By the end of the subtopic, learners should be able to:
Define trade.
Outline the different types of trade.
Explain the reasons for the formation of trading blocs.
Describe problems associated with international trade and give solutions.
Trade is the exchange of goods and services in order to satisfy human needs and wants.
Trade takes place at a market.
Markets are available both locally and internationally.
The image below shows trade taking place at Mbare Musika market.
Buying And Selling Of Tomatoes At Mbare Musika
Trade takes place with money as the medium of exchange (buying and selling) or exchange of goods and service.
Goods are items that can be seen and touched such as books, shoes, TV, cattle, houses and so on.
Services are intangible commodities such as transporting, teaching, legal service and medical services.
Trade can take place between individuals, groups and countries.
As a nation, Zimbabwe buys from other countries and also sells to other countries.
The goods and services we buy from other countries are called imports whilst those we sell to other countries are called exports.
Goods Exported By Zimbabwe
Minerals such as platinum, diamonds, gold, iron and steel
Cotton
Tobacco
Textiles and clothing
Goods Imported By Zimbabwe
Electricity
Rice
Vehicles
Fuel
Industrial supplies
Vehicles and machinery
Long ago, people used to exchange goods for goods and services for services.
Back then, they did not use money as a medium of exchange.
This form of trade was called barter trade.
Barter Trade
Barter trade is a system of direct exchange of goods and services for other goods and services.
It is purely a non-monetary form of trade.
The image below illustrates this form of trade.
Barter Trade Examples of barter trade:
Exchanging a goat for a bag of maize meal.
Exchanging clothes for a weeding service rendered in the fields.
Advantages Of Barter Trade
No money required for transactions.
The system is not affected by hyperinflation.
It is flexible as it uses the readily available resources for exchange.
It is fair as each party gets exactly what they want and there is room for negotiations.
Reduces idleness of resources.
Disadvantages Of Barter Trade
Relies heavily on coincidence of wants for it to take place.
Indivisibility of measure.
Absence of common measure.
Lack of standards for deferred payments.
Difficulty in storing wealthy.
Importance Of Trade
Provides a supply of goods and services.
It improves the standards of living of consumers.
Creates employment.
Promotes unity and harmony between countries.
Promotes economic growth.
Enable equal distribution of scarce resources such as rare minerals.
Types Of Trade
Trade is divided into two main types namely internal and international.
1. Internal/Home trade
Internal trade involves the buying and selling of goods and services within the same country
It is further divided into retail and wholesale trade.
A. Retail Trade - this is trade that involves the buyer and seller transacting directly without use of a middleman to facilitate the trading process.
It also involves the trade in smaller quantities of goods and services.
The major players of this form of trade include hawkers, general dealers, tuck-shops and paddlers. B. Wholesale Trade - this is a form of trade that involves the buying and selling of a wide range of goods and services.
Players in this form of trade buy products in bulk from manufacturers and sell them in large quantities to retailers for resale to consumers.
The wholesaler plays the part of middleman in acquiring goods in bulk from different suppliers and manufacturers.
They then stock the goods in warehouses before selling them to retailers.
2. International Trade
It is the buying and selling of goods and services across national borders.
International trade involves import and export trade.
Since no country is rich with all the resources that can sustain its development, every country has to import and export certain goods and services. A. Import Trade - this where by a country buys goods and services from other countries.
These goods and services are called imports and help to normalise the balance of trade.
Most less developed countries import technology, finished and processed goods whilst developed countries usually import raw materials from the less developed.
B. Export Trade - this whereby a country sells its goods and services to other countries.
If a country exports more than it imports, then it will have a fovourable balance of trade.
This type of trade brings in foreign currency to the exporting country.
For less developed countries, minerals and other unprocessed resources are exported whilst the developed export processed goods.
The diagram below summarises the types of trade.
Advantages Of International Trade
It enables equal distribution of scarce resources such as precious minerals.
More variety of goods are available.
Brings in new technology from other developed countries.
Better quality of goods are obtained which a country can not produce.
Widens the market for local produce.
Seasonal products are made available through out the year as they are imported.
Creates employment in import and export related activities.
It fosters economic development.
Increases exchange of expertise and technology.
Creates and maintain mutual international relations.
Creates a healthy competition which ensures the provision of high quality products and services.
Disadvantages Of International Trade
Local markets may suffer from stiffer competition from established international players.
Some powerful wealthy countries may meddle in political matters of other countries.
Promotes dumping of harmful, rejects and dangerous goods especially in less developed economies by the developed ones.
It leads to cultural erosion.
This type of trade is greatly biased towards the developed countries.
It involves a lot of documentation and regulations which is a limitation to developing players.
There are greater risks in engaging in international trade than in internal trade.
Fluctuations in exchange rates of foreign currencies is a limitation to most developing countries as it reduces profitability.
Challenges Faced In International Trade
There are many differences that exist between countries and these result in many challenges to traders:
Language barriers
Currency difference
Political instabilities and wars
High risks of loss of money or the products
Due to the long distances involved, transporting products becomes costly with every increase in distance.
Import and export restrictions is a major challenge faced by international traders as every country charges import duties to protect its home industries.
Severe competition from established international traders.
Trading Blocs
Trading blocs are groups formed by countries, usually in the same region, to facilitate free trade agreements.
These are meant to encourage trade among the member countries.
They are also meant to reduce trade barriers among these countries.
Trading blocs also aims to enhance regional economic growth and self-sufficiency without external help.
Below is a list of some common trading blocs:
1. SADC
SADC is an abbreviation which stands for Southern Africa Development Committee.
The bloc originated as Southern Africa Development Coordination Conference (SADCC).
The bloc was formed with an aim to promote social, economic, political and security cooperation among the member countries.
It comprises of countries in the Southern region of the African continent which are in trade agreements.
These countries also hold their multi-sport events as well as intercultural activities.
SADCC later on transformed to SADC on 17 August 1992.
SADC is made-up of the following countries: Angola, Botswana, Democratic Republic of Congo, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Seychelles, Swaziland, South Africa, Tanzania, Zambia and Zimbabwe.
Each of these countries is known for a specific responsibility that it contributes towards this trade relationship as shown below:
Angola- Energy conservation and Development
Botswana- Agricultural Research and Animal Disease Control
Lesotho - Soil and Water Conservation and land use
Malawi - Fisheries, Wildlife and Forestry
Mauritius - Tourism
Mozambique - Transport and Communication
Namibia - Sea Fisheries
Tanzania - Industry and Trade
Swaziland - Manpower Development and Trade
South Africa - Finance and Investment
Zambia - Southern African Development Fund and Mining
Zimbabwe - Food security
2. COMESA
COMESA stands for Common Market for Eastern and Southern Africa.
The bloc was formed in December 1994 with an aim to form a free trade area.
Bloc members agreed to reduce tariffs on some goods to facilitate free trade.
The member countries agreed to cooperate in developing their natural and human resources for the good of all their people.
It focuses on the formation of a large economic and trading unit to remove some of the trade barriers put within these countries.
This bloc comprises of the following countries: Burundi, Comoros, D.R. Congo, Djibouti, Egypt, Eritrea, Ethiopia,Kenya, Libya, Madagascar, Malawi, Mauritius, Rwanda, Seychelles,Sudan, South Sudan, Swaziland, Uganda, Zambia, and Zimbabwe.
3. EU — European Union
The EU aims at promoting free trade among its member countries by creating a single market.
This would reduce trade barriers, promoting a free movement of goods, services, capital and labour.
The bloc originated with six members namely France, Germany, Italy, Belgium, the Netherlands and Luxembourg.
It was founded in 1957 as the Europe Economic Commission (EEC).
Currently the bloc has a membership of 28 countries including the UK, Spain, Sweden, Ireland Portugal, and Denmark.
The bloc works on promoting free movement of goods, labour and capital.
As such, it has successfully established a common currency known as the euro.
4. ECOWAS
ECOWAS stands for Economic Organisation of West African States.
It aims at reducing political, economic and language differences between West African countries.
The bloc also aims to promote trade among the member countries by reducing political, economic and language differences.
ECOWAS consists of the following countries: Algeria, Mali, Mauritius, Gambia, Niger, Guinea Bissau, Sierra Leone, Liberia, Cote d'Ivoire (Ivory Coast), Ghana, Togo, Benin, Nigeria, Guinea, Upper Volta and Cameroon.
5. OPEC
OPEC is an abbreviation for Organisation of Petroleum Exporting Countries.
This is a trade bloc created in September 1960, by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela.
