11 Limitations   to import substitution industrialization strategy in developing countries·

1. 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.
2. 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    A number   of imports   substituting    industries    use   old and outdated machines    which need   frequent   maintenance    and   spare   parts.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.
3. 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.
4. 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.
5. Stiff   competition   from   the imported   manufactured    products.    The  imported   goods are cheap and  of  high  quality  while   the  locally   produced goods  are  expensive    and  are  of  poor  quality. Therefore,   they out compete the locally produced goods by the import substituting   industries.
6. 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.
7. Limited skilled personnel and entrepreneurs. This leads to low levels of investment and misuse of resources meant for setting up and maintaining import substituting industries.
8. Limited markets for the locally produced commodities. This is due to the production of poor quality goods and low aggregate demand resulting from high levels of poverty in developing countries. In addition, consumers from developing countries have a high marginal propensity to import and this limits the demand for the locally produced commodities
9. Poor investment climate in form of rampant political instabilities. This discourages potential investors from setting up import substituting industries due to fear of losing life and property.
10. Over dependence on expensive imported capital and other raw materials. Most of the raw materials and capital goods for import substituting industries are imported from other countries. This increases the costs of production hence limiting the growth of the import substituting industries in developing countries.

11.  Too much   bureaucracy   in developing countries.   This  leads  to   delays  in allocation   of investment opportunities  required  for setting  up  import  substitution  industries  especially  to foreigners hence limiting the strategy.