Do not use protectionism to achieve import substitution - experts
What you need to know:
- Government, in the 2020/21 budget introduced high import duties on some imports as a way of safeguarding local industries.
Uganda should not use the excuse of import substitution to promote protectionist tendencies, according to Mr Ramathan Ggoobi, a lecturer at Makerere University Business School.
Mr Ggoobi, who is also an economist, said there has been a clamor for import substitution, which apparently focuses on saving the country from spending on imports, which could be viewed as a form of protectionism.
Government, in the 2020/21 budget introduced high import duties on some imports as a way of safeguarding local industries.
While presenting findings of a research titled Import Substitution: Uganda’s Post-Covid-19 Industrial Policy Strategy in Kampala last week, which was commissioned by Fredrich-Ebert-Stifung, lead researcher Ramathan Ggoobi, said government should use industrial policies such as production subsidies, preferential access to credit and equity instead of using trade policies such as high tariffs, quantitative restrictions and import prohibition under the guise of promoting import substitution.
“Do not promote import substitution at the expense of exports. Avoid high levels of protection to industries and over-valuing of exchange rates, which typically disincentives exports. Instead, permit exporting industries to continue purchasing needed intermediate goods and raw materials at world prices if they are to be competitive,” he said.
Protectionism, he said, is a short-term fix that eventually closes countries out of accessible markets.
Government, according to Mr Ggoobi, must seek continuity and access to large markets such as the EAC and Comesa, which provide an opportunity for large markets.
Experts argue that instead of protectionism, government must build a strong business relationship to enable manufacturers engage in import substitution to favorably compete with regional companies.
Mr Rolf Paasch, the Fredrich-Ebert-Stifung resident representative, said whereas Covid-19 has stressed the need to redirect economic development towards self-sustenance, it was important that governments build practical alternatives instead of relying on quick fixes.
“The impact of closed borders have revitalised the old debate about the advantages and disadvantages of import-substitution as an economic strategy,” he said.
Dr Louis Kasekende, the Bank of Uganda former deputy governor, said Uganda should focus more on export promotion, proven way through which economic development can be sustained.