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Will restricting imports work?

04 Jul 2016 at 08:22hrs | Views
"One has a moral responsibility to disobey unjust laws" Martin Luther King Jr

There is this myth that if a country restricts imports it will automatically result in those imports being manufactured locally. That is not necessarily the case and depends on a lot of things being in place.

Our long term plan as a country must surely be to import as little as possible and produce as much as we can locally, but the conditions or fundamentals are not yet in place.

It is clear that our import bill is not sustainable given the amount of exports that Zimbabwe is currently able to generate. A trade deficit of about $3 billion cannot be sustained. We therefore have to put measures in place to increase our productive base so we can reduce imports while promoting exports to generate more revenues.

However, the need for import substitution must be a gradual and well planned exercise that takes into account not only financial impact, but also the social impact of such a policy move. In addition, it must avoid creating a vacuum for corruption and the entrenchment of monopolistic behaviour by local companies.

Yes, at some stage we will have to protect our market as a country. The idea that free markets are good for the developing economies is a myth.  Developing countries need first to build the capacity to compete globally before flooding their local markets with imports which kill the emergence of strong local companies and job opportunities. However, now is not the time, particularly given the fact that we do not have own capital to invest in our productive base. In addition, a large number of traders will be out of income thereby increasing the already high levels of those without a stable income. That is a recipe for disaster.

The sudden restriction of imports overnight without adequate notice and planning always leads to the immediate emergence of a black market especially where local demand for a particular is so high and we do not have the local capacity to fulfil that need. Unplanned import restrictions can also create immediate shortages in the market and may result in increased prices of local goods.

The other issue is the loss of goods that are in transit. These should be allowed to come in at the conditions that existed when they were purchased.

There are also  local industries where we have high barriers of entry and monopolies and banning imports to compete with their products in the market will lead to them having unfair monopoly advantage which they  naturally use to increase prices and therefore profits.

What worries me is that,as a country, we do very little research and planning before we announce economic policies and end up with unnecessary crises.

I think as a country we should rather look at banning the importation of maize and producing it here ourselves, which would be a more meaningful approach with a more positive impact on our trade deficit. But again we need to plan that properly.

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Vince Musewe is an economist and author based in Harare. You may contact him on vtmusewe@gmail.com

Source - Vince Musewe
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