Trade | Geography Form 4

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Trade - Geography Form 4






Objectives

By the end of the session you should be able to:

a) define trade

b) identify types of trade

Trade

Refers to the act of process of buying selling or exchanging commodities and services


Types of Trade

Historically, trade has been classified into barter and monetory. Trade involves use of money in acquiring goods or commodities.On the other hand barter trade involves the exchange goods.has almost been replaced by monetary trade. Monetary trade has the following levels.  Internal regional and international

Internal trade this is also known as domestic or local trade and it involves buying and selling of goods within a country's borders. Internal trade is also classified into wholesale; this involves the buying of good in bulk from a producer and selling to traders for resale.

Retail trade: - This is selling of goods to the final consumer at a profit. There are small scale retail trade and large scale trade. Examples of small scale retail traders are: - road side sellers, kiosk traders and shopkeepers

Large scale retail traders are: - supermarket traders, multiple shop retailers and departmental stores.

Regional trade: - This refers trade between countries neighbouring or within the same geographical region.  For example trade between Kenya, Uganda and Tanzania (EAC).  Others are SADC countries, COMESA countries, ECOWAS countries and EU Countries.


International Trade: - This refers to trade between two or more countries.  Trade between two countries is known as bilateral trade (the two countries buy from and sell to one another goods).  Trade involving more than two countries is called multilateral trade. The goods sold to another country are called exports and those bought from another country are called imports.


Imports involve buying goods from other countries.Imports can also be visible or invisible. Visible imports are tangible goods that a country buys from another. Examples are; crude oil, pharmaceuticals and motor vehicles. The invisible imports are consultancy (engineers or doctors), Airline services (Foreign airlines), and Banking and hotel services (foreign).

Exports are also divided into visible and invisible exports. Visible exports are tangible goods such as coffee, tea, textiles etc while invisible exports are services which can earn foreign exchange without transfer of goods from one country to the other. Expatriates that go to other countries, tourists that come to Kenya, insurance and banks

Factors that influence trade

Differences in natural resources

Different regions are endowed with different resources. Due to this, countries specialize in producing particular commodities. This makes it necessary to trade with other countries for those goods that they do not produce. For example; Kenya is endowed with trona and therefore exports it to other countries like Philippines and Japan. Malaysia produces rubber and exports to Britain.

Economic unions

These are associates among countries in a region formed to promote regional trade.

Types of economic unions

There are two types of Economic Unions, namely;Free trade area and the common markets.

The free trade area;These do not have restrictions to the member states with regard to trade while common market are like free area association except that they raise the tariffs for non-members trading with them.

The common markets lead to economic and political integration. Examples of trade blocs are the East African Community (EAC) common markets for Eastern and Southern (COMESA) southern African development community (SADC)


Stage of Economic Development

Most of the exports from developing countries are semi processed or just in raw form.However, as a country develops, these raw materials exported that fetches low returns are processed into finished products and this makes the country to reap more foreign exchange.For example Japan as a country that used to import the manufactured goods is nowadays a major exporter of the same.

Population

Densely populated countries have large volume of internal trade but may have a relatively small volume of internal trade as whatever is produced locally is consumed. For example China produces a lot of rice but doesn't export it. A large population also provide a large market for imported goods but if the purchasing power of the people is low the demand will be low. Population determines the provision of labour for both agricultural and industrial production of commodities.Culture also affects the type of commodities traded e.g beverages such as alcohol and pork products are prohibited some countries hence low demand.

    Nature of exports

    Countries that export agricultural products (developing countries) in raw form, fetch low prices in the international markets. Such countries import manufacture products such as machineries, motor vehicles and pharmaceuticals which are highly priced in international trade hence creating an advance balance of trade. Countries that export manufactured products have favorable balance of trade due to high price of their products. They import agricultural products which are low priced in international markets.


    Transport and communication.

    Adequate and efficient means of transport and communication are essential for successful trade.Goods have to be moved from the producers to consumers.Means of communication such as telephones, facsmile and internet enhance communication efficiency in trade.

    Capital

    Most developing countries have inadequate capital.This hinders large scale production of commodities thus limiting international trade. Where there is a lot of capital, more and efficient production techniques can be put to use thus reducing cost of production.


    Security

    Trading prospers when security is assured. When there is more security in country it creates an environment which is conducive for trade. In case of insecurity trade is limited.

    Political relationship

    Trade among countries can only take place if the countries involved relate well. Political hostility between countries discourage trade and sometimes lead to total bans e.g Iraq under the rule of Sadam Hussein suffered trade sanctions because of her military invasion of Kuwait.

    Trade Restrictions

    Use of different Currencies

    Different currencies among countries can act as a barrier to trade because of varying rates of exchange e.g the fluctuating rates of exchange experienced in Kenya in 2004 made the imported goods very expensive.When a common currency is in use in a region e.g European Union Countries, transactions between the countries become easier.

    Different Technological levels

    Developing and industrialized countries are at different levels of economic development.This means that they produce different goods.The difference in value resulting from such trade (agricultural goods/manufactured products) is responsible for the adverse balance of trade especially in developing countries.


    Existence of aid to trade.

    Aids to trade include;

    • Banks; these are essential as they facilitate storage and transfer of the money used in trade sanctions.
    • Insurance; insurance facilities are important to secure the traders money and business premises against various risks such as theft or damage by fire.
      Warehouses; are essential for the storage of Kenya quantities of goods for sale.

    Therefore banking and warehouse facilities promote trade.

      Demand and Supply

      Demand refers to the desire or need to purchase a particular good or goods.Only goods on demand are stocked by traders.Supply refers to availability of goods. The presence of goods encouraged traders to buy go services and make them available to those who need them.

      Major exports and imports of Kenya.

      In this session we shall identify the major imports and exports of Kenya.Most of the exports of Kenya are agriculturally based while the imports are mainly manufactured goods. The table provided shows major imports and imports.


      Significance of trade to Kenya

      This refers to how trade impacts on the social, political and economic spheres of country.

      Economic growth

      Trade makes goods available where there is demand. This stimulates specialization in the production of goods since each region produces the commodities in which it has comparative advantage leading to industrial development. The country's economy is diversified products are exported thus earning foreign exchange for development of other sectors such as education and health care.

      Industrial growth.

      A high demand for goods both locally and abroad stimulates industrial growth. This is because more industries are set up in order to satisfy the increased demand for goods.

      Specialization

      Trade stimulates specialization in production of goods. This leads to production of quality products.

      Earning foreign exchange

      External trade enables the country to earn income or exchange. The revenue got from this trade is used to set up industries to increase its exports and hence more revenue. The foreign exchange is also used to develop the other sectors of the economy.

      Source of revenue

      The government earns revenue by charging sales tax on manufactured goods sold locally e.g. Value Added Tax (VAT) charged on goods and services rendered within custom duties or tariffs are also charged on import goods at the point of entry into the country.


      Creation of employment.

      Domestic trade creates employment opportunities in such areas as wholesale and retail shops. Many Kenyans are also employed in sectors dealing with foreign trade such as customs and in cleaning and forwarding firms.

      Development of infrastructure

      Efficient means of transport and communication are required for trade to succeed. Kenya is trying to improve her transport system by building new roads and maintaining the existing rail, air and water transport. Telecommunication services have also been expanded to enhance trade e.g. through internet.


      Market for goods.

      Trading ties with other countries provide probable outlet for a country's surplus production thus encouraging more production of commodities leading to economic growth. The diagram below shows Kenya trading ties with other countries


      Exploiting existing natural resources.

      Natural resources are exploited for purposes of trade. E.g. the growing demand for fresh water fish has led to more exploitation of water resources in Kenya so as to meet the demand.

      Availability of commodities

      Trade between different countries ensures availability of a wide range of goods. The consumers thus have a variety of goods to select from so as to satisfy their needs.


      Improvement of quality of products.

      Trade leads to the manufacture of goods with better quality so that they can compete in the local market as well as in the international market.


      Development of other related activities.

      Trade stimulates the development of various activities such as banking, insurance, and warehousing. These activities are very essential for the traders to carry out their trading activities.


      Development of settlements.

      Many towns start as small market centres but with increased activity, more people move to settle in the centres and to carry out trading activities. The variety of goods offered increases and thus markets grow into small urban centres and these also later in develop into big towns. Examples of such towns are Moyale, Namanga, Mandera, Busia,and Taveta.

      Regional cooperation:

      External trade enhances cooperation among the trading partners and this therefore fosters peace harmony and international understanding and cooperation.

      Problems facing trade in Kenya

      Trade in Kenya is faced by a number of problems. These are;

    • The nature of the Kenya's exports and imports
    • Fluctuation of prices in the world market
    • Ignorance about goods
    • Competition from cheaper sources
    • Trade restrictions
    • Inadequate transport and communication facilities
    • Smuggling and corruption
    • The nature of the Kenya's exports and imports and exports.

      The exports from Kenya are mainly agricultural which mainly depends on the climatic conditions; which makes the yields to fluctuating yields rests and herein also affects the agricultural out.These agricultural products are either exported in raw form when semi processed, thereby making Kenya to fetch lower returns (foreign exchange) as they lowly priced. The imports of Kenya are those that are not available locally. They include crude oil, machinery, motor vehicles, iron and steel, pharmaceuticals, chemical and fertilizers. These goods are of higher value and so cost more than the exports and so making Kenya to have adverse balance of trade.

      Fluctuation of prices in the world market.
      The earnings from exports depend on the quality of goods exported and demand for them in the world market which is also influenced by changes in taste.
      Decreased world prices for Kenyas exports cause farmers income to decline and this demoralizes the farmers who now reduce their output.

      Ignorance about goods

      Some traders are hardly aware of goods from other countries due to inadequate to advertisement of such goods. E.g. Kenya exports fruits and horticultural crops and the same could be imported from overseas by some African countries because they may not be aware that Kenya offers the same products.They would also be biased about the products from the same content.

      Competition from cheaper sources.

      Local manufacturers have to contend with foreign firms that dump their goods in the local markets at cheaper prices. Some of the goods from COMESA region do not attract tariffs. This creates unfair competition for some local products whose cost of production is high. Counterfeits also find their way into local markets, creating unfair competition for genuine products.

      Trade restrictions

      Unexpected restrictions are imposed on Kenyan exports e.g. in 2000 the European Union banned the importation of fish from Kenya. This affected fish exports in the country.

      Inadequate transport and communication facilities

      Poor transport network affects trade in Kenya hence certain products cannot reach the market on time e.g. poor transport between Kenya and Somalia hampers trade between the two countries even though they are neighbours.

      Smuggling and Corruption

      Kenya losses a lot of revenue when some traders smuggle goods to neighbouring countries or imports good without following the proper import channels. These traders collide with corrupt custom of official at the entry points of the goods resulting to undervaluing or clearance of the goods without the required tariffs being paid.


      The government facilitates organization of trade fares like Nairobi international show which enables the business community to advertise their products and facilitates promotion of tourism in the countries of major tourists origin

      Provide a video of Nairobi international show

      1. The government imposes tariffs on imported goods so as to discourage importation of non essential and luxury goods.  These tariffs also protect the local industries.

      Provide a photograph of custom office at KKIA (airport)

      1. The government has created the ministry of trade and industry to overseas matters relating to trade in the country

      Provide a photograph showing the ministry of trade and industry

      1. The government has made efforts to provide the necessary infrastructure such as roads and telecommunication, which has made it possible for the business community to easily access the e.g. re-carpeting  of the Nairobi Mombasa road, after the massive destruction caused by the 1997 El Nio rains

      Provide a video of Nairobi-Mombasa road

      1. Signing of the international trade agreement on COMESA was a step towards increasing Kenyan trade.  She enjoys forwarded balance of trade in her trade with COMESA countries.

      Provide animated map of Africa showing COMESA countries.  Fig. 8.1 page 187 certificate geography book 4

      1. Establishment of export processing Zone (EPZ) by the government and also encouraging foreign investors to set up industries enhances increase of volume of exports and production of high quality goods.  Thus high value

      Provide a video of EPZ at Athi River.
      On the other hand international trade can import negatively on the economy of Kenya.  For example

      1. Over revived of goods and trading country go bad
      2. Over exploitation of non-renewable resources e.g. minerals can lead to exhaustion

      Provide a video of exhausted gold mine at macalder

      1. International trade may hinder the growth of infant industries through the stiff competition among the trading countries

      Provide a photograph of Kisumu Cotton mills (KICOMI)

      1. Through international trade goods barred in Kenya may get their way into the country e.g. banned drugs like cocaine, mandrax and heroin

      Provide a video clip of drugs caught up by the police officers at the airport

      1. Kenya may be forced to adopt political or economic policies opposed to her endeavours

      Animate individuals retrenched from employment in companies (IMF policy of retrenchment)


        The future of international trade in Kenya
        We have discussed factors that influence trade in Kenya and the problems experienced.  In this session, we shall discuss the future of international trade in Kenya.

        1. The government encourages production of high quality goods which are competitive in the world market.  The quality is ascertained by the national standard body. i.e. the Kenya bureau of standards

        Provide a photograph showing Kenya bureau of standards offices in south

        1. The government facilitates organization of trade while the area Nairobi international show which enables the business community to advertise their products and facilitates promotion of tourism in the countries of major tourists origin

        Provide a video of Nairobi international show

        1. The government imposes tariffs on imported goods so as to discourage importation of non essential and luxury goods.  These tariffs also protect the local industries.

        Provide a photograph of custom office at KKIA (airport)

        1. The government has created the ministry of trade and industry to overseas matters relating to trade in the country

        Provide a photograph showing the ministry of trade and industry

        1. The government has made efforts to provide the necessary infrastructure such as roads and telecommunication, which has made it possible for the business community to easily access the e.g. re-carpeting  of the Nairobi Mombasa road, after the massive destruction caused by the 1997 El Nio rains

        Provide a video of Nairobi-Mombasa road

        1. Signing of the international trade agreement on COMESA was a step towards increasing Kenyan trade.  She enjoys forwarded balance of trade in her trade with COMESA countries.

        Provide animated map of Africa showing COMESA countries.  Fig. 8.1 page 187 certificate geography book 4

        1. Establishment of export processing Zone (EPZ) by the government and also encouraging foreign investors to set up industries enhances increase of volume of exports and production of high quality goods.  Thus high value

        Provide a video of EPZ at Athi River.
        On the other hand international trade can import negatively on the economy of Kenya.  For example

        1. Over revived of goods and trading country go bad
        2. Over exploitation of non-renewable resources e.g. minerals can lead to exhaustion

        Provide a video of exhausted gold mine at macalder

        1. International trade may hinder the growth of infant industries through the stiff competition among the trading countries

        Provide a photograph of Kisumu Cotton mills (KICOMI)

        1. Through international trade goods barred in Kenya may get their way into the country e.g. banned drugs like cocaine, mandrax and heroin

        Provide a video clip of drugs caught up by the police officers at the airport

        1. Kenya may be forced to adopt political or economic policies opposed to her endeavours

        Animate individuals retrenched from employment in companies (IMF policy of retrenchment)

        The future of international trade in Kenya

        We have discussed factors that influence trade in Kenya and the problems experienced. In this session, we shall discuss the future of international trade in Kenya.

        The government encourages production of high quality goods which are competitive in the world market.The quality is ascertained by the national standard body. i.e. the Kenya bureau of standards


        The government facilitates organization of trade fares like Nairobi international show which enables the business community to advertise their products and facilitates promotion of tourism in the countries of major tourists origin

        >The government imposes tariffs on imported goods so as to discourage importation of non essential and luxury goods. These tariffs also protect the local industries.


        The government has created the ministry of trade and industry to overseas matters relating to trade in the country

        The government has made efforts to provide the necessary infrastructure such as roads and telecommunication, which has made it possible for the business community to easily access the e.g. re-carpeting  of the Nairobi Mombasa road, after the massive destruction caused by the 1997 El Nio rains


        Signing of the international trade agreement on COMESA was a step towards increasing Kenyan trade.  She enjoys forwarded balance of trade in her trade with COMESA countries.


        Establishment of export processing Zone (EPZ) by the government and also encouraging foreign investors to set up industries enhances increase of volume of exports and production of high quality goods.  Thus high value



        On the other hand international trade can impart negatively on the economy of Kenya.  For example

        1. Over revived of goods and trading country go bad
        2. Over exploitation of non-renewable resources e.g. minerals can lead to exhaustion

        International trade may hinder the growth of infant industries through the stiff competition among the trading countries

        Through international trade goods barred in Kenya may get their way into the country e.g. banned drugs like cocaine, mandrax and heroin

        Kenya may be forced to adopt political or economic policies opposed to her endeavours

        The role of regional trading blocks

        Trading blocs are associations formed between a group of neighboring countries with a purpose of promoting and influencing the directions of international trade. Some of the world's major trading blocs include:-

          • European economic community (EEC)
          • European Free trading association (EFTA)
          • Latin American Free Trade Association (LAFTA)
          • Common market for eastern and southern Africa (COMESA)
          • Sothern African Development community (SADC)
          • The economic community of west African States (ECOWAS)

        European Economic Community

        European Economic Community: - This is an economic sum political block. Its formation dates back to 1951 when Belgium, France, West Germany, Luxemburg, Netherlands and Italy formed European local and steel community with the objective of ensuring peace by cooperating in trade matters. This community gave birth to European Economic Community in 1957 under the Rome treaty. The custom duties were abolished and free movement of factors of production i.e. capital and labour was encouraged by the EEC and hence trade improved.Britain, Ireland and Denmark joined in 1973 and this fostered greater economic growth due to enlargement of market for goods and services.The EEC was made a union (EU in 1993 after signing a treaty (magistracy) treaty) it now made it closer towards political unity.


        Objectives of the European Union

        1. Elimination of trade barriers like custom duties and quotas on goods and services from member states.
        2. Establishment of common internal tariffs on goods from member states
        3. Encourage free movement of persons, services and capital between member states.It covers foreign affairs, security and judicial concerns in the member states
        4. Establish a monetary union which will bring out a single currency

        East African Community

        It was revived in 1999 after its collapse in 1977.It has five member states. Its objectives are;

        1. Establish a customs union.
        2. Establish a common market.
        3. Establish a monetary.
        4. To have a political federation.

        Achievements

        1. Improve trade amongst East African countries.
        2. Free movement of goods from Uganda and Tanzania into Kenya has been achieved. There is also reduced tariff charged on the Kenyan goods on entry into Uganda and Tanzania on a reducing basis until there will be no duty for 5years.
        3. The three countries have agreed on a common tariff charged on non members of the community.
        4. There are improved relations between the member states.

        Common market for Eastern and Southern Africa (COMESA)

        This was established on 8th December 1994 although the treaty establishing it was signed on 5th November 1993 at Kampala Uganda.It has 21 member states.It replaced the former preferential trade area (PTA) which existed from 1981.  The main focus of COMESA is to establish a large economic trading unit which is capable of overcoming some barriers that are faced by individual countries

        Aims and Objectives of COMESA

        1. To attain sustainable growth and development of member state by promoting balanced and harmonious development of its production and marketing structure
        2. To raise the living standards of the people
        3. To foster close relations among member states
        4. To promote joint development in all fields of economic activity and joint adoption of macro- economic policies and programmes
        5. To cooperate in the creation of enabling environment to foreign, regional and domestic investment including the joint promotion of research and adaptation of science and technology for development
        6. Promotion of peace, security and stability in  the member states
        7. Strengthening relations between the COMESA market and the rest of the world

        Achievements of COMESA

        1. COMESA member states have made great progress in the area of trade, transport, finance, development, technical cooperation, industry and agriculture
        2. Trade liberalization and facilitation measures are bearing fruits
        3. Transport costs have been reduced
        4. COMESA has established a bank
        5. It has achieved investment in the region through bilateral agreements and export drives by individual member states
        6. Formation of a clearing house based in Harare

        Provide a photograph of a clearing house in Harare.

        Southern African development cooperation (SADC)

        This was formed in 1992 in wind Hoeck, Namibia. This followed the 1980 Lusaka declaration of southern African Development Coordination conference (SADC). The headquarters is at Gaberone Botswana. It has 14 member states.

        Achievements of SADC.

        • Creation of inter-grated committee of ministers (ICM).
        • Establishment of regional indicative strategic development plan.
        • SADC national committees are established in member states to provide input at international level, and information of regional policies.

        Objectives of SADC;


        1. Fosters regional and international cooperation.
        2. Coordinates and maintains peace, democracy and security in the member states.
        3. Establishment of a common market for member states.
        4. To promote sustainable and equal economic growth that will assist to alleviate and eradicate poverty.
        5. To promote and coordinate regional integration.
        6. To uplift the living standards of the people.

        The economic community of west African states(ECOWAS)

        This was established in May 28th 1995 by the treaty of Lagos. it has 16 member states. It focuses on provision of cooperation in all areas of economic and social sectors of the states.

        Objectives of ECOWAS.

        1. Create a free trade area between the member states.
        2. Coordinate and harmonize national economic and financial policies in order to enhance the effectiveness of the national, structural adjustments and economic reform programmes.
        3. Improve relationship between the member states.
        4. Foster cooperation in specialized fields like infrastructure, trade, industry and agriculture.
        5. Uplifting the living standards of the member states.
        6. Creation of monetary union.

        Achievement of ECOWAS.

        • Improvement on fields of production like, trade, transport and communication.
        • Adoption of a defense act that led to the establishment of a military wing of ECOWAS.
        • Provision of wider market for goods e.g. Nigeria provides her petroleum to member states at lower prices.
        • There is greater regional, social cooperation i.e. heads of states meet regularly to solve problems that may face the region.

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