May 21, 2024


Business – Your Game

Terms of Trade in Africa and Reasons for High Volume of Trade Between Africa and the West

Development of substitutes, weather type, difficulty in diversifying the economy due to competition from foreign countries, reliance on primary production and vulnerability to world recession and price fluctuations are major economic problems associated with dependence of African countries.

Terms of Trade in Africa, Especially the West

Terms of trade in West African countries have been witnessing an unfavorable or worsening trend because the prices of their imports have been increasing relative to prices of exports. reasons for the worsening terms of trade include: most west African countries are producers and exporters of primary products eg, agricultural produce and crude minerals; they import lots of capital goods in an effort to industrialize thereby increasing imports more than exports; there has been a fall in the demand for certain primary products of West African countries. This is due to the development of substitutes by the developed nations. this leads to a decrease in the price of export and increase in the price of imports and then finally, the production of low quality of manufactured products is also a problem. This is due to low level of technological development. The importation of high quality manufactured products, therefore increases importation over exportation.

How to Improve Terms of Trade

The terms of trade can be improved by any method which will increase the price of exports relative to imports. these methods are: use of inflationary policy, appreciation of the currency, imposition of higher export duties on commodities with an inelastic demand, a reduction in the demand for imports; through collective bargaining, developing countries could achieve higher prices for their exports; improvement on the quality of manufactured goods and there should be increased internal use of primary products in production.

Reasons for High Volume of Trade Between West African Countries and Developed Countries

The bulk of west African foreign trade is directed away from Africa to the developed countries due to:

1. Presence of processing industries: Industries that make use of the raw materials which are the main products of West African countries are found in Europe and America.
2. World Economic order favors developed countries: The world economic order tends to be in favor of the developed countries hence West African countries export the goods to them.
3. Absence of developed markets: There is absence of developed markets in Africa because its system of exchange is still underdeveloped and there is low demand as a result of low per capital income.
4. Over reliance on foreign products: Over reliance on foreign products has made West Africans to have notion that foreign products are superior.
5. Ineffective transport and communication system: Ineffective transport and communication system in Africa makes international trade difficult.
6. Low level of technology: Low level of technological development makes it difficult for African countries to produce goods needed in the continent, hence its going to Europe an America.
7. Production of mainly agricultural products: African countries produce mainly agricultural products and this makes exchange of goods between them very difficult.
8. Provision of capital goods are mainly from developed nations: Capital goods which west African countries depend heavily on are mainly produced in Europe and America.
9. Colonial ties: The inclination of some developing countries to their colonial masters has helped to increase the volume of trade between the nations.

So, it is now left for the government of the various African countries involved to tackle these issues because the remedy is a straight forward one. Reversing most of these problems will create a lasting solution.