Expert Urges Firms to Adopt Import Substitution Strategies

Obinna Chima

Operators of businesses in the country have been advised to redefine their strategies in view of the challenges in the foreign exchange market.

The President/Chairman of Council, CIBN, Prof Segun Ajibola, made the remark at a breakfast session titled: “Business Dynamics under a Flexible Exchange Rate Regime,” that took place in Lagos.

According to him, more than before, businesses need to move away from import dependent technology and substitute imported raw materials for local ones.

He also stated that consumers need to buy into the new dynamics and tame their insatiable appetite for imported commodities, just as he urged government to provide more incentives for businesses that succeed in their quest for import substitution and export promotion.

According to Ajibola, the interaction between business management and exchange rate is very profound especially in developing economies such as Nigeria where heavy reliance is placed on imported basic necessities of life. This, to him, is so because the array of imported items covers: consumer durable and non-durables, heavy industrial plant and machinery, and manpower and technology.

“Hence, most businesses operating in such countries depend on a friendly exchange rate regime to survive and/or operate profitably. The challenges inherent in the structure of our economy begin with the near impossibility of the market system to operate without interference. Market system ensures efficient distributive system when the forces of demand and supply are allowed to operate unfettered.

“Market distortions are prevalent all through history. From the labour market to financial market down to the commodity market, governments often have genuine political reasons to intervene, usually to seek the greater good of the greater number,” Ajibola added.

He pointed out that Nigeria is known to have tried almost every conceivable foreign exchange allocative system, adding that the search for a more acceptable system still continues.
“Let me remind us that our own situation is this complex because when wages are indexed to dollar, about 70 per cent of Nigerians are said to be living on less than two dollars a day. The prevalence of poverty is therefore a daunting challenge to a government that is desirous to promote economic welfare. How then can this be done if market forces are allowed to dictate exchange rate when the propensity of the citizenry to consume imported commodities is still abnormally high?

“In situations like this, the call for either high subsidy or tax to redress observed distributive injustice often reaches the roof top, breeding unfortunately rent seeking individuals and corruption in high places. The flexible exchange rate is therefore another attempt at finding a workable exchange rate regime in Nigeria and for Nigerians.

“The underlying facts are well known. In a situation where there are supply rigidities, attempts to administratively regulate prices promote black marketeering. Herein lies the challenge of the authorities. Should Naira be allowed to float freely? Some have argued that pegging the exchange rate at about N270 to a dollar is equally unrealistic.”