My topic today would be on foreign trade. This article actually required a lot of information to produce so I hope to bless your mind with all I have got. Let's look into our topic.
FOREIGN TRADE: FACTORS FAVOURING, PROBLEMS AND IMPORTANCE OF FOREIGN OR INTERNATIONAL TRADE
2. EXTERNAL OR FOREIGN OR INTERNATIONAL TRADE
This is the exchange or buying and selling of goods and services between two or more countries, for example, between Nigeria and other countries. Nigeria’s principal customers include the United Kingdom and the United States of America. Others include Germany, the Netherlands (Holland), France, Italy, Japan and members of Economic Community of West African States [ECOWAS] and other African countries.
Three categories of goods may be noted, namely:
(a) Consumer Goods: These are goods which we need everyday to meet some of our daily necessities. Such goods include beverages, food, chemicals, textiles, etc.
(b) Capital Goods: These are imported goods which are used for the production of different items or used for further development within the country. Examples of such goods are machinery, manufactured goods like iron and steel. These account for over 65% of Nigeria imports since 1965.
(c) Luxury Goods: These are goods, which though costly, are purchased either for the pleasure people derive from them or as a way of showing affluence. Luxury goods include goods like cosmetics, television sets, air conditioners, expensive lace materials, flashy cars, luxury cars, private jet planes, etc.
FACTORS AFFECTING INTERNATIONAL (VOLUME OF) TRADE
Factors which determine the volume of trade between two countries are:
1. Differences in Climate: This favours the growth of different crops for export.
2. Differences in Prices of Goods: The higher the differences in the prices of goods, the greater the volume of trade between two countries and vice versa.
3. Comparative Cost Advantage: A country as a result of her comparative cost advantage which she has over some other countries, may engage in trade relation with one another which has less comparative advantages in the production of certain goods.
4. Differences in Natural Resources: The higher the differences in the presence of natural resources like minerals between two countries, the greater the volume of trade between them and vice versa.
5. Differences in Agricultural Products: The higher the differences in the production of agricultural goods, the greater the volume of trade between two countries and vice versa.
6. Colonial Ties: Countries with former colonial ties tend to trade or have favourable trade with their colonial masters, e.g. trade between Nigeria and Britain or Cameroun and France.
7. Differences in Technology: The higher in differences in the level of technology (that is, comparative advantage of specialization), the greater the volume of trade between two countries and vise versa.
8. Differences in Import Duties: The higher the import duties imposed on imported goods and services, the less the goods that will be imported and vice versa.
9. The Need to Earn Foreign Exchange: This also helps to increase the volume of trade between nations.
10. Political Consideration: A country may decide to trade with another based on political consideration, e.g. the enthronement of democracy in a nation may warrant a trade relation with another country.
REASONS FOR HIGH VOLUME OF TRADE BETWEEN NIGERIA AND DEVELOPED COUNTRIES
Nigeria’s principal foreign partners with high volume of trade between her and them (developed countries) are Britain, USA, Japan, France, Germany, etc. The reasons are:
1. Favourable Market: Nigeria has large market for some goods manufactured in developed countries, e.g. computers, electronics, motor vehicles, military hardwares, etc.
2. Colonial Ties: The inclination of some developing countries to their colonial masters has helped to increase the volume of trade between nations.
3. Preference for Imported Goods: Developing countries like Nigeria has preference for goods produced by advanced countries, hence, the high volume of trade.
4. Similarity of Products: Both Nigeria and other African countries produce goods or products that are similar.
5. Differences in Currencies: They use different currencies and this makes trade difficult.
6. Low Level of Savings: Both Nigeria and other African countries have low level of savings and this affects their purchasing power.
7. Low Level of Technology: They have the same low level of technology; hence, they produce or operate at the same low level.
8. Existence of Regional Trade Unions: The presence of many regional trade unions tends to create a barrier to international trade among African countries.
9. Poor Transport Links: There is poor transportation network linking African countries and this also, creates barriers to international trade among African countries.
10. Similarity in Climate: Majority of African countries has almost the same climate; hence, they produce almost the same type of crops.
11. Trade Restriction and High Tariffs: There are lots of trade restrictions within African countries, hence, a reduction in the volume of trade.
FACTORS WHICH MAY LIMIT INTERANATIONAL TRADE
(a) Strained International Relations: Strained international relations between countries involved in international trade can lead to non-importation or exportation.
(b) Inadequate Foreign Exchange: Inadequate foreign exchange can seriously affect the volume of trade between two countries.
(c) Political Instability: Political instability in either country can limit the volume of trade. In most cases, there will be no trading at all.
(d) Inadequate Production of Goods: Inadequate production of goods either by the importing or exporting country, can limit international trade.
(e) Low Demand for Products: There will be low sales when the other country’s demand for products is low.
(f) High Tariffs on Goods: High tariffs charged by a certain country can affect the rate of import or export of goods to that country.
HOW TO IMPROVE TRADE BETWEEN NIGERIA AND DEVELOPED COUNTRIES
(a) Membership of the same international economic organization.
(b) Increased international co-operation between both countries.
(c) Liberalization and simplification of export / import procedures by both countries.
(d) Through technical co-operation between the countries.
(e) Provision of loans to enhance or increase production.
HOW TO IMPROVE THE VOLUME OF TRADE BETWEEN NIGERIA AND THE REST OF AFRICAN COUNTRIES
1. Unfavourable Balance-of-Trade: Unfavourable balance-of-trade could lead to low production of goods by the country affected. Therefore, it should be corrected.
2. High Cost of Transportation: This has some negative effects on the final cost of finished goods as the consumers will find it difficult to buy. This, therefore, has to be improved.
3. Encouraging specialization in production.
4. There should be construction of trans-continental transport network.
5. Formation of African Economic Community.
6. The saving capacity of the people should be improved by way of salary / wages.
7. There should be protection from foreign competition.
8. Common currency should be pursued.
PROBLEMS FACING INTERNATIONAL TRADE
Problems facing international trade between two countries are:
1. Inadequate Capital: Inadequate capital among the countries involved in international trade may limit the volume of trade.
2. Colonial History: The existence of colonial ties between the developed and developing countries has posed some problems to international trade.
3. Export of Raw Materials: Most exports to European market are mainly in its raw form. This is a major problem to the developing countries.
4. High Cost of Transportation: This has some negative effects on the final costs of finished goods or products as consumers will find it difficult to buy.
5. Government Policies: Deliberate government policies in most cases can lead to problems in trade between two nations.
6. Unfavourable Balance-of-Trade: Unfavourable balance-of-trade could lead to low production of goods by the country affected.
7. Low Value of Currency: When the value of a country’s currency is very low, such country finds it difficult to transact meaningful trade with other countries.
8. Port Congestions: Owing to low management capacity to handle imported and exported goods, the ports are always congested.
SOLUTIONS TO THE PROBLEMS OF INTERNATIONAL TRADE
The solutions to the problems of international trade between two countries are:
1. Loans should be granted to facilitate trade.
2. Processing facilities should be provided to process raw materials into finished goods before export.
3. Countries should sign treaties and peace accords.
4. Transport network should be improved.
5. There should be proper government policies on trade restrictions.
6. Production of goods and services should be increased.
7. The currency exchange rate should be regulated.
8. Well-trained port personnel should be employed to handle port management.
9. There should be reduction in tariffs.
10. There should be political stability in the country.
REMEDIES FOR UNFAVOURABLE BALANCE-OF-TRADE
A country within an unfavourable balance-of-trade can take certain steps to improve it, namely:
(a) Granting of loans to indigenous entrepreneurs.
(b) Manufacturing of import substitution goods.
(c) Exporting semi-finished goods.
(d) Import restriction.
(e) Bilateral trade agreement.
(f) Tax relief for young industries.
(g) Creation of export processing zones.
IMPORTANCE OF INTERNATIONAL TRADE
The following are the importance of international trade:
1. Provision of Employment: Jobs are provided through activities involved in the exportation and importation of goods and services.
2. It Fosters International Co-operation: International co-operation is fostered between two countries which are involved in international trade.
3. It Stimulates Production of Exportable Goods: Export goods or products are easily stimulated through increased production in the source region.
4. Provision of New Products: New products that would have otherwise been unavailable in a country are provided.
5. Growth of Industries: Through international trade, the growth of industries is enhanced from either the exportation or importation of raw materials for these industries.
6. Improved Living Standard: Provision of goods from other countries can reduce the prices of goods which are easily affordable by the people; hence, the standard of living will improve.
7. Growth of Ancillary Services: Ancillary services are usually stimulated through international trade like the establishment of Trade Bank and Export Processing Zones (EPZs) in Nigeria.
8. The Need to Exchange Skills and Expertise: Through international trade, skills and expertise are exchanged between nations.
9. Generation of Revenue: Government generates revenue from import and export duties imposed on commodities involved in international trade.
10. Diffusion of Ideas: Through world trade, people from different regions of the world interact and exchange new ideas, leading to acquisition of new ideas.
11. Provision of Foreign Exchange: Through international trade, countries do get foreign exchange from sales or exports of their goods to other countries.
NIGERIA’S TRADING PARTNERS AND MAJOR COMMODITIES INVOLVED IN INTERNATIONAL TRADE
Nigeria’s trading partners are mainly with the advanced or developed countries:
1. Western European Countries: They include Britain, Germany, Italy, Netherlands (Holland), Spain, Portugal, Belgium, etc. Here, Britain is Nigeria’s first and most important trading partner. Nigeria uses the North Atlantic Sea Route for exchange of their products. The seaports being used are:
(i) Lagos – Southampton (Britain);
(ii) Lagos – Hamburg (German);
(iii) Lagos – Antwerp (Belgium);
(iv) Lagos – Rotterdam (Netherlands).
2. North and South American Countries: They are the USA, Canada, Brazil, Venezuela, Canada, etc. Here, the USA is Nigeria’s most important trading partner. Nigeria uses the South Atlantic Sea Route for exchange of their products. The seaports being used are:
(i) Lagos – New York (USA);
(ii) Lagos – Montreal (Canada).
3. Far East Countries: They include Japan, China, Taiwan and South Korea. Nigeria uses the South Atlantic Route and the Cape Route for exchange of their products. The seaports being used are:
(i) Lagos – Yokohama (Japan);
(ii) Lagos – Osaka (Japan);
(iii) Lagos – Taipei (Taiwan).
MAJOR COMMODITIES INVOLVED IN INTERNATIONAL TRADE
(a) Nigeria’s Exports: These are usually agricultural goods and mineral products:
(i) Agricultural Goods: e.g. cocoa, palm oil, palm kernel, groundnuts, rubber, timber, cotton, hides and skin, etc.
(ii) Mineral Products: e.g. Petroleum or crude oil, tin, columbite, etc.
(b) Nigeria Imports: These are usually manufactured goods: e.g. Computers, electronics, machines, motor-vehicles, military hardwares and few consumer goods like baked beans, sardine, corn beef, drinks, books and other publications.
