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From Mercantile Economy to Import Substitution Industrialization Economy: A Case for a New Direction in Nigeria’s Economy

Dear Dr. Olatunji Agboola,

“We must always take heed that we buy no more from strangers than we sell them, for so should we impoverish ourselves and enrich them.”

Queen Elizabeth (reigned 1558–1603), cited in Braudel, Fernand (1979: pg 74), “The Wheels of Commerce”, Civilization and Capitalism 15th–18th Century”.

Almost a month or so ago, I promised you that I will return to the issue of the need to support President Buhari and his government on the direction of Nigeria’s economy. The discussion was on two key issues – Mercantilism and Import substitution Industrialization (ISI) Economy. I have been busy and unable to return to the discussion until now.

There are no other ways to understand the key to Africa’s dependency on importation and the underlying reasons behind why we need a new direction that the words of Queen Elizabeth of Great Britain, as cited by Braudel in his “The Wheels of Commerce”, Civilization and Capitalism 15th–18th Century”. The Queen was quoted as saying in the British Parliament that “We must always take heed that we buy no more from strangers than we sell them, for so should we impoverish ourselves and enrich them.”

The kernel of what the queen said is simple and straight forward, by buying overseas, we enrich these overseas traders and impoverish ourselves. All policies and projects, rules and regulations put in place to achieve this overall goal of enriching ‘ourselves’ at the expense of ‘others’ is what mercantile economy and its successor, ISI is all about.

By definition – or more actively, description, mercantilism is an economic policy that aimed at maximizing profits through the exportation of products at the expense of importation. In order words, it is an economic policy that aimed at increasing exportation of FINISHED GOODS and decrease imports of FINISHED GOODS from other countries. You will find at the heart of monarchy and aristocracy, militarism and colonialism nothing other than the attainment of this great objective – making others poor to enrich yourself.

During the first phase of European colonial rule, the Americas (also called the New World), which described North and South Americas and the various islands in between them; Europeans took umbrellas, glass, velvet, guns, and gunpowder to Africa and exchanged them for humans – able-bodied young men and women and took them to the Americas where they worked on European plantations and mines. The proceeds of their sweat and blood were shipped across the Atlantic Ocean for the development of Europe. During this time, the queen and other lords in Europe came up with the Mercantile Economic System (henceforth MES) as an economic policy that allowed them to export European finished goods from Europe to Africa and the Americas and in turn, they export from Africa and the Americas raw materials that were converted into finished goods in the different European industries. Under MES, no industry was to be built in either Africa or the New World.

To keep the system going, tariffs and subsidies were imposed on traded goods. While MES was the dominant philosophy of governments across Europe, the entire might of each government was activated to support (national) traders and others whose activities were considered as ancillaries to trade. These ancillaries to trade include the CHURCH, the colonial police, hospitals, schools, etc.


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Underlying MES is the need to reach a positive balance of trade, especially of finished goods. In other words, the need to ensure or reach a current account surplus by preventing a current account deficit drove MES. So, traders, miners and plantation owners were merely fronts for their nations. Whatever gains they accrued are reverted back to the national government through taxes and levies. It was only in this way that nations (through their traders and merchants) can accumulate monetary reserves. The need to outdo each other had pitched different European powers against one another at different times. Historically, France-Britain’s one-hundred-year war, 30-year war, etc. are good illustrative examples. In fact, European colonial rule of the America, Africa, and Asia was driven by MES.


Permit me to illustrate with one example to bring out the most important points underlying MES. Brazil, Ghana, Nigeria and Ivory Coast are the four major producers of cocoa globally. Cocoa seeds are grown, dried, and bagged in these 4 countries. The conversion of cocoa seed into beverages is only done in EUROPE and AMERICA. There is not a SINGLE CHOCOLATE FACTORY ANYWHERE in these 4 countries.

Let us do the mathematics. If it took 100 farmers to produce 10 billion tons of cocoa annually, how many workers are in the different cocoa-processing factories across Europe and the United States? They cannot be less than 1 million people. So, Brazil, Ghana, Nigeria and Ivory Coast gained 100 farmers (occupations) while Europe and America gained 1 million.

What about other ancillaries to trade, things or jobs like packaging, designing of bournvita can, chocolate wrappers, printers who printed on those packages, ink-makers, papermakers, etc.? What about shipping, warehousing, insurance, advertisement, etc.? Let us assume that that produced about 5million more jobs. So, for the labor of 100 from Brazil, Ghana, Nigeria and Ivory Coast, Europe and America gained 6 million jobs.

The above, in purely economic terms, is called value addition.

It is for the above reasons that MES ensured that no industry was built anywhere in Brazil, Ghana, Nigeria and Ivory Coast to turn (add value to) cocoa into chocolate.

By the middle of the 17th and the early 18th Century, MES lost color and was replaced by ISI. Import substitution industrialization can be described effectively as an effort by developing nations to break away from the yokes of MES. Sadly, as you will see in the foregoing, it was, in itself, a shackle. ISI is an economic theory that aimed at decreasing their dependence on developed countries through trade protection and imposition of tariffs on IMPORTATION as a way to grow newly formed domestic industries. It aimed at preventing competition, especially foreign competition. For more clarity, ISI aims at replacing IMPORTATION with LOCAL PRODUCTION by closing borders to foreign IMPORTS, by imposing high tariffs on FOREIGN IMPORTS, and creating enabling environment through INCENTIVES for local production.

ISI was the dominant ideology of the 1980s and 1990s and it drove many governments, starting from Shehu Shagari to Obasanjo 2.0.

To ensure that ISI fail, Europe and America not only increased astronomically the cost of IMPORTATION into their countries, but also ensured that their own producers are adequately incentivized.

How did they do it? This is very simple and easy to see.

Since 1945, the world entered into the era of supranational organizations. It began with the establishment of the General Agreement on Tariffs and Trade (GATT), which 23 countries signed into law on October 30, 1947. GATT was a legal agreement that minimized barriers to international trade through the elimination or reduction of quotas, tariffs, and subsidies.

On paper, GATT aimed at eliminating barriers to trade through removals of tariffs and subsidies but the main promoter, the United States continues to pay subsidies to American farmers every day. I mean, for every animal on American farmers field, for every crop planted, the farmers get incentives. Why? So that no products from other nation can compete with products of American farms. The alternative to this is to sell for less.

In practice, GATT aimed at boosting America and its allies’ economic recovery after World War II through reconstructing their comatose economies and liberalizing global trade in their favors. GATT gave birth to the World Trade Organization in much the same way that the League of Nations gave way to the United Nations Organization. The primary aim remains – reduce tariffs globally and remove tariff barriers to trade so that beneficiaries of MES can continue to milk the poorest of the poor. Africans, Asians, and Latin Americans have since dumped ISI.

To permanently seal the coffin, the United States created two other institutions – the Breton Wood Institutions of the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (popularly known as the World Bank). They were established to do one thing and one thing alone: to help rebuild the shattered postwar economy of the United States and its allies in Europe by promoting international economic cooperation with other nations. Through IMF and World Bank, terrible economic policies were developed that aimed primarily at opening up others’ economies to service US and its European allies’ economies.

While the US government owned IMF and World Bank, France owns the Paris Club, Britain owns London Club and hundreds of other international finance corporations who, in the name of supporting mutual development, they have imposed and continue to impose different economic models and policies, backed up by their various militaries and other subterfuges such as the USAID, UK Office of International Development, etc., on developing nations. As it was during the days of MES, so it is today and, God forbid, forever more.

So, when a Buhari stopped importation of food items such as RICE, he was only following in the footsteps of how Europe and America gained world domination in finance, military might, and politics. I think anyone who want Nigeria to grow should support Buhari in changing the direction of our economy. Until we realize and follow the injunctions of Queen Elizabeth that we can only be rich if we reduce what we buy from others and increase what we sell to them, we will not grow.

I hope this brief letter elucidates more on the issue.

Your Aburo,

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