Import-Substitution Policy: How African Countries Can Concretize Actions

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Import-Substitution Policy: How African Countries Can Concretize Actions

12 sept. 2023 11:48

As African industrialisation progresses and Covid-19 as well as Russia/Ukraine crisis impacts on long supply chains, the notion that African economies should produce more locally is gaining traction. African countries are principal importers of wheat from Russia and Ukraine but the current war between the eastern European countries has further exposed the continent’s dependence weaknesses. Apart from wheat, other products like fertilizers mostly imported have equally suffered disruptions in supply chains leading to high cost and a resulting low agricultural productivity and high cost of food products. With this, the balance of trade as well as the balance of payment for most African countries is increasingly on a deficit as imports outweighs exports. Imported manufactured goods have inundated African markets as long as man exist and the continent is now waking up from slumber to reduce these massive imports. The war between Russia and Ukraine has highlighted how much of the world’s wheat supply relies on these two countries. For instance, a recently released UN report shows a sample of 25 African countries that rely on wheat imports from Russia or Ukraine. Of this group, 21 import most of their wheat from Russia. Between 2018 and 2020, Africa imported US$3.7 billion in wheat (32 per cent of the continent’s total wheat imports) from Russia and another US$1.4 billion from Ukraine (12 per cent of the continent’s wheat imports). In recent years import substitution has made a quiet comeback. Chinese growth and US’ protectionism are eroding the free-trade principles of the “Washington Consensus”, and slow industrialisation in Africa is reviving interest in alternative policies. A degree of import substitution is happening anyway, stimulated by population growth and rising demand. Surveys of African industrial firms by the International Growth Centre, a research network at the London School of Economics, find that many started out as import-export businesses before venturing into domestic manufacturing. Half of the 50 leading industrial firms in Ethiopia in 2010 began as traders. A similar pattern holds for foreign companies in Africa. Chinese manufacturers in Africa make 93 per cent of their revenues from local or regional sales, according to a 2017 McKinsey survey. In order for import-substitution to work effectively, governments need to withhold hard currency held in central bank reserves. This limits the amount that ...