TRADE is the buying and selling or exchange of goods and services.
Types of Trade
- Domestic/Internal/Home/Local trade
Buying and selling of goods within a country’s borders.
It’s classified into:
- Wholesale Trade-purchasing of goods in bulk from producers and selling them to retailers.
- Retail Trade-buying goods from wholesalers and selling them to individual consumers.
- Regional Trade
Trade between countries found in the same geographical region.
- International Trade
Exchange of goods and services at the global level.
It’s classified into:
- Export Trade-selling of goods and services to foreign countries. Examples of major exports from Kenya are coffee, tea, cut flowers, tourism, fluorspar, miraa, vegetables, etc.
- Import Trade-buying of goods and services from other countries. Examples of imports to Kenya are crude oil, vehicles, electronics, sugar, skilled labour, fertilisers, rice, vehicle parts etc.
- Bilateral Trade-exchange of goods and services between two countries.
- Multilateral Trade-exchange of goods and services between many countries.
- Visible Trade-trading in tangible goods.
- Invisible trade-trading in services.
Balance of Trade
-Difference in value of countries visible exports and imports.
It’s of 2 types:
- Adverse Balance of Payments-in which value of visible imports exceeds that of visible exports.
- Favourable Balance of Trade-in which 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 in order to obtain goods and resources which are not found in their area.
- population whereby large population or one with high purchasing power provides a large and ready market for goods and services encouraging trade.
- Trade occurs when there is demand and supply of goods and services.
- If the supply is low and the demand is high, prices go up stimulating trade.
- When the supply is more and the demand is low, prices go down discouraging trade.
- Adequate and efficient means of transport and communication encourage trade because bulky goods can be transported quickly and overlong distances from producers to consumers. Poor transport discourages trade due to the difficulty in getting goods to the market in time. Goods can be supplied faster when traders communicate with suppliers without having to travel a lot which reduces travelling cost and hence increasing profits.
- Trade restrictions can encourage or discourage trade. They are of two types:
- Tariffs- taxes or duties levied by a country on a particular type of commodity imported in order to protect its domestic industries.
- Quotas-specified quantities of goods which must not be exceeded during importation or exportation.
- Trade Agreements-agreements made between countries regarding which commodities are exported or imported from specific countries.
- Total Ban-complete restriction of importation of a particular commodity in order for a country to protect its domestic industries or due to political hostility.
- Trading Blocks or economic Unions/Associations among countries aimed at promoting regional trade among members states can encourage trade between members and discourage 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 only when they are in good terms. Hostility leads to total ban as was the case with s. Africa during apartheid and Iraq when it attacked Kuwait and failed to destroy weapons of mass destruction.
- Existence of aids to trade e.g.
- Banking facilitates storage and transfer of money used in trade transactions
- Insurance protects businesses against theft and destruction from fire which instils confidence among investors.
- Warehouses are essential for storage of large quantities of goods for sale.
Significance of Trade to Kenya
- Many Kenyans are employed in domestic trade such as in wholesale and retail shops and in sectors dealing with foreign trade such as customs and clearing and forwarding firms.
- It’s a source of revenue for the government by charging sales tax such as V.A.T. on manufactured goods sold locally and tariffs at the point of entry into the country.
- Foreign trade enables a country to earn foreign exchange which is used to import goods that a country needs, setting up of industries, developing transport and communication, providing social services etc.
- Leads to development of settlements e.g. many towns started as a small market and more people moved there when trading activities increased.
- International trade ensures availability of a wide range of goods for consumers to select from in order to satisfy their needs.
- It leads to development and improvement of transport infrastructure such as roads and railways in order to enhance transportation of goods and people.
- Leads to development of industries because as the goods are bought demand for goods increases hence more industries are set or existing ones increase their activities in order to satisfy the increased demand.
Problems Facing Trade in Kenya
- Kenya largely depends on agricultural exports which are sometimes affected by climatic variations and diseases and pests leading to low production, and hence low foreign currency.
- Kenya’s exports are of low value as they consist of raw materials or semi processed commodities which fetch low prices because they have to be processed further and also due to being bulky a lot of money is required for their exportation making returns accruing from exportation to be low.
- Local manufactures suffer unfair competition from foreign firms e.g. from COMESA some of which don’t attract tariffs, diversion of goods intended for neighbouring countries to the local market and counterfeit goods which compete with genuine ones.
- There is ignorance about Kenyan goods where by some Kenyans believe that goods from overseas are of superior quality so they prefer imported goods instead of local ones.
- Unexpected trade restrictions are sometimes imposed on Kenyan exports e.g. in 2000 E.U. banned fish importation from Kenya.
- Inadequate transport and communication as most roads are poor and impassable during rainy season meaning goods can’t reach the market and hence increased costs for such goods.
The Future of International Trade in Kenya
The future of it is bright because of the following:
- Kenya has signed trade agreements with various countries of Europe, asia, America and Africa.
- It’s a member of COMESA which has increased the volume of regional trade.
- There is revival of E.A.C. which has also increased the volume of regional trade.
- Peace agreement between Sudanese government and S.P.L.A. has also led to increase in regional trade.
- Kenya is exploring markets in the Far East countries.
- Kenya has trade attaches abroad who help promote Kenyan goods there.
- She has trade organisations such as Kenya External Trade Authority (K.E.T.A.) which carries research on factors which have limited access to top markets in U.S.A. and japan and Kenya Bureau of standards which ensures quality of goods is maintained by the manufacturers.
The Role of Regional Trading Blocks
The Common Market for Eastern and Southern Africa (COMESA)
- It was established in 1994 to replace Preferential Trade Area (P.T.A.).
- It has 22 member states e.g. Kenya, Uganda, Ethiopia, Zambia, Zimbabwe, Namibia, etc.
Objectives of COMESA
- To reduce and eliminate trade barriers on selected commodities to be traded with member states.
- Abolish restrictions in administration of trade among member countries.
- Fostering relations, peace and political stability for member states.
- Raise the standard of living within member states.
- Promote goods being produced in the member states.
- Establish and foster co-operation in all fields of economic activity.
- Increased volume of trade.
- Increased accessibility to markets in member countries.
- Free movement of goods among member countries due to elimination of trade barriers.
- Increased efficiency in production as each member is allowed to specialise in what she produces.
- Improvement of transport and communication facilities.
- Increased political and economic cooperation among member states.
The Southern African Development Community (SADC)
- It started as Southern African Development coordination in 1980 in Lusaka Zambia and transformed into SADC after collapse of apartheid.
- It has 14 member states e.g. Tanzania, DRC, S. Africa, Zambia, Zimbabwe, Mozambique, etc.
- Encourage self reliance among member states in the face of instability posed by apartheid regime of S. Africa.
- Promote and defend peace and security.
- Promote regional integration.
- Eradicate poverty.
- Facilitate trade and economic liberalization.
- Promote self sustaining development on the basis of interdependence on member states.
- Promote and maximize utilization of natural resources and effective protection of environment.
- Promotion of regional industries based on domestic and regional raw materials.
- Reliability and development of regional transport and communication infrastructure.
The Economic Community of West African States (ECOWAS)
- Was established in 1976 by the treaty of Lagos.
- It has headquarters in Lagos Nigeria.
- It has 15 member states e.g. Nigeria, Liberia, Ghana, Benin, Guinea, Sierra Leone, etc.
- 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.
- Brought peace to troubled countries like Liberia and Sierra Leone.
- Promotion of trade in the region through the peace achieved.
- Development of schools to train people on peace keeping e.g. The National War College.
- 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.
- It was formerly inaugurated in 1993 and has headquarters in Brussels in Belgium.
- Promote cooperation in economic, trade, social, security and judicial matters.
- Implementation of economic and monetary union.
- Signing of many trade agreements between EC and other countries.
- Free trade among members as a result of abolishing trade barriers.
- High agricultural production as farmers receive guaranteed prices which have enabled them to increase efficiency.
- Free movement of factors of production which include capital and labour.
Problems Facing Regional Trading Blocks
- Civil wars taking place in some countries which has caused insecurity in turn affecting trade between countries.
- Political differences among leaders of member states may affect cooperation among member states.
- Some countries produce similar goods making the volume of trade to be low and less rewarding.
- Free trade affects local industries as the imported goods without taxes are usually cheaper than locally produced goods.
- Free trade denies countries revenue they would have earned from taxing imported goods.
- Poor transport and communication limits inflow of goods and services.
- Some member states don’t remit their annual subscriptions which affects the operations of the organisations.