10 Limitations to import substitution industrialization strategy in developing countries
- Inadequate capital. There is shortage of capital to set up and maintain the import substituting industries. Credit from financial institutions is only available at very high interest rate and this limits borrowing for investment hence under mining of success of the strategy.
- Use of poor technology. A number of imports substituting industries use old and outdated machines which need frequent maintenance and spare parts. This increases the costs of production in form of capital consumption allowance.
- Unfavorable and conflicting government policies. Such policies are in form of high taxes, low tariffs on imported manufactured goods and the general lack of clear policy guidelines concerning the establishment of import substituting industries. This makes it difficult to set up and operate such industries due to high costs of operation with limited government support.
- Existence of economic instabilities. For example high levels of inflation, exchange rate fluctuations, fluctuations in the supply of raw materials etc. Such instabilities limit the growth of the import substituting industries in developing countries.
- Poor and inadequate social and economic infrastructural facilities. This is reflected in form of poor transport network, poor storage facilities, shortage of power supply and limited financial institutions. This limits the mobilization of factors of production hence undermining the strategy.
- Limited skilled personnel and entrepreneurs. This leads to low levels of investment and misuse of resources meant for expanding-and maintaining export promotion industries necessary for large ‘scale production for the export market,
- Limited foreign markets for the locally produced exports. The limited market is due to the production of poor quality goods and services for exports, development of synthetic substitutes and the growth of agricultural protection against exports from developing countries by developed nations.
- Poor investment climate in form of rampant political instabilities. This discourages potential investors from setting up export promotion industries due to fear of losing life and property.
- Over dependence on expensive imported capital and other raw materials. Most of the raw materials and capital goods for export promotion industries are imported from other countries. This increases the costs of production hence limiting the growth of the export promotion industries in developing countries.
- Too much bureaucracy in developing countries. This leads to delays in allocation of investment opportunities required for setting up export promotion industries especially to foreigners hence limiting the strategy.
CATEGORIES Economics
TAGS Dr. Bbosa Science
