Import substitution industrialization (ISI) is a theory of economics typically adhered to by developing countries or emerging market nations that seek to decrease their dependence on developed countries. The approach targets the protection and incubation of newly formed domestic industries to fully develop sectors so that the goods produced are competitive with imported goods. Under ISI theory, the process makes local economies, and their nations, self-sufficient - Investopedia, from the net.
PS- the abbreviation ISI was dreamt up by Investopedia and is the product of their imagination. Any resemblance to actual persons, living or dead, or to actual events or any organization is purely coincidental, and I had nothing to do with it!
ISI is not a new concept in Pakistan (either one, actually); in fact, for as long as I can remember this policy has been under the consideration of policy makers, except the net result to date is a big fat nothing. The assertion that the policy has achieved nothing thus far is easily substantiated by the quantum of imports and the resultant unmanageable trade deficit.
Why is this policy critical for developing nations? Simply because when you import goods or services you, by default, are exporting domestic jobs and the wealth of your nation in foreign currency - and the wealth of a developing country which cannot print dollars, at least legally, is negative in any case. If you think about it, running a trade deficit is a slow death. Eventually, the creditors want their pound of flesh, and come calling to acquire national assets, a policy referred to as privatization in normal parlance. Admittedly, the Western World has dreamt up wonderful theories under which privatization is good for the economic growth of a developing nation, and how free markets foster innovation and competitiveness; however, if you look around and think about it, all of that just speeds up the slow death.
For those who nonchalantly retort that this kind of doomsday argument has been around for as long as they can remember and nothing happened - well, a lot happened. Slow death for a nation does not mean that the nation disappears from the face of the earth: you are dead when you have abdicated your sovereignty, and all policy decisions have to be first got approved from the creditors, be it a superpower or the lender of last resort, the IMF.
Our external debt is at unmanageable levels, and we need to continue to borrow more to pay for our trade deficits.
Admittedly, Pakistan is blessed. Take the latest example, and not to take anything away from the hard work and dedicated efforts of the Government, but the manner in which we observed the SOPs during Eid holidays and other gatherings; it can only be divine intervention that we seem to be doing well in our fight against Corona. I have also stated in the past that there is real possibility of Pakistan miraculously coming out of the economic crisis - an oil discovery of the elephant kind, the Margalla Mountains being made of gold and so on so forth. But until that happens, burying your head in the sand is a stupid strategy - only when you help yourselves can you hope and pray for divine intervention.
Having said that, why have we never succeeded with ISI? (Not that ISI, on that front we definitely are the best!)
When you think about it, the first question that comes to mind is what imports we can substitute in the first place. For instance, you cannot manufacture oil! Except perhaps when somebody does eventually invent a solar car, and if we do convert to solar for our other energy needs, we can do away with a large chunk of our oil import bill; is there a strategy in place for that? Are we thinking of setting up solar cell manufacturing? I am not a technical guy, so I can only conjecture. On the other hand I wonder whether anybody is actually looking at ways and means to reduce our oil import bill.
We could reduce our travel import bill, if we could finally develop a workable strategy for the national airline, which perhaps is too much to ask for considering four successive governments have failed to find a solution for PIA - and PSM for that matter. We could bring down our import bill for communication; I have always wondered why are telephone calls, by and large an unproductive activity, one of the cheapest the world over, in Pakistan. Remarkably, in a country with around 150 million cell phone subscribers, if not more, we have not manufactured a single phone during the last two decades - and are probably not likely to do so in the foreseeable future.
Lip service will not reduce the import bill!
But these were the low hanging fruits, albeit we seem to have even failed to eat them. The next part requires a lot of research and analysis: what exactly, given our resources and capabilities, can we manufacture in Pakistan, how much time would it take and what else would it entail. I am unable to confirm whether any government or private entity has reviewed the import details to determine what we can substitute and what we should not be importing in the first place.
The bigger problem is that even when (and if) we have done our homework and identified what can be viable ISI initiatives for Pakistan, domestic investors seem unwilling to invest in any kind of manufacturing. Apparently, the drug of choice for the wealthy in Pakistan is property, and Government policy seems to encourage that. Irrespective of the quantum of real estate investment, let me make a prediction (which I generally hate to do): without investment in manufacturing we are never getting out of the thick!
As the last mercantilist, I am strongly of the view that the only way to bring domestic investors to the table is protectionism coupled with a bit of strong arm tactics - perhaps by ISI.
As usual, I have crossed the budgeted space- more on this next time, as we continue the journey to achieve import substitution.
(The writer is a chartered accountant based in Islamabad. Email: syed.bakhtiyarkazmi@gmail.com. The views expressed in this article are personal. The views are not necessarily those of the newspaper)
Copyright Business Recorder, 2020