Commercial Activities in Nigeria – SS2 Geography Lesson Note (Second Term)

Trade refers to the buying and selling or exchange of goods and services between one region and another in the same country or between one country and another. The former is called internal trade while the latter is called international trade.

Behavioural objectives

By the end of the lesson, students should be able to:

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 and limit the volume of international trade.
5. Explain why the volume of trade is high between Nigeria and developed countries, and low between Nigeria and the rest of Africa.
6. Describe the major ocean routes and Nigeria’s trading partners.

What factors favour internal trade?

1. Differences in products produced in the different regions of the country.
2. Differences in climate.
3. Fertile soil.
4. Wide market.
5. Common currency.

What is international trade?

Divisions of international trade

International trade is divided into two types:

1. Import trade: This trade involves the buying of goods and services from another country into your own country.
2. Export trade: This trade involves the selling of goods and services produced in one’s country to another country.

Why is international trade important?

The reasons why countries exchange goods and services include the following:

1. International cooperation: Nations involved in international trade cooperate with one another.
2. Provision of new products: New products that would otherwise have been unavailable in a country are provided.
3. Provision of foreign exchange: Through international trade, countries get foreign exchange from the sales or export of their goods to another country.
4. Provision of employment: Jobs are provided through activities involved in the exportation and importation of goods and services.
5. Growth of ancillary services: Ancillary services are usually stimulated through international trade, like the establishment of the Trade Bank and Export Processing Zone (EPZ) in Nigeria.
6. Diffusion of ideas: Through world trade, people from different regions of the world interact and exchange ideas, leading to the acquisition of new ones.
7. Production of exportable goods: The production of export goods is stimulated as the source region increases its output.
8. Growth of industries: The growth of industries is enhanced by the exportation or importation of raw materials for these industries.
9. Improved living standard: Goods from another country can reduce prices and make goods easily affordable to the people. Hence, the standard of living will improve.
10. Generation of revenue: The government generates revenue from import and export duties imposed on commodities involved in international trade.
11. Exchange of skills and expertise: Through international trade, skills and expertise are exchanged between nations.

What factors affect the volume of international trade?

The factors which determine the volume of trade between two countries include:

1. Differences in natural resources: The higher the differences in natural resources like minerals between two countries, the greater the volume of trade between them, and vice versa.
2. Differences in technology: The higher the differences in the level of technology (i.e. comparative advantage of specialisation), the greater the volume of trade between two countries, and vice versa.
3. Differences in import duties: The higher the import duties imposed on imported goods and services, the fewer the goods that will be imported, and vice versa.
4. Differences in the prices of goods: The higher the differences between the prices of goods, the greater the volume of trade between two countries, and vice versa.
5. Colonial ties: Countries with former colonial ties tend to have favourable trade with their colonial masters, e.g. trade between Nigeria and Britain.
6. The need to earn foreign exchange: This also helps to increase the volume of trade between nations.
7. 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.
8. Comparative cost advantage: A country with a comparative cost advantage over other countries may trade with a country that has a lesser comparative cost advantage in the production of certain goods.

What factors may limit international trade?

1. Strained international relations: Strained relations between two countries involved in international trade can lead to the non-importation or non-exportation of goods.
2. Inadequate production of goods: Inadequate production of goods, by either the importing or exporting country, can limit international trade.
3. Low demand for products: There will be low sales when the other country’s demand for products is low.
4. Inadequate foreign exchange: Inadequate foreign exchange can seriously affect the volume of trade between two countries.
5. High tariffs on goods: High tariffs charged by a country can affect the rate of import or export of goods to that country.
6. Political instability: Political instability in either country can limit the volume of trade. In most cases, there will be no trading at all.

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

A high volume of trade exists between Nigeria and developed countries like Britain, the U.S.A. and Japan for the following reasons:

1. Non-similarity of products: Both countries produce goods and services which are not similar.
2. High level of technology: The high volume of trade between developing and advanced countries is due to the high level of technology in the latter.
3. High level of savings: The high level of savings in developed countries makes production cheaper. Hence, they can easily export their products to developing countries.
4. Colonial ties: The inclination of some developing countries to their colonial masters has helped to increase the volume of trade between the nations.
5. Differences in import duties: There are large differences in the import duties imposed on imported goods in both countries.
6. Differences in prices of goods: There are large differences in the prices of goods produced by both countries. Foreign goods are cheaper than local ones.
7. Preference for imported goods: Developing countries like Nigeria prefer goods produced by advanced countries. Hence, the high volume of trade.
8. Absence of trade unions: There is an absence of trade unions between developing and advanced nations. Hence, the increase in the volume of trade.
9. Differences in climate: Differences in climate result in the production of different agricultural products.
10. Industrial requirements: The raw materials produced in Nigeria are needed in factories in developed countries.
11. Favourable market: Nigeria has large markets for some goods manufactured in developed countries, e.g. computers and electronics.

How can trade between Nigeria and developed countries be improved?

1. Increased international cooperation between both countries.
2. Technical cooperation between the countries.
3. Membership of the same international economic organisation.
4. Provision of loans to enhance or increase production.
5. Liberalisation and simplification of export and import procedures by both countries.

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

1. Similarity in products: Nigeria and other African countries produce similar goods.
2. Low level of technology: They have the same level of technology. Hence, they produce or operate at the same low level.
3. Low level of savings: Nigeria and other African countries have low levels of savings, and this affects their purchasing power.
4. Preference for imported goods: African countries have a strong preference for imported goods, thereby neglecting goods produced locally.
5. Colonial ties: Most African countries are still tied to their colonial masters in terms of trade, to the detriment of fellow African countries.
6. Trade restrictions and high tariffs: There are many trade restrictions within Africa. Hence, the volume of trade is reduced.
7. Similarity in climate: Most African countries have almost the same climate. Hence, they produce almost the same type of crops.
8. Existence of regional trade unions: The presence of many regional trade unions tends to create a barrier to international trade among African countries.

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

1. Encouraging specialisation in production.
2. Formation of an African Economic Community.
3. Improvement in technology.
4. Encouraging the patronage of locally made goods by other countries in Africa.
5. Protection from foreign competition.
6. Construction of a trans-continental transport network.
7. Improving the saving capacity of the people through salaries and wages.

What are the problems of international trade and their solutions?

Problems facing international trade

1. Inadequate capital: Inadequate capital among the countries involved in international trade may limit the volume of trade.
2. Export of raw materials: Most exports to European markets are mainly in raw form. This is a major problem for developing countries.
3. Colonial history: The existence of colonial ties between developed and developing countries has posed some problems in international trade.
4. Unfavourable balance of trade: An unfavourable balance of trade could lead to low production of goods by the country affected.
5. Low value of currency: When the value of a country’s currency is very low, the country finds it difficult to trade meaningfully with another country.
6. High cost of transportation: This raises the final cost of finished goods, so consumers find it difficult to buy.
7. Port congestion: Because of low management capability to handle imported and exported goods, the ports are always congested.
8. Government policies: Deliberate government policies can, in most cases, lead to problems in trade between two nations.

Solutions to the problems of international trade

1. There should be political stability in the country.
2. Countries should sign treaties and peace accords.
3. There should be a reduction in tariffs.
4. There should be proper government policies on trade restrictions.
5. Well-trained port personnel should be employed to handle port management.
6. Loans should be granted to facilitate trade.
7. Processing facilities should be provided to process raw materials into finished goods before export.

Remedies for an unfavourable balance of trade

A country with an unfavourable balance of trade can take certain steps to improve it. These steps may include:

1. Import restriction.
2. Tax relief for young industries.
3. Bilateral trade agreements.
4. Exporting semi-finished goods.
5. Creation of export processing zones.
6. Granting of loans to indigenous entrepreneurs.
7. Manufacturing of import substitution goods.

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

Ocean transport is the major means of transportation used in international trade. The following are some of the major ocean trade routes:

1. The North Atlantic route: This is the busiest and most important route. It links the two most populous and heavily industrialised parts of the world (Western Europe and the eastern part of North America). About 1/10 of the world’s shipping trade and about half of the world’s major ports are located in these regions.
2. The Panama Canal route: This is a domestic route between the east and west coasts of the U.S.A.
3. The Trans-Pacific route: This route is the longest in distance and has increasing significance given the rapid economic development of the West (U.S.A., China, Japan, Australia, etc.).
4. The South African or Cape route: This is the oldest route. It serves Europe through South America to Colombo.
5. The South Atlantic route: This is an important east-west route between South America, Europe, West Africa and South Africa. The largest volume of trade is between eastern Brazil and Argentina.
6. The Mediterranean-Asiatic route (Suez Canal route).
7. The North Pacific route.

Who are Nigeria’s trading partners?

Nigeria’s trading partners are mainly advanced countries. These include:

1. Western Europe: The countries are Britain, Germany, France, Italy, the Netherlands (Holland), Spain, Portugal, Belgium, etc. Britain is Nigeria’s first and most important trading partner. Nigeria and Europe exchange their products through the North Atlantic route.
2. North and South America: The countries include the U.S.A., Canada, Brazil, Venezuela, Argentina, etc. Nigeria and America exchange their products through the South Atlantic route.

Evaluation

1. Define trade and distinguish between internal and international trade.
2. State five reasons why countries engage in international trade.
3. List four factors that affect the volume of trade between two countries.
4. Give four reasons for the low volume of trade between Nigeria and the rest of Africa.
5. State three steps a country can take to improve an unfavourable balance of trade.

Assignment

On a map of Nigeria, locate:

1. An area of cocoa production.
2. An area of oil palm production.