LETS GO FOR EXPORTS RATHER THAN IMPORT SUBSTITUTION

One of the major challenges resulting from the three-month lock down is the collapse in consumer spending.

It’s a bit of a chicken and egg situation. Because businesses shut down workers have seen a cut in or a total loss of their wages, as a result the companies have no one to sell to.

Coming out of the lock down will require companies to jump start production on one hand but also for there to be enough spenders for the companies to sell their goods and services to.

The government has suggested some remedies to the challenge –postponing tax payments, encouraging banks to postpone loan repayments among other things.

In addition it has been suggested that import substitution, where we produce some of the things we import, can create jobs and help jumpstart the economy.

The import substitution call, first heard after independence, is an attractive one. It presupposes more jobs created locally and a reduction in expatriation of profits to foreign investors. 

The traditional way of supporting import substitution is by discouraging importation by raisinig import duties, so that local industries can grow and fill the gap. Governments can either jump in the fray themselves, start companies to import substitute or support local companies to do the same.

What the promoters fail to point out is that import substitution initiatives don’t stand up to scrutiny, often are a higher cost on local consumers, who pay for their inefficiencies and promote an entitled elite, disproportionate beneficiaries of the policy who will fight its reversal or liberalisation of markets regradless of its cost to the economy....

Import substitution has been tried out in the NRM era and some companies still enjoy protection from imports. But 30 years later consumers are willing to pay more for the imports nevertheless, because these favoured companies produce substandard goods.

Borrowing a leaf from countries like Japan, South Korea and more recently China, the more enlightened thing to do is to support companies that are targeting foreign markets.

Producing for foreign markets is a more objective measure of a company’s success. Producing for local markets, one can be successful because he is favoured by the ruling elite, while foreign markets will not be swayed by such considerations.

Secondly, because of the size of foreign markets, companies who service them will be forced to employ more and more workers and buy more and more from local suppliers, as they win more market share, which is a major intention of the authorities.

However, helping companies to produce for export will take more intelligence than is suggested by closing off our internal markets to foreign producers...

For starters government has to come up with and execute a more credible industrial policy than it currently has. The same for an export promotion policy.

The interesting story is told of our attempts to supply goats to Iran in the early 2000s. We have goats running around all over the place surely we can supply them, we thought. When the Iranians came up with their demands for the quantities – 14,000 goats a week and the quality – weight, slaughtered under Halal standards and transportation conditions, we couldn’t cut it and the deal went begging. And that was just goats.

It is clear that before we can plan for exports we need to muster sufficient volumes of whatever it is that we want to trade in. The local market will be a useful launching pad for this ambition, but supplying it will just be a means and not an end in itself...

As part of policy government would have to negotiate access to foreign markets and even give marketing support to companies intending to export to those markets. Especially as we intend to eventually export finished goods to those markets.

Also in order to export successfully we will be forced to determine what products do we have competitive advantage in, which products can we produce better than most other nations in the world. By determining this first, we will improve our chances of success in foreign markets and not support unnecessary ego trips.

As an aside too, producing for export will improve the standard of goods we consume in this country. Our lax standards regime or enforcement means we produce a lot of stuff that foreign markets would not touch with a ten foot pole, this is detrimental to our health and general standard of living.

The real Asian tigers – South Korea, Taiwan and China, have learnt this lesson and are executing it really well. They also tried import substitution too but realised it was a losing strategy and promptly ditched it.

We have products already that can be tweaked to enter foreign markets – our sugar, our alcohol (waragi), dairy products among others.

Producing for export is not easy and the respective companies cannot be left to go it alone, a coherent national strategy and  systematic government support are key.

Doing this through public enterprises would see the inititiave dead on arrival. The more sustainable way is to do it through the private sector, a whole science on its own.

If we want more jobs, more revenues to the treasury and more technological transfer, lets muster the strategic vision and implementation discipline  to produce for export over the less ambitious import substitution strategy....