(EOA) African Trade Lesson

African Trade

Economic Trade in Africa

In a global economic world, not every country can produce all the goods and services it needs. Many countries will specialize in producing goods and services they can provide efficiently. They then trade with others who need these goods and services so that they can sell their products, earn a profit, and purchase goods and services that they are unable to produce. In international trade, no one is self-sufficient by producing all the goods their population need, so specialization allows the country to build a profitable economy and earn income to buy items that are not native or unable to be produced locally.

Voluntary Trade in Africa

Voluntary trade is when both parties in exchange see that they are going to benefit from the transaction taking place and agree to trade.

  • Voluntary trade is a necessity to have a healthy and prospering economy.
  • Voluntary trade encourages:
    • Specialization
    • Efficient production
    • Higher profits

Specialization

Specialization: when a country focuses on producing the goods the country can make most efficiently for the most profit.

Examples of Specialization include:

  • South Africa is rich in gold, diamonds, and platinum. South Africa specializes in developing this mineral wealth because it is valuable to other countries.
  • Uganda produces high-quality cotton.
  • Kenya is building high-quality textile plants.
  • Nigeria specializes in exporting much-needed oil to the U.S.and other industrial nations.

Negatives Caused by Specialization:

  • Specialization in minerals in South Africa has led to extremely unequal distribution of wealth in the country.
  • Concentration in producing high-quality cotton in Kenya has caused a decrease in the production of foods. Kenya must import food for its people.

Trade Barriers

Anything that slows down or prevents one country from exchanging goods with another.

  • Some trade barriers are put in place to protect local industries from lower-priced goods made in other countries. Due to political problems between countries. Trade is stopped until the political issues are settled.

There are 3 types of trade barriers:

  1. Tariffs: A tariff is a tax placed on imported goods to make the imported item more expensive than a locally produced product.
  2. Embargo: An embargo is when one country stops trade with another country in order to isolate a country and cause problems with that country’s economy.
  3. Quotas: A specific number set for products that can be imported in a given amount of time. Import limits mean that more people will buy local products.
  • OPEC places quotas on how much oil each member nation can produce for the world market in order to keep prices where they want them to be.
  • Nigeria, a member of OPEC, exports 15% of the oil imported by the U.S.

Exchange Rate

The exchange rate is used to determine the price of one country’s currency in terms of another country’s currency.

Exchange rates help determine not only how much money you’ll have to spend when you travel to another country, but the level and extent of trade between countries.

Currency Exchange

Currency is another word for “money”.

In order for countries to buy and sell with each other, they must have a system to exchange currency.

The CFA franc is a type of currency being used in the west and central Africa to conduct trade between countries.

Challenge

 Take Away

 

Voluntary Trade plays a vital role in determining the economic focus of a nation. By specializing in one product, the country can produce a high-quality product to trade in exchange for the items they need as a country. When a country overspecializes, it is no longer able to meet the demands of its population and will be forced to rely heavily on the importation of important resources such as food. To remain economically stable, countries must balance specialization with the needs of the population.

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