The Need for Product Market Analysis: A Case Study of the Feasibility of Import Substitution in Nigeria

Abstract

I. Feasibility Studies IN recent years, economists and planners have referred repeatedly to the need for systematic evaluation of industrial (and other) projects in the poor countries. Indeed, the demand has become so great that one is apt to forget that feasibility studies (or industry studies or project evaluations) are a rather sophisticated form of supply and demand analysis. This is especially so for those poor countries (the majority) which have mixed economies, meaning that they have under-developed market systems, a dependence on foreign trade, and inadequate government controls even though we may speak optimistically of planning. Sophisticated project proposals may well miss the characteristics of these poor countries. Studies of proposed industrial projects are usually fairly well detailed on the supply side: technology and costs are well understood, though understanding is based on industrial experience in the advanced nations. Cost data are usually not presented in comparative terms, showing alternative plant sizes; and adjustments are for the most part inadequate to take account of differences in economic climates between the poor and industrialized nations. On the whole, market analyses of the demand for products either for intermediate or final uses are sadly lacking in the poor countries. One need only recall the dictum of Adam Smith on the size of the market to question the indiscriminate commitment of scarce resources to industrial projects. It therefore follows that productmarket estimation has key importance in feasibility studies. The relevance (or lack of it) of cost data can then become clear and refinements to the supply and demand analysis ('economic' feasibility) can be built up to answer whether the project is feasible or not. Our concern is with the difficulties that arise when an enterprise is established without adequate market estimations. The lessons, I think, are clear.