TRADE

Definition
⦁ Trade is the exchange/buying and selling of goods and services.
⦁ Forms of trade in the world include barter and monetary trades
⦁ Barter trade occurs when people exchange goods for other goods. In this case, no
established medium of exchange is used. In certain occasions, services are
exchanged for goods.
⦁ Monetary or currency trade involves the use of money as a medium of exchange.
Money may be used to purchase commodities or to pay for services.

Types of Trade
⦁ These are based on monetary trade and are classified into: -
⦁ Domestic trade
⦁ Regional trade
⦁ International trade

⦁ Domestic Trade
⦁ Involves buying and selling of goods and services within a country
⦁ The goods are either imported or locally produced
⦁ In Kenya, internal trade involves the following forms: -
⦁ Wholesale trade
⦁ Purchase goods in bulk from producers and sell them to retailers
⦁ Specializes in sale of particular goods
⦁ Mainly found in the urban centres

⦁ Retail trade
⦁ Involve buying goods from wholesalers and selling to individual
consumers
⦁ Stock a variety of goods
⦁ Small scale/sale goods in small quantities
⦁ Include shopkeepers, hawkers, open air markets, departmental
stores, multiple stores and supermarkets

⦁ Regional Trade
⦁ This is trade between countries that are found in the same geographical
region.
⦁ Such countries may form economic/trading blocs such as East African

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 Community, Common Market for Eastern and Southern Africa, Economic
Community of West African States, Southern Africa Development
Corporation, etc.

⦁ International Trade
⦁ This is also referred to as external or foreign trade.
⦁ Involves trade between two or more countries
⦁ Can be bilateral (involving only 2 countries) or multilateral (involving more
than 2 countries)
⦁ Involves exports (goods or services sold to other countries) and imports
(goods or services bought from other countries)
⦁ Can also be classified as visible and invisible
⦁ Visible trade refers to import and export of tangible goods whereas
Invisible trade involves the exchange of services, which can earn foreign
exchange without the transfer of goods from one country to another.
⦁ Such services include tourism, insurance, revenue from foreign investments,
government transactions, medical and educational services, loan interest,
banking services, transport services, consultancy services amongst others.
⦁ International trade also involves balance of trade and balance of payment
⦁ Balance of Trade- refers to the difference in value between a country’s
visible exports and visible imports. This could be favorable or adverse
depending on the value of exports relative to imports.
⦁ A favorable balance of trade is a situation where the value of visible exports
exceeds the value of imports during a given year or trade period while
adverse balance of trade is a situation where a country spends more money on
visible imports than it earns from its exports. This is a situation facing many
developing nations.

Causes of unfavorable balance of trade.

⦁ Difference in value of the goods traded in (exports mainly agricultural,
forestry and minerals – majorly raw materials (low value) and imports
machinery, finished products, petroleum, pharmaceuticals (higher
value))
⦁ Difference in the level of development of different countries.
⦁ Government policy on its exports and imports

Measures Kenya has taken to reduce her unfavorable balance of trade

⦁ Government imposes tariffs on imported goods so as to discourage
importation of non-essential goods and luxury goods
⦁ Kenya has established the export processing zones and encouraged

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 foreign investors to set-up industries which increases the volume of
exports
⦁ Kenya has signed the international trade agreement which increases her
trade thus a wider market
⦁ The government encourages production of high quality goods which are
competitive in the world market
⦁ The government has created the ministry of trade and industry to
oversee matters relating to trade in the country
⦁ The government organizes trade fairs to enable the business community
to advertise their products and this helps to widen the markets for the
products.
⦁ Development of other sources of energy, conservation of oil, e.g.
gasoline, Hydroelectric power, solar, biogas, etc. in order to reduce
importation of fuels.
⦁ Establishment of import-substitution industries to reduce imports of
commodities.
⦁ Encouragement of use of appropriate/local technology e.g. jua kali which
does not require imports of heavy machines.
⦁ Encouragement of local assembling of machine since importation of parts
is cheaper.
⦁ Encouraging of exportation of locally manufactures goods
⦁ Diversifying agro – based exports, e.g. horticulture crops
⦁ Finding new markets for exports
⦁ Increasing invisible trade, e.g. shipping, insurance, tourism, etc.

⦁ Balance of payment – is the difference in value of all transaction involving

both visible and invisible trade (exports and imports) of a country with
foreign countries.
⦁ Some countries may have an adverse balance of trade but still have favorable
balance of payment because the invisible exports may account for a
significant proportion of the revenue being collected.

Factors influencing Trade

⦁ Differences in resource endowment such that no country is self-sufficient. This
creates the need for external sourcing of goods and services that a country doesn’t
produce.

⦁ Availability of capital for stocking various goods needed by consumers by traders

and to enable buyers purchase

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⦁ Demand for goods and services that push the buyers to purchase the same

⦁ Security: - places with relative peace enjoy greater trading opportunities since
traders are sure of their security and of their goods, they thence invest more

⦁ Stage of economic development – There are differences in technological capabilities

among countries which result in regional differences based on industrial
productivity. Level of industrialization dictates the type of goods to be imported
and those to be exported.

⦁ Transport and communication links – efficient links are essential for successful
trade.

⦁ Government policies determine the trading partners and also the trading blocs to
join. Political hostilities limit trade. Protectionist policies substantially influence
volume of trade.

⦁ International market agreements such as quotas also affect trade

⦁ Use of different currencies and language

⦁ Extent of foreign investment especially in developing countries can significantly

affect the volume, type and pattern of world trade.

Major Exports and Imports of Kenya

Exports
⦁ Exports are goods and services sold to other countries

⦁ Most exports from Kenya are agricultural products

⦁ Some are exported while raw e.g. coffee/tobacco while others such as pyrethrum
undergo some processing before exportation

⦁ Includes the following tea, horticultural produce, soda ash, cigarettes/tobacco, fish,
livestock products, tourism, sisal products, footwear, pyrethrum extract, textiles,
petroleum products, scrap metal, fluorspar, insecticides, timber/timber products,
etc.

Imports
⦁ Are goods and services that are bought/brought into a country from other countries

⦁ The major imports include petroleum, machinery, electronics, motor vehicle,

pharmaceuticals, skilled labor and foodstuffs

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Significance of Trade
⦁ Trade encourages specialization based on a country’s comparative advantage which
in turn leads to higher production.

⦁ Development of settlement centres/urbanization as major trading towns attract

settlements

⦁ Trade stimulates industrial growth through a high demand for goods locally and
abroad. Availability of imported raw materials also stimulates the establishment of
import substitution industries for local market.

⦁ Expansion of agriculture as most of the trade items are agro based

⦁ Earning of foreign exchange – exports earn foreign currency which is used to buy
imports.

⦁ Creation of employment opportunities as wholesale/retail traders, customs official

etc.

⦁ Leads to development of infrastructure in abide to create transport and

communication links for more trade.

⦁ Trading blocs create a competitive environment for business. This helps in

eliminating wasteful monopolies as well as leads to production of high quality
products at reasonable prices.

⦁ Source of revenue through license fees and taxation of goods and services rendered.

⦁ Regional cooperation enhances international peace and understanding

Problems facing trade in Kenya.

⦁ Smuggling: Some people sneak in goods from other countries and at the same time
export Kenya’s products to such countries through the black market. Such trade is
detrimental to the economic growth of the country because such traders avoid
paying taxes.
⦁ Nature of Kenya’s imports and the unfavorable balance of trade: Most of the imports are
heavy industrial materials and finished products. These products are expensive as
compared to Kenya’s exports thus results in a large deficit balance of payment.
⦁ Value of Kenya’s Exports: Kenya’s exports are mainly based on processed raw
materials. Minerals and processed agricultural materials from Kenya are generally
bulky and of low value. Thus, the total production and export cost is not
commensurate with the profit accrued from such sales.
⦁ Poor trade Pattern: Kenya patterns of trade still follows the line of flow established by

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 her former colonizer Britain being mainly a supplier of raw materials; the
developing countries provides the manufactured goods that Kenya requires so they
form better trading partners. Currently the country is facing the problem of the ban
of trade in Miraa in the UK.
⦁ Inadequate transport and communication facilities. Transport and communication
network is not well developed between Kenya and other African countries. This
affects the flow of goods to and from these countries.
⦁ Trade barriers. The imposition of quotas regulates the supply from each country to
avoid any economic glut, which has negative effects on Kenya that depends heavily
on particular commodities for export.
⦁ Overreliance on agricultural products. Given the fact that Kenya’s trade items are
mainly agricultural, they are vulnerable to climatic changes, pests and diseases.
⦁ High charges. Traders are charged high fees in form of trading license in order for
them to carry out their businesses. High fees make the traders to earn little profits
from the sale of their goods.
⦁ Poverty among the people. Majority of Kenyans are poor making them offer a very
small internal market. Some cannot afford the very basic needs in their homes.
⦁ Insecurity. Sometimes traders are attacked by thugs who steal their goods or take
away the money earned. Some businessmen are even killed in the attacks.
⦁ Scarcity of goods. There are times in the remote areas of Kenya that the goods needed
by people are not available in the markets or shops. Then scarcity makes such goods
expensive.
⦁ Inadequate capital. Most traders engage in small retail businesses because they lack
adequate finances to expand their activities.

The future of international trade in Kenya.

⦁ The future of Kenya’s international trade is promising. This is because of the
following;
⦁ Kenya exploring new markets in the Far East countries to avoid over reliance on
the European market. (This is likely to increase the quantity of Kenya’s exports.)
⦁ Kenya has signed trade agreements with various countries in Africa, America
and Far East which will help improve trade.
⦁ The government is making efforts to take advantage of the conditions set by
United States of America in the African Growth Opportunity Act, whereby
various countries have been allocated quotas to export textiles to the United
States of America.
⦁ Kenya’s trade with African countries is likely to improve through the
membership in trade blocs such as Common Market of Eastern and Southern
Africa and East African Community.

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 ⦁ Some Kenya entrepreneurs are setting up branches of their industries in the
neighboring countries in order to expand trading activities.
⦁ Kenya is undertaking partial processing of some of the agricultural products
before export in order to add value to increase earnings.
⦁ Implementation of vision 2030 will lead to increased production hence increased
trade.
⦁ Kenya is diversifying and adding value to her export products through the
export processing zone to attract a wider market for her goods.
⦁ Kenya should be aggressively advertising her products to attract more buyers.
⦁ Kenya should improve her international transport and communication links for
efficient transactions.
⦁ The county has improved infrastructure connecting neighbor counties.
⦁ Members of East African community have a common customs union.
⦁ The government has made efforts to reduce the cost of production of Kenyan
goods so as they compete favorably in the regional market.
⦁ Some Kenyan entrepreneurs have set up branches of their industries in
neighboring countries e.g. Bidco Oil Company, Kenya Commercial Bank, Equity
Bank, amongst others.

Role played by regional trade blocs

⦁ These are trade and economic organizations formed by countries in different
continents
⦁ The regional trading blocs in Africa include
⦁ Common Market for Eastern & Southern Africa
⦁ Southern Africa Development Corporation
⦁ Economic Community of West African States
⦁ East African Community

⦁ Common Market for Eastern & Southern Africa

⦁ Common Market for Eastern & Southern Africa was formed in December 1994,
replacing a Preferential Trade Area which had existed since 1981.
⦁ It has its headquarters in Lusaka, Zambia
⦁ Membership include Kenya, Burundi, Uganda, Ethiopia, Eritrea, Sudan,
Djibouti, Angola, Namibia, Zimbabwe, Lesotho, DRC, Madagascar, Mauritius,
Swaziland, Zambia, Comoros, Seychelles, Egypt, Malawi, and Rwanda.

Objectives of the Common Market for Eastern & Southern Africa

⦁ To encourage member states to reduce duties charged on goods entering
their countries from member states.

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 ⦁ To promote trade among member states.
⦁ To acquire greater economic strength/higher bargaining power with other
trading blocks of the world.
⦁ To create political cooperation among member states.
⦁ To establish a larger market for the goods produced in the region.
⦁ To remove trade barriers among member states/create similar trade laws.
⦁ To create specialization in order to improve the quality of goods.
⦁ To create monetary/financial co-operation among member states.
⦁ The bloc has established a bank, in Bujumbura, Burundi to promote trade among
the member states. This enables the traders to pay for the goods and services
from member countries
⦁ Other established institutions other than bank include Reinsurance Company,
Clearing House and Court of Justice

⦁ Southern Africa Development Corporation

⦁ Established in 1992.
⦁ Its goal is to further socio-economic cooperation and integration as well as
political and security cooperation among 15 southern African states
⦁ Members – Angola, Botswana, Dr. Congo, Lesotho, Malawi, Mozambique,
Namibia, Mauritius, Tanzania, Swaziland, South Africa, Zambia, Zimbabwe.
⦁ Its headquarters at Gaborone - Botswana

Objectives of Southern Africa Development Corporation

⦁ To promote and co-ordinate regional integration
⦁ To foster international cooperation
⦁ To facilitate trade and economic liberalization.

⦁ Economic Community of West African States

⦁ The Economic Community of West African States is a regional group of fifteen
West African countries.
⦁ Founded in 1975, with the signing of the Treaty of Lagos, its mission is to
promote economic integration across the region.
⦁ The headquarters is in Lagos, Nigeria.
⦁ Members include Benin, Burkina Faso, Liberia, Côte d’Ivoire, Mali, Niger,
Senegal, Togo, Guinea-Bissau, Gambia, Ghana, Guinea, Nigeria, Cameroon,
Sierra Leone and Mauritania.

Objectives of Economic Community of West African States.

⦁ To promote trade among member states

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 ⦁ To accelerate economic integration and shared development through
Creating a monetary union and Forming a unified economic zone in West
Africa
⦁ To eliminate trade barriers on locally produced goods
⦁ To promote free movement of goods and people in the region
⦁ To encourage agricultural and industrial development
⦁ To co-operate on matters of research in agriculture forestry and industrial
development
⦁ To encourage improvement of transport and communication in order to
facilitate trade.

⦁ East African Community

⦁ This is a regional intergovernmental organization of six partner states in Eastern
Africa: Burundi, Kenya, Rwanda, South Sudan, Tanzania and Uganda
⦁ Founded in 2000 with its headquarters at Arusha, Tanzania
⦁ It aims at widening and deepening cooperation among partner states

General Benefits of regional trading blocs

⦁ Countries enjoy wider markets and thus a favorable balance of trade.
⦁ Goods exported/imported within individual blocs enjoys preferential tariff to the
benefit of member states.
⦁ Large market in the blocs has led to increased industrial production in member
states
⦁ There is increased political co- operation within regions and members benefits from
this cooperation
⦁ Improvement of means of transport between countries so as to meet the expended
trade opportunities
⦁ countries are benefiting from trade fairs organized in the different member states,
which provide a forum for trade negotiations and advertisement of goods
⦁ membership in trading blocs puts countries in a better position to acquire assistance
from developed countries and financial institution e.g. International Monetary Fund

Problems affecting Regional Trading blocs

⦁ The civil wars/political unrests taking place in some countries causes insecurity
which affects trade between countries.
⦁ Political differences among the leaders of the member states affect cooperation
among member states.
⦁ The member states are not at the same level of industrialization, making some
countries to rely on those that are more industrialized.

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⦁ Some countries produce similar goods making the volume of trade to be low and
less rewarding.
⦁ Free trade affects local industries, as the imported goods without tax are usually
cheaper than locally produced goods. This is what is ailing the sugar industry in
Kenya
⦁ Free trade denies the importing countries the revenue they would earn from taxing
imported goods.
⦁ Poor transport and communication linkage between members states limit inflow of
goods and services
⦁ Some member countries do not remit their annual subscription which affects the
operation of the organizations.
⦁ The flow of goods and services between the states is still low because of poverty
among majority of the people in the regions.
⦁ Some people in the countries do not believe that goods made in the neighborhood
are of good quality. This reduces the demand for goods in the regions.

PAST KCSE QUESTIONS ON TRADE

KCSE 2000 – Q6

The table below shows items exported from countries A and B. Use it to answer
questions (a), (b, and (c)

Country A Country B
Exports Weights in Tonnes Exports Weight in Tonnes
Maize 12,600 Lubricating oil 2,200
Coffee 9,990 Industrial chemical 2,100
Oil cakes 1,560 Fertilizer 5,300
Spices 750 Vehicles 3,300
------------ Wire products 2,200
------------ Paper 2,700
Total 24,900 Total 17,800

⦁ (i) Name the main export item of each country

(ii) Calculate the percentage of the export item with the least tonnage in each
country
⦁ (i) Draw a divide rectangle 15cm long to represent the export items for country A
(ii) State three advantages of using divided rectangles to represent geographical
data.
⦁ How would countries A and B benefit from trading with each other?

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KCSE 2000 – Q1

(b) Give two reasons why there is an imbalance of trade between Kenya and other
countries.

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KCSE 2003 – Q6

The table below shows the value of Kenyans imports and exports in 1999. Use it to
answer questions(a)
IMPORTS EXPORTS
ITEM VALUE IN ITEM VALUE IN
U$ ‘000 US$ ‘000
Food, beverage and
Food & Beverages 760,000 tobacco 3, 270, 000
Industrial Supplies Basic materials minerals
(Nonfood) 3, 400, 000 fuels and lubricants 1, 100, 000
Fuel and Lubricants 2, 000, 000 Manufactured goods 1, 400, 000
Machinery and other
capital requirement 1, 700, 000 Miscellaneous 30, 000
Transport equipment 1, 500000
Miscellaneous 960, 000
Total 10, 320, 000 Total 5, 800, 000

⦁ Use a radius of 5cm, draw a pie chart to represent data on exports shown on the
table above. Show your calculations.
⦁ Explain four measures, which Kenya may take to reduce the unfavorable balance of
trade.
⦁ Explain four benefits that Kenya derives from international trade.

KCSE 2005 – Q9

⦁ (i) Define international trade.

(ii) Name three major imports from Europe to Kenya.
⦁ State four factors that influence external trade in Kenya
⦁ Explain four ways through which Kenya will benefit from the renewed East African
Cooperation.
⦁ Explain four negative effects of international trade.

KCSE 2006 – Q6

The graph below shows percentage value of some export commodities from Kenya
between 1999 and 2003. Use it to answer questions (a) and (b)

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⦁ (i) What was the percentage value of the tea exported in the year 2000?
(ii) What was the difference in the percentage values of the horticultural products
and coffee exports in 1999?
(iii) Describe the trend of the value of coffee exports from 1999 to 2003
(iv) Explain three factors which may have led to the increased export earnings from
horticultural produce in Kenya between years 1999 and 2003
(v) Give three advantages of using simple line graphs to represent data.
⦁ State four reasons why Kenya’s agricultural export earnings are generally low.
⦁ State five reasons why the common market for Eastern and southern Africa was
formed

KCSE 2008 – Q5

⦁ State two economic benefits of the common Market for Eastern and Southern Africa
to the member countries.
⦁ Give four factors that limit trade among countries of Eastern Africa.

KCSE 2009 – Q9 and KCSE 2016 – Q8

⦁ (i) What is visible trade?

(ii) List three major imports to Kenya from Japan
⦁ Explain four factors that influence internal trade in Kenya
⦁ State four ways in which trade is of significance to Kenya
⦁ Explain four benefits which members states of ECOWAS derive from the formation
of the trading bloc.

KCSE 2010 – Q10

⦁ (i) Differentiate between internal and regional trade

(ii) List three major exports from Kenya to the European Union
⦁ Give four reasons why the Southern Africa Development Cooperation was formed
⦁ Explain four problems facing trade in Kenya
⦁ Explain how the future of international trade in Kenya can be improved.

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KCSE 2013 – Q3

⦁ Name two countries to which Kenya exports petroleum products

⦁ State four factors that influence external trade in Kenya

KCSE 2014 – Q5

⦁ Identify two types of internal trade

⦁ Give three factors that limit trade among the member states of the Common Market
for Eastern and Southern Africa

KCSE 2015 – Q6

⦁ Explain the significance of trade to the economy of Kenya

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