Nigeria: Commercial Activities – SS1 Geography Lesson Note (Third Term)

Trade is the buying and selling, or exchange, of goods and services between people, regions or countries.

Behavioural objectives

1. Define trade and distinguish between internal and international trade.
2. State the factors that favour internal trade.
3. Explain the importance of international trade.
4. Identify the factors that affect the volume of trade, including why trade is high between Nigeria and developed countries and low between Nigeria and the rest of Africa.
5. State the problems of international trade and their solutions.
6. Name the major ocean routes and Nigeria’s main trading partners.

What is trade?

Trade is the exchange of goods and services between one region and another, within a country or between countries.

• Internal trade: trade between regions of the same country, e.g. yams from Benue sold in Lagos.
• International trade: trade between one country and another, e.g. Nigeria selling crude oil to Europe.

What are the key terms in trade?

These terms are used throughout the topic.

• Foreign exchange: foreign currency earned from selling goods abroad, used to pay for imports.
• Import duty (tariff): a tax a government places on goods brought into the country.
• Balance of trade: the difference between the value of a country’s exports and imports.
• Favourable balance of trade: exports are worth more than imports.
• Unfavourable balance of trade: imports are worth more than exports.

What factors favour internal trade?

Internal trade is favoured by five main factors.

• Differences in regional products: each region produces different goods, e.g. cocoa in the South-West, groundnuts in the North, crude oil in the Niger Delta.
• Differences in climate: regions grow different crops, so they need to exchange them.
• Fertile soil: good soil gives surplus produce that can be sold in other regions.
• Wide market: a large population gives producers many buyers.
• Common currency: the naira is used everywhere in Nigeria, so exchange is easy.

What are the types of international trade?

There are two types of international trade: import trade and export trade.

• Import trade: the buying of goods and services from another country into your own country.
• Export trade: the selling of goods and services produced in your country to another country.

Why is international trade important?

International trade lets countries exchange goods, services, money and skills they cannot supply for themselves.

• International cooperation: trading nations develop friendly relations.
• Provision of new products: goods unavailable in a country are brought in.
• Foreign exchange: countries earn foreign currency by exporting goods.
• Employment: jobs are created in exporting, importing, shipping and handling goods.
• Growth of ancillary services: trade encourages supporting services, such as the Trade Bank and the Export Processing Zones (EPZ) in Nigeria.
• Diffusion of ideas: people from different regions meet and exchange ideas.
• Production of exportable goods: output of goods for export increases in the source region.
• Growth of industries: industries grow through exporting products or importing raw materials.
• Improved living standard: imports can lower prices and make goods more affordable.
• Revenue for government: the government earns import and export duties.
• Exchange of skills and expertise: nations share skills and expertise.

What factors affect the volume of international trade?

The volume of trade between two countries depends on the eight factors below.

• Differences in natural resources: the greater the difference in resources such as minerals, the greater the trade, and vice versa.
• Differences in technology: the greater the difference in technology (comparative advantage of specialisation), the greater the trade, and vice versa.
• Import duties: the higher the duties on imports, the fewer goods are imported, and vice versa.
• Differences in prices: the greater the price differences, the greater the trade, and vice versa.
• Colonial ties: countries tend to trade favourably with former colonial masters, e.g. Nigeria and Britain.
• Need for foreign exchange: the need to earn foreign exchange increases trade.
• Political consideration: a country may trade with another for political reasons, e.g. support for a democratic government.
• Comparative cost advantage: a country that produces certain goods at lower cost may sell them to a country with less advantage.

Why is the volume of trade high between Nigeria and developed countries?

Trade is high between Nigeria and developed countries like Britain, the U.S.A. and Japan because the two sides differ widely.

• Non-similarity of products: the two countries produce different goods and services.
• High level of technology: advanced countries have high technology, which increases trade with developing countries.
• High level of savings: high savings make production cheaper, so developed countries can export easily.
• Colonial ties: the links of some developing countries with their former colonial masters raise trade.
• Differences in import duties: import duties in the two countries differ greatly.
• Differences in prices: foreign goods are often cheaper than local ones, and trade earns foreign exchange.
• Preference for imported goods: Nigerians often prefer goods made in advanced countries.
• Absence of trade unions: no trade unions exist between developing and advanced nations to restrict trade.
• Differences in climate: different climates give different agricultural products.
• Industrial requirements: factories in developed countries need Nigeria’s raw materials.
• Favourable market: Nigeria is a large market for goods such as computers and electronics.

What factors may limit international trade?

Six main factors can reduce or stop trade between countries.

• Strained international relations: goods may not be imported or exported between countries in dispute.
• Inadequate production: too little output by the importing or exporting country limits trade.
• Low demand: sales fall when the other country wants few of the products.
• Inadequate foreign exchange: a shortage seriously reduces the volume of trade.
• High tariffs: heavy duties reduce imports and exports.
• Political instability: unrest in either country can limit trade, and often stops it completely.

How can trade between Nigeria and developed countries be improved?

Trade with developed countries can be improved through the five steps below.

• International cooperation: increase cooperation between both countries.
• Technical cooperation: share technical knowledge and training.
• Common membership: belong to the same international economic organisation.
• Loans: provide loans to increase production.
• Simpler procedures: liberalise and simplify export and import procedures.

Why is the volume of trade low between Nigeria and the rest of Africa?

Trade between Nigeria and the rest of Africa is low mainly because the countries are alike and face common barriers.

• Similarity in products: they produce similar goods.
• Low level of technology: they are at the same low technological level.
• Low level of savings: low savings reduce purchasing power.
• Preference for imported goods: African countries neglect locally made goods.
• Colonial ties: many still trade mainly with their former colonial masters.
• Trade restrictions and high tariffs: many restrictions within Africa reduce trade.
• Similarity in climate: most African countries have a similar climate, so they grow similar crops.
• Regional trade unions: the many regional unions can create barriers between countries.
• Poor transport links: weak transport networks between countries hinder trade.
• Different currencies: using different currencies makes trade difficult.
• Political instability: it prevents countries from using their full potential.

How can trade between Nigeria and the rest of Africa be improved?

Trade within Africa can be improved through the seven steps below.

• Specialisation: encourage each country to specialise in production.
• African Economic Community: form an economic community for African countries.
• Better technology: improve technology.
• Patronage of local goods: encourage African countries to buy one another’s goods.
• Protection: protect African industries from foreign competition.
• Transport network: build a trans-continental transport network.
• Higher savings: raise people’s savings through better salaries and wages.

What problems face international trade?

International trade faces eight main problems.

• Inadequate capital: too little capital among trading countries limits trade.
• Export of raw materials: most exports to Europe are in raw form, a major problem for developing countries.
• Colonial history: colonial ties between developed and developing countries have caused some problems.
• Unfavourable balance of trade: it can lead to low production in the affected country.
• Low value of currency: a weak currency makes meaningful trade difficult.
• High cost of transportation: it raises the price of finished goods, so consumers cannot buy them.
• Port congestion: weak management of goods leaves ports congested.
• Government policies: deliberate policies can cause problems between two nations.

What are the solutions to the problems of international trade?

The problems of international trade can be reduced by the seven measures below.

• Political stability: keep the country stable.
• Treaties: countries should sign treaties and peace accords.
• Lower tariffs: reduce tariffs.
• Sound policies: make proper government policies on trade restrictions.
• Trained port staff: employ well-trained personnel for port management.
• Loans: grant loans to facilitate trade.
• Processing facilities: process raw materials into finished goods before export.

How can a country correct an unfavourable balance of trade?

A country corrects an unfavourable balance of trade by raising exports and cutting imports.

• Import restriction: limit the goods brought in.
• Tax relief: give tax relief to young industries.
• Bilateral trade agreements: agree terms of trade with another country.
• Semi-finished exports: export semi-finished goods instead of raw materials.
• Export processing zones: create zones where goods are processed for export.
• Loans: grant loans to indigenous entrepreneurs.
• Import substitution: manufacture at home goods that were imported.

What are the world’s major ocean (shipping) routes?

Ocean routes are the sea lanes along which ships carry goods in international trade.

Who are Nigeria’s trading partners?

Nigeria trades mainly with advanced countries in Western Europe and the Americas.

• Western Europe: Britain, Germany, France, Italy, the Netherlands (Holland), Spain, Portugal, Belgium and others.
• North and South America: the U.S.A., Canada, Brazil, Venezuela, Argentina and others.
• Britain: historically Nigeria’s first and most important trading partner.
• Routes used: Nigeria and Europe trade through the North Atlantic route, and Nigeria and America through the South Atlantic route.

Evaluation

1. Define trade and distinguish between internal and international trade.
2. State five factors that favour internal trade.
3. List four reasons why countries engage in international trade.
4. State three factors that may limit international trade.
5. Mention three ways a country can correct an unfavourable balance of trade.

Assignment

1. Account for the low volume of trade between Nigeria and the rest of Africa, giving five reasons with a short explanation each.