Geography Form 4 Notes : TRADE

TRADE

Buying and selling or exchange of goods and services.

Types of Trade

A. Domestic/Internal/Home/Local Trade

Buying and selling of goods within a country’s borders.

It is classified into:

1. Wholesale Trade – purchasing goods in bulk from producers and selling them to retailers.
2. Retail Trade – buying goods from wholesalers and selling them to individual consumers.

B. Regional Trade

Trade between countries found in the same geographical region.

C. International Trade

Exchange of goods and services at the global level.

It is classified into:

1. Export Trade – selling goods and services to foreign countries. Examples of major exports from Kenya include coffee, tea, cut flowers, tourism, fluorspar, miraa, vegetables, etc.
2. Import Trade – buying goods and services from other countries. Examples of imports to Kenya include crude oil, vehicles, electronics, sugar, skilled labour, fertilisers, rice, vehicle parts, etc.
3. Bilateral Trade – exchange of goods and services between two countries.
4. Multilateral Trade – exchange of goods and services between many countries.
5. Visible Trade – trading in tangible goods.
6. Invisible Trade – trading in services.

Balance of Trade

Difference in value of a country’s visible exports and imports.

It is of two types:

1. Adverse Balance of Payments – when the value of visible imports exceeds that of visible exports.
2. Favourable Balance of Trade – when the value of visible exports exceeds that of visible imports.

Balance of Payment

Difference in value between visible and invisible exports and imports.

Factors Influencing Trade

• Difference in natural resources, which makes it necessary to trade with other countries or areas to obtain goods and resources not found locally.
• Population size and purchasing power provide a large and ready market for goods and services, encouraging trade.
• Trade occurs when there is demand and supply of goods and services.
  • If supply is low and demand is high, prices rise, stimulating trade.
  • If supply is high and demand is low, prices fall, discouraging trade.
• Adequate and efficient means of transport and communication encourage trade because bulky goods can be transported quickly and over long distances from producers to consumers. Poor transport discourages trade due to difficulty in getting goods to market on time. Goods can be supplied faster when traders communicate with suppliers without extensive travel, reducing costs and increasing profits.
• Trade restrictions can encourage or discourage trade. They include:
  • Tariffs – taxes or duties levied on imported commodities to protect domestic industries.
  • Quotas – specified quantities of goods that must not be exceeded during importation or exportation.
  • Trade Agreements – agreements between countries regarding which commodities are exported or imported from specific countries.
  • Total Ban – complete restriction of importation of a particular commodity to protect domestic industries or due to political hostility.
• Trading blocks or economic unions/associations among countries promote regional trade among member states, encouraging trade between members and discouraging trade with non-members.
  • Free Trade Associations – liberalise trade among member countries by lowering and abolishing tariffs.
  • Common Market Associations – liberalise trade among members and raise tariffs for non-members.
• Trade can only take place between countries when they are on good terms. Hostility leads to total bans, as was the case with South Africa during apartheid and Iraq after its invasion of Kuwait.
• Existence of aids to trade such as:
  • Banking, which facilitates storage and transfer of money used in trade transactions.
  • Insurance, which protects businesses against theft and destruction from fire, instilling confidence among investors.
  • Warehouses, essential for storage of large quantities of goods for sale.

Significance of Trade to Kenya

1. Many Kenyans are employed in domestic trade such as wholesale and retail shops and in sectors dealing with foreign trade such as customs and clearing and forwarding firms.
2. It is a source of revenue for the government through sales tax such as VAT on manufactured goods sold locally and tariffs at points of entry.
3. Foreign trade enables Kenya to earn foreign exchange used to import needed goods, set up industries, develop transport and communication, and provide social services.
4. Trade leads to development of settlements; many towns started as small markets and grew as trading activities increased.
5. International trade ensures availability of a wide range of goods for consumers to satisfy their needs.
6. It leads to development and improvement of transport infrastructure such as roads and railways to enhance transportation of goods and people.
7. Trade stimulates development of industries because increased demand encourages setting up new industries or expansion of existing ones.

Problems Facing Trade in Kenya

1. Kenya largely depends on agricultural exports, which are sometimes affected by climatic variations, diseases, and pests, leading to low production and reduced foreign currency earnings.
2. Kenya’s exports are mostly raw materials or semi-processed commodities that fetch low prices because they require further processing and are bulky, increasing export costs and reducing returns.
3. Local manufacturers face unfair competition from foreign firms, including some from COMESA that do not attract tariffs, diversion of goods intended for neighbouring countries to the local market, and counterfeit goods competing with genuine ones.
4. Some Kenyans believe imported goods are of superior quality, leading to ignorance about Kenyan products and preference for imports.
5. Unexpected trade restrictions are sometimes imposed on Kenyan exports, such as the 2000 EU ban on fish imports from Kenya.
6. Inadequate transport and communication infrastructure, with many roads being poor and impassable during rainy seasons, prevent goods from reaching markets and increase costs.

The Future of International Trade in Kenya

The future is bright due to the following:

1. Kenya has signed trade agreements with various countries in Europe, Asia, America, and Africa.
2. It is a member of COMESA, which has increased the volume of regional trade.
3. There is revival of the East African Community (EAC), which has also increased regional trade.
4. The peace agreement between the Sudanese government and SPLA has led to increased regional trade.
5. Kenya is exploring markets in Far East countries.
6. Kenya has trade attaches abroad who help promote Kenyan goods.
7. Trade organisations such as the Kenya External Trade Authority (KETA) conduct research on factors limiting access to top markets like the USA and Japan, and the Kenya Bureau of Standards ensures quality of goods produced.

The Role of Regional Trading Blocks

The Common Market for Eastern and Southern Africa (COMESA)

• Established in 1994 to replace the Preferential Trade Area (PTA).
• Has 22 member states including Kenya, Uganda, Ethiopia, Zambia, Zimbabwe, Namibia, etc.

Objectives of COMESA

1. Reduce and eliminate trade barriers on selected commodities traded among member states.
2. Abolish restrictions in trade administration among member countries.
3. Foster relations, peace, and political stability among member states.
4. Raise the standard of living within member states.
5. Promote goods produced in member states.
6. Establish and foster cooperation in all fields of economic activity.

Achievements

• Increased volume of trade.
• Improved accessibility to markets in member countries.
• Free movement of goods among member countries due to elimination of trade barriers.
• Increased production efficiency as members specialise in what they produce.
• Improved transport and communication facilities.
• Enhanced political and economic cooperation among member states.

The Southern African Development Community (SADC)

• Started as Southern African Development Coordination in 1980 in Lusaka, Zambia, and transformed into SADC after the collapse of apartheid.
• Has 14 member states including Tanzania, DRC, South Africa, Zambia, Zimbabwe, Mozambique, etc.

Objectives

1. Encourage self-reliance among member states amid instability caused by apartheid South Africa.
2. Promote and defend peace and security.
3. Promote regional integration.
4. Eradicate poverty.
5. Facilitate trade and economic liberalisation.
6. Promote self-sustaining development based on interdependence among member states.
7. Promote and maximise utilisation of natural resources and protect the environment effectively.

Achievements

• Promotion of regional industries based on domestic and regional raw materials.
• Development and reliability of regional transport and communication infrastructure.

The Economic Community of West African States (ECOWAS)

• Established in 1976 by the Treaty of Lagos.
• Headquartered in Lagos, Nigeria.
• Has 15 member states including Nigeria, Liberia, Ghana, Benin, Guinea, Sierra Leone, etc.

Objectives

• Promote mutual trade by eliminating trade restrictions among members.
• Create a monetary union.
• Impose uniform tariffs for imports from non-member countries.
• Give special treatment to goods imported from member states.
• Promote free movement of people to and from member countries by eliminating visas.

Achievements

• Brought peace to troubled countries like Liberia and Sierra Leone.
• Promoted trade in the region through peace achieved.
• Developed schools to train people on peacekeeping, e.g., The National War College.
• Enabled free movement of goods among member states.

The European Union (EU)

• An organisation of European countries dedicated to increasing economic integration and cooperation among members.
• Formally inaugurated in 1993 with headquarters in Brussels, Belgium.

Objectives

1. Promote cooperation in economic, trade, social, security, and judicial matters.
2. Implement economic and monetary union.

Achievements

1. Signed many trade agreements between the European Community and other countries.
2. Established free trade among members by abolishing trade barriers.
3. Achieved high agricultural production as farmers receive guaranteed prices, enabling increased efficiency.
4. Allowed free movement of factors of production, including capital and labour.

Problems Facing Regional Trading Blocks

• Civil wars in some countries cause insecurity, affecting trade between countries.
• Political differences among leaders of member states may affect cooperation.
• Some countries produce similar goods, reducing trade volume and profitability.
• Free trade affects local industries as imported goods without taxes are usually cheaper than locally produced goods.
• Free trade denies countries revenue from taxing imported goods.
• Poor transport and communication limit inflow of goods and services.
• Some member states do not remit their annual subscriptions, affecting the operations of the organisations.