(a) What are infant industries? (b) State any four reasons for protecting infant industries. (c) Outline any three ways by which industries can be financed ...

Answer Details

(a) Infant industries. Infant industries are newly established industries that are still young, small and not yet strong or efficient enough to compete on equal terms with older, well-established foreign firms that enjoy economies of scale and experience.

(b) Four reasons for protecting infant industries:

• To allow them to grow. Protection (through tariffs or quotas on rival imports) gives the young industry time to expand, gain experience and become efficient before facing full foreign competition.
• To achieve economies of scale. A protected home market lets the industry increase output and lower its unit costs until it can compete.
• To create and protect employment. Shielding the industry preserves the jobs it provides and allows it to employ more workers.
• To diversify the economy and save foreign exchange. Building local industry reduces dependence on imports and on a few primary exports, and saves the foreign exchange spent on imported manufactures.

(c) Three ways industries can be financed in West Africa:

• Bank loans. Funds obtained from commercial banks and development banks (such as industrial development banks).
• The capital market. Raising long-term funds by issuing shares and debentures to the public.
• Government assistance and personal savings. Government subsidies, grants and loans, together with owners' personal savings and ploughed-back (retained) profits.

Examination takeaway: tie the reasons for protection to the industry being young (it needs time to reach efficient scale), and in (c) name genuine sources of finance, not general activities.