ing sim­i­lar mea­sures which then means our prod­ucts will find it dif­fi­cult to get into those coun­tries.

The CZI 2015 Man­u­fac­tur­ing Sec­tor sur­vey found out that the ma­jor con­straint to ca­pac­ity is low demand for do­mes­tic prod­ucts, with re­spon­dents stat­ing the above as the rea­son for un­der­utilised ca­pac­ity. This is a sure sign ththat lo­cal in­dus­try ab­sorbs dede­mand aris­ing from the mmove.

CZI has ad­vo­cated for titime bound pro­tec­tion or iin­cu­ba­tion.

This should be done while si­mul­ta­ne­ously ad­dress ing in­ef­fi­cien­cies at na­tional and com­pany level.

At na­tional level, there are in­fras­truc­tural rigidi­ties, labour costs, elec­tric­ity tar­iffs which must be ad­dressed if the in­dus­try is to fully ben­e­fit from th­ese in­terim mea­sures.

At com­pany level, busi­nesses should elim­i­nate the inin­ef­fi­cien­cies within the prpro­duc­tion process and en­sen­sure ev­ery process and ac­tiv­ity is gen­er­at­ingge value for the cus­tomer.

To that end, CZI has been as­sist­ing mem­bers to adopt lean man­age­ment prac­tices which fo­cus on creat­ing a con­tin­u­ous im­prove­ment cul­ture that en­gages em­ploy­ees and re­duc­ing the in­ten­sity of time, ma­te­ri­als and cap­i­tal nec­es­sary for meet­ing cus­tomers’ needs.

In terms of ad­dress­ing the widen­ing cur­rent ac­count deficit, there are two ap­proaches that can be used which in­clude stim­u­lat­ing ex­ports or de­press­ing im­ports.

The gov­ern­ment has there­fore made a de­lib­er­ate move to re­duce im­ports of nonessen­tials and goods that can be lo­cally man­u­fac­tured.

The RBZ has also started work­ing on ex­port in­cen­tives by in­tro­duc­ing a five per­cent in­cen­tive for ex­porters.

For goods that are lo­cally avail­able, gov­ern­ment should lead by ex­am­ple by procur­ing lo­cally.

A min­i­mum lo­cal con­tent clause should be in­cluded in the pro­cure­ment sys­tems. The im­port li­cens­ing sys­tem can work only for so long, pro­vided there is proper mon­i­tor­ing and eval­u­a­tion.

There is need for mon­i­tor­ing the sit­u­a­tion closely in or­der to en­sure that the coun­try is then not af­fected by short­ages/ un­jus­ti­fied prices in­creases/low qual­ity prod­ucts.

Key in­for­ma­tion should look at cur­rent in­stalled ca­pac­i­ties of some of the prod­ucts ver­sus what the demand is lo­cally for such prod­ucts.

This strat­egy on its own is, how­ever, lim­ited to stim­u­late the de­vel­op­ment of the na­tional in­dus­try, be­cause it can­not com­pletely elim­i­nate the de­pen­dence on im­ports, it is still largely de­pen­dent on im­ports, and it will only change the struc­ture of im­ported goods.

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