The Developmental Role of Importers

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There has been a tendency within the development literature to characterize importers of domestic-substitutable goods as either neutral agents (as in the neoclassical comparative advantage framework where comparative advantage-based imports and exports are both welfare-enhancing), as passive agents whose interests are inevitably and developmentally gone against in an import-substitution strategy, or as anti-developmental (“comprador”) agents of dependency.

Dependency theorists and Marxists have treated importers as “compradors” who “were the local capitalists with close ties to metropolitan capital, often based in trading and speculative activities, other times in agri-exports, but always suspect in their commitment to national development” (Chibber, 2005:149). There were therefore “seen as irredeemably tied to imperial interests” (Chibber, 2005:146). Even in common political parlance, politicians typically display an import-substitution intuition and been heard to say that importation is akin to “exporting jobs and importing poverty”.

Since import substitution is diametrically opposed to the interests of affected import traders, this group is expected to oppose import-substitution industrialization. In fact, the trade policy tools often used to support domestic producers (such as tariffs, quotas, and even subsidies which favour domestic producers) threaten the import traders’ markets. Scholars of development focus on how recipients of such industrial and trade policies react, but they tend to neglect the reactions of those on the other side of the coin.

 

Keeping Producers and States on their Toes

The neglect of importers’ agency and lobbying hides information about how they may moderate excessive protectionist rent-seeking by domestic producers. Import-competing domestic producers may “orchestrate the appearance of injury” in order to be granted protection by policymakers (Leidy and Hoekman, 1991), but may be opposed by importers. In fact, there is prominently noted that domestic producers receiving infant industry protection tend to capture such rents unless state embedded autonomy (Evans, 1995) made possible by an appropriate political settlement (Khan, 2018) is sufficient to discipline such rent-seeking and condition rent transfers on firm performance. Importers may provide some counterforce against such tendencies by continuously lobbying for local industry’s ability to withstand import/foreign competition. Import traders therefore may play a role in influencing the direction of industrial policy and the moderating the transition from infant industry status to mature status whereby local industry should be able to compete with imported goods. Yet this seems to be a largely unexplored phenomenon within the literature.

Importers Against Protectionism

The Philippine Cement Importers Association (PCIA), along with some consumer groups, for example, lobbied the country’s Tariff Commission against the imposition of safeguard measures on imported cement and opposed the accusations made by cement producers that import surges threatened domestic production. They argued that domestic cement industry is “already competitive against imports”, pointing to some local producers “reporting continued profits despite the level of imports” (Global Cement, 2019a), and noting the effect it would have on prices (Global Cement, 2019b).

In Bangladesh, paper importers, along with paper merchants and corporate consumers (such as textbook printers and press owners) lobbied the government to cut import duty on paper from 25% to 5%, “in order to ensure smooth supply of papers and help keep their business afloat”, and noting that “the import duty is in place for a long time. Now it is a question of our survival” (Mahmud, 2019).

The Ghana Union of Traders Association (GUTA) petitioned and “kept pushing and reminding government” (Twum, 2019) about the high import levy charges in Ghana relative to other West African countries (Larnyoh, 2019), until the government announced new measures to reduce the benchmark values against duties are paid by 50% (Office of the President, 2019). The Association of Ghana Industries (AGI) responded that this “can cripple local manufacturing industries”, as “imports will become cheaper than manufacturing and…those who are producing…and employing people will turn into trading” (Nyavor, 2019). GUTA countered this by saying that the benchmark value reduction

“goes down to raw materials. So the status quo remains the same. If you want importation [to be] banned, you should be bold and tell the government…It can’t be done because importation is very necessary. It is only helping what we locally generate” (Nyavor, 2019).

Importers Seeking Efficiency

Import traders and their professional associations may also provide some other growth-oriented services such as opposition to and reporting smuggling activities, lobby against corrupt and inefficient customs and port authorities, and lobbying for improved ports infrastructure and governance (Wulf and Sokol, 2004). For instance, the Importers Association of Nigeria (IMAN) and the PCIA seem to have interest in stopping illegal importation into Nigeria and Philippine, respectively (Babalola, 2019; Global Cement, 2017). The Major Oil Marketers Association of Nigeria (MOMAN) is another lobby group composed of fuel importers which have been seen to lobby for deregulation of the downstream oil sector (Izuora, 2019) as a precondition for investing in the sector (Akintayo, 2019), having acquired refining licenses from the government. And in Kenya, importers’ complaint of being “frustrated” by a group of senior officials at the Kenya Revenue Authority demanding bribes at the Nairobi Inland Container Depot, triggered a government probe into the matter (Otieno, 2019).

The fact that it is often taken that protection is most often over-extended and protection is usually not rationally applied implies that the structural power of import traders is significantly less than that of domestic producers and political elites. Political elites would more often favour the interests of domestic producers as a means of developing the economy and providing and preserving jobs and to plug the “excessive” use of foreign exchange for importation. The claims by import traders that tariffs, import bans and other trade policies (including limited access to foreign exchange) may be injuring their trade is often taken less seriously by policymakers than such claims made by domestic producers.

Rent-seeking by Importers

Within the literature on rent-seeking, little attention has been given to importers. Domestic producers are often characterized as the ones seeking trade protectionism so that they may restrict foreign competition and thereby dominate the domestic market. What rents do import traders seek? For instance, it would be reasonable to expect that powerful import traders would seek an import licensing regime which helps them monopolize the import trade in certain goods. In Nigeria, fuel importers have been associated with lobbying for the continuance of the state’s fuel subsidy regime since it props up the demand for imported fuel. Some have even accused such interests of foiling attempts at refurbishing the country’s oil refineries which could substitute fuel imports for domestic fuel production. In Tanzania, a “small group of domestic capitalists in the import business that controlled rice imports” had political influence by financially supporting a faction of the party ruling elites, and hence did not support import tariff on rice (Whitfield et al., 2015)

The opposition to importers is not due to the activity of importation per se (since importers in developed economies are not typically seen as compradors), but rather with the composition of imports given the composition of exports. There are different kinds of importers based on the composition of the imports. There are importers of capital goods which tend to be domestic producers. Just as capital goods imports have been taken to be developmentally beneficial, such imports are typically even encouraged, with some states providing import duty exemptions for such goods as part of industrial policy. There are importers of import-substitutable intermediate goods which face a more lover-hate relationship with states. States may tolerate such imports at first, but may desire to stimulate domestic production of them ultimately (as part of “local content” policies), and hence provide disincentives against their importation and/or incentives for their domestic production – especially for intermediate goods for which raw materials are comparatively abundant within the country (such as limestone for cement and crude oil for fuels). The importers which receive the most negative attention are importers of consumer goods. Policymakers may deem many of such goods as having the most potential to be produced domestically. However, when and why do import traders invest in domestic production?

 

Conversion to Import-Competing Production

When and why do import traders invest in domestic production? Kang (1996: 2) notes the “humble beginnings” of the South Korean chaebol “founded…as small businesses by entrepreneurs who still exercise strong control over them.” Won (2004: 10), in passing mentions that after liberation from Japan, “the import trade market brought business opportunities to the chaebol”, and Kang (1996: 27) further notes that “someone has, in fact, noted that trading was an entry ticket to the chaebol world in the late 1940s. All the wealthiest businessmen were engaged in trading” and “9 out of the 10 largest chaebol as of 1961 were actively engaged in import trading” (Kang, 1996: 28). Nevertheless, while there is reference on the financial capabilities built through import trading (Shim and Lee, 2016: 78), there is often only passing reference to other capabilities built. Likewise, while it is often noted that the Dangote Group in Nigeria built its financial capabilities initially through the import trade, there has been little analysis of the other capabilities built, apart from passing mentions of distributional networks and basic infrastructure (such as a network of cement sellers and import terminals which are being converted to export terminals after successfully undertaking domestic production).

Product space theory highlights  the role of initial productive capabilities in determining the subsequent paths of production and diversification. Countries producing certain products are more likely to produce related products than unrelated products, as productive capabilities employed for the initial products would be more easily transferable to related products. However, the product space literature has focused on productive capabilities among domestic producers, and has not adequately assessed capabilities possessed by import traders.

The building of capabilities through import trade may be relevant for investment in domestic production organically or in response to industrial policy. First, at the minimum import trading produces financial capital which may be used for investment in domestic production. Second, import trading in particular goods markets may produce market and product knowledge (human capital) which the trader may apply in domestic production of such goods. Third, import trading may involve the building of logistical, distributional and infrastructural capabilities (physical capital) which may then be converted or adapted for use as assets for domestic production.

A prominent example is the Dangote Group, which began with Aliko Dangote’s cement importation and reselling enterprise in the late 1970s. The oil boom and expansion of state spending and capital projects had made cement importation a highly profitable business and produced substantial financial returns to Dangote. Dangote also managed to build extensive distribution networks as an importer which were used when he moved into cement manufacturing. Furthermore, the company constructed and operated import terminals for cement which have recently converted into export terminals. Likewise, fuel importers in Nigeria possess their own distribution networks which would prove to be valuable assets if they go into fuel production.

Domestically, two groups of actors may have the greatest capabilities within the particular product industry to undertake domestic production of the good: importers who have developed organizational, physical, logistical and/or infrastructural capabilities (mapping onto human, physical and institutional capital) through importation, and domestic producers of other goods whose capabilities and capital may be relatively easily transferable to the production of the import-competing good (following product space paths). However, to get from import trading to domestic production (and hence support for domestic protection) is a key issue. It may prove important to understand what supply and policy conditions drive import traders to move into domestic production, especially in countries which have peripheral goods populating its product space but import the majority of its consumer goods.

 

References

Akintayo, Ope O. (18 January 2019). “Why we haven’t utilised our refining licenses – MOMAN”, MOMAN, Available at https://moman.org/2019/02/05/refining-licenses/.

Babalola, Yusuf (9 April 2019). “Importers Pledge to Generate N6trn for FG Annually”, Leadership. Available at https://leadership.ng/2019/04/09/importers-pledge-to-generate-n6trn-for-fg-annually/.

Chikwem, Francis C. (2016). “The Political Economy of Fuel Importation Probes and Development of Refineries in Nigeria”, Insight on Africa 8(1), 18-39.

Evans, Peter (1995). Embedded Autonomy: States and Industrial Transformation. Princeton: Princeton University Press.

Global Cement (21 August 2017). “Philippine Cement Importers Association supports government regulation”, Global Cement. https://www.globalcement.com/news/item/6458-philippine-cemtn-importers-association-supports-government-regulation.

Global Cement (21 June 2019a). “Philippine Cement Importers Association refutes claims that imports are damaging local industry”, Global Cement. https://www.globalcement.com/news/item/9440-philippine-cement-importers-association-refutes-claims-that-imports-are-damaging-local-industry.

Global Cement (30 January 2019b). “Update on the Philippines”, Global Cement. https://www.globalcement.com/news/item/8713-update-on-the-philippines.

Izuora, Chika (3 April 2019). “Major Oil Marketers to Support FG’s Petroleum Policy”, Leadership. http://leadership.ng/2019/04/03/major-oil-marketers-to-support-fgs-petroleum-policy/.

Kang, Myung H. (1996). The Korean Business Conglomerate: Chaebol Then and Now. Berkeley: Institute of East Asian Studies, University of California.

Khan, Mushtaq H. (2018). “Institutions and Asia’s development: The Role of Norms and Organizational Power”, WIDER Working Paper 2018/132. Finland: UNU-WIDER.

Larnyoh, Magdalene T. (3 May 2019). “Ghana charges the highest import duty in Sub-Saharan West African according to the Ghana Union of Traders Association”, Pulse. https://www.pulse.com.gh/bl/finance/ghana-charges-the-highest-import-duty-in-sub-saharan-west-african-according-to-the/1b0hmt4.

Leidy, Michael P. and Hoekman, Bernard M. (1991). “Spurious Injury as Indirect Rent Seeking: Free Trade Under the Prospect of Protection”, Economics & Politics 3(2):

Mahmud, Niaz (22 June 2019). “Paper importers call for duty cut to 5%”, Dhaka Tribune. Available at https://www.dhakatribune.com/business/regulations/2019/06/22/paper-importers-call-for-duty-cut-to-5.

Nyavor, George (19 April 2019). “Good or bad? GUTA, AGI disagree on reduction of import duties”, My Joy Online. https://www.myjoyonline.com/business/2019/April-19th/good-or-bad-guta-agi-disagree-on-reduction-of-import-duties.php.

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Otieno, Brian (9 September 2019). “KRA launches probe after officials linked to bribery ring at inland container depot”, The Star. Available at https://www.the-star.co.ke/counties/coast/2019-09-09-kra-launches-probe-after-officials-linked-to-bribery-ring-at-inland-container-depot/.

Shim, Jae-Seung and Lee, Moosung (2016). The Korean Economic System: Governments, Big Business and Financial Institutions. London: Routledge.

Twum, Youu (3 April 2019). “GUTA Salutes Government for the Assurance to Reduce Import Duties”, Rite 90.1FMhttps://ritefmonline.org/guta-salutes-government-for-the-assurance-to-reduce-import-duties/.

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1 COMMENT

  1. This article provided me with a palpable overview of the tension countries experience when balancing import and export products. I felt the choice to cite paper imports was critical as it shows that many nations are dependent on certain imports to compete in a global market. In my country (USA) there is a poorly thought out push for consumers to be politically correct through their spending through buying local. There is a gross fallacy associated with buying from many of these business (sandwich shops, bakeries, produce stores). They freely purchase foreign cash registers, expensive foreign stoves, foreign restaurant and store fixtures yet encourage and shame the consumers to buy local (the produce they are perhaps serving in the food items). Here we need to rethink our economy so that we better understand the delicate balance between large scale production of goods and the employment it provides. We also need to better consider real needs (plain old food , shelter, health care and tools for daily life ) versus perceived needs (bigger and better luxuries). We don’t necessarily need three televisions in every home, two or three cars per family , top models of phones etc. I underscore that I’m in the USA but I worry that other nations may fall in the same traps. I do know that the hardships that our people experience when a factory shuts down because work goes off shore can cripple communities, and contribute to depression and addictions for people in the community. Industry lacks heart at times.
    Theodore Chelmow, Ph.D. M.Ed. M.A.

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