Enhancement of transportation and communication systems.
Availability of warehousing facilities.
Improvements in aids to trade such as insurance and advertising.
Advancements in education and literacy levels.
Divisions of commerce:
Commerce can be broadly categorized into two main branches: Trade and Aids to Trade. Aids to trade further include:
(a) Transport
(b) Insurance
(c) Banking and Finance
(d) Advertising
(e) Warehousing
(f) Communication
(g) Tourism
Occupation
Occupation can be defined as a legal means of employment through which individuals strive to earn a livelihood.
Categorization Of Occupations
Occupations are systematically divided into six primary categories:
Extractive Occupation
Manufacturing Occupation
Constructive Occupation
Commercial Occupation
Direct Services
Indirect Services
Extractive Occupation: This category encompasses activities related to the extraction of natural resources from the soil, sea, or forests, such as farming, fishing, hunting, lumbering, mining, and quarrying.
Manufacturing Occupation: Workers in this field are dedicated to transforming raw materials from the soil or sea into finished or semi-finished products, exemplified by processes like converting raw rubber into vehicle tires or raw cotton into textile materials.
Constructive Occupation: Individuals engaged in this occupation assemble components from the extractive and manufacturing industries, constructing organized and usable structures, as seen in building construction with materials like iron rods, cement, planks, sand, and corrugated iron sheets.
Commercial Occupation: This secondary occupation involves individuals who facilitate the availability of goods and services to those in need. Examples include insurance, transport, advertising, warehousing, communication, banking, and finance.
Direct Services: This category comprises economic activities focused on providing satisfaction, amusement, entertainment, and personal services directly to others. Occupations here, like barbering, musicians, doctors, stewards, drivers, actors, involve direct payment for services rendered.
Indirect Services: Individuals in this category earn their livelihood by providing services to the public. These workers are typically compensated by the government for their services, as seen in roles such as civil servants, policemen, soldiers, customs officials, and fire service personnel.
Extraneous Factors, such as health, life ambitions, and peer pressure.
Production
Production involves the transformation of raw materials into finished goods, along with the distribution and provision of goods and services to meet human needs. It is synonymous with the creation of utility, where utility refers to the ability of any commodity or service to satisfy human wants.
Goods can be categorized into capital goods (producer goods), such as raw materials, machines, and trucks used in further production, and consumer goods, which are ready for use by the final consumer, like bread, milk, or services of a teacher.
Production is classified into three main types:
Primary Production: Involves the extraction of raw materials from the soil or sea, including activities like mining, farming, and fishing.
Secondary Production: Entails the conversion of raw materials into finished or semi-finished products, such as manufacturing cars, fans, clothes, and chemicals.
Tertiary Production: Involves the distribution of goods and services to those in need, encompassing activities like transport, communication, insurance, and banking.
Factors of production, the resources combined for production
Land: Natural resources like soil, sunshine, rain, minerals, and forests, with the reward being rent.
Labour: Physical and mental efforts directed to the production process, with wages as the reward.
Capital: Man-made resources or wealth used to produce further wealth, such as machinery, motor vehicles, and cash.
Entrepreneurship: The factor that organizes and coordinates other factors for productive purposes, with profit as the reward.
Entrepreneurs perform various functions in the production process:
The production process encompasses a series of activities and stages involved in creating goods and services, ensuring they reach the final consumer. It is considered complete when the produced goods and services reach the end user. This process includes stages like transport, warehousing, and other activities that facilitate production and trade.
Division of Labour, Specialization and Exchange
The concept of Division of Labour involves breaking down production processes into distinct stages, each handled by an individual. In a textile factory, for instance, separate workers engage in processes like spinning, weaving, and dyeing. Specialization, on the other hand, is the concentration of productive efforts on specific areas where one has a comparative advantage. Both Division of Labour and specialization aim to enhance output while reducing production costs.
Division of Labour and specialization create inter-dependence, leading to exchanges between individuals, firms, or countries as they rely on others for goods and services they do not produce.
Retail Trade
Trade, encompassing the buying and selling of goods and services, is categorized into Home Trade and Foreign Trade.
Home Trade involves the domestic exchange of goods and services, further divided into wholesale trade and retail trade.
Retail Trade:
Involves purchasing in small quantities from wholesalers or manufacturers and selling these units to final consumers.
Characteristics of the Retailer/Retail Trade:
Sells in units or fractions.
Stocks and sells a wide variety of goods.
Sells directly to ultimate consumers.
Purchases in small quantities from wholesalers or manufacturers.
Deals primarily in fast-selling consumer goods.
Comprises numerous small shops.
Represents the final link in the distribution chain.
Major goods are obtained from wholesalers.
Functions of the Retailer:
To the Manufacturer:
Sells the manufacturer’s goods to the final consumer.
Provide feedback on consumer preferences and trends.
Offers advice to the manufacturer.
To the Wholesaler:
Share information on consumer needs and market trends.
Provides advice to the wholesaler.
To the Consumer:
Offers a variety of goods.
Grants credit to credit-worthy customers.
Provides information and advice.
Sells in smallest quantities (units) to the consumer.
Offers after-sales services.
Provides free delivery to the consumer’s door.
Prepares goods for sale, including packing or re-packing to suit consumer needs.
Gives personal attention to consumers.
Guides consumers in making choices.
Completes the production process, such as branding.
Advertise the goods.
Ensures door-to-door services.
Factors to be Considered in Setting Up a Retail Business:
Amount of available capital.
Location of the shop.
Experience and knowledge of the retail job.
Attractive shop layout.
Source of goods supply.
Pricing policy and trade terms.
Type or nature of goods to be sold.
Operating plans details (business hours, opening time, trading days).
Record-keeping methods.
Factors a Retailer Should Consider When Making Purchases:
Quantity of goods to be bought.
Available credit facility.
Quality of goods meeting consumer needs.
Terms of payment, including discounts.
Cost of transporting goods.
Method of delivery (road, rail, sea).
Additional charges for packing or off-loading.
Reasons Why Retail Businesses May Fail:
Wrong purchases.
Poor record-keeping.
Failure to insure the business.
Extravagance and overspending.
Lack of experience or trade knowledge.
Poor credit administration.
Inadequate capital.
Competition from larger businesses.
Inability to plan and forecast.
Insensitivity to current market trends.
Small Scale Retailing
There are two main categories of retail outlets based on size: Small scale and Large scale retailing.
Types of Small-Scale Retailing:
Itinerant Traders: Itinerant traders, such as hawkers, peddlers, and gipsies, move from place to place to sell goods, bringing them directly to consumers.
Features of Hawking/Itinerant Trading:
Small-scale retail business.
Provides door-to-door selling.
Requires minimal capital investment.
Involves the movement of goods using carts, canoes, wheelbarrows, etc.
Hawkers do not pay rent.
Goods are advertised through vocal announcements, bells, horns, trumpets, or loudspeakers.
Advantages of Hawking:
Requires a small amount of capital.
Provides door-to-door selling.
Easy to start.
Acts as a form of advertising.
Low running expenses for operators.
Offers flexibility in operations.
Goods sold at affordable prices.
Creates employment opportunities.
Disadvantages of Hawking:
Exposure to road mishaps.
Disruption of traffic flow.
Potential negative impact on children’s education.
Encouragement of child labour.
Contributes to street littering.
Health hazards for exposed food items.
Exposure to negative influences and criminal activities.
Stressful working conditions.
Facilitates the sale of fake or sub-standard goods.
Non-payment of taxes deprives the government of revenue.
Other Types of Small-Scale Retailing:
Street Retailing or Roadside Traders: Traders displaying wares along streets, roads, or outside schools, companies, or offices.
Market Traders or Stall Holders: Traders in established markets, operating without fixed shops.
Kiosks: Retail outlets offering a limited range of consumer items, often located at places with high customer traffic.
Small Store or Single Shops: Small stores found in residential areas or shopping complexes.
Tied Shops: Shops specializing in a single commodity, supplied directly by the manufacturer.
Mobile Shops: Motor vans or lorries used as shops, often in remote areas, with goods well arranged and advertised through music or public announcements.
Reasons for the Existence of Many Small Scale Retail Businesses in Nigeria/West Africa:
Lack of sufficient capital for large retail businesses.
Low savings due to low per capita income.
High unemployment rates and difficulty in securing white-collar jobs.
Attractive due to low running expenses and operational flexibility.
Problems Encountered by Small-Scale Retailers:
Competition from larger businesses, leading to price wars.
Insufficient capital for investment and expansion.
Difficulty in securing ideal locations, especially in congested urban areas.
Challenges in debt collection.
Unlimited liability for sole proprietorships or partnerships.
Disturbances from government agencies such as urban planning, revenue officials, and environmental protection agencies.
Large Scale Retailing
Types Of Large-Scale Retailing
Multiple shops or chain stores
Large-scale retail businesses, known as multiple shops or chain stores, comprise a network of similar establishments spread across different towns or cities within a country. These businesses, such as Lennards, Challenge Bookshop, and Famad, are characterized by the sale of identical goods, with centralized control from a head office.
Features Or Characteristics Of Multiple Shops
Standardized shop design.
Specialization in a single line of products across branches.
Centralized administration and ownership.
Cash-and-carry operational model.
Fixed prices set by the head office for goods sold in all branches.
Adoption of self-service practices.
Advantages Of Multiple Shops
Easily identifiable.
Staff mobility between branches.
Cash-and-carry system reduces bad debts.
Cost savings in advertising.
Efficient stock management through inter-branch transfers.
Disadvantages Of Multiple Shops
Limited product range.
High setup costs for establishing branches nationwide.
Lack of credit facilities for customers.
Limited personal attention to customers.
Reduced control by branch managers.
Departmental Stores
Departmental stores are large, single retail outlets offering a wide variety of goods organized into separate departments. These establishments, such as UTC Stores, Cash and Carry, and UAC Stores, are often referred to as “many shops under one roof” with common management.
Features Of Departmental Stores
Division into different departments.
Decentralized buying and selling processes.
Wide range of goods.
Self-service practices.
Central city or urban area locations.
Advantages Of Departmental Stores
Diverse product offerings.
Easy customer identification of store locations.
Efficient self-service and orderliness.
Potential for impulse buying as customers explore different departments.
Cross-section advertising of goods within the store.
Disadvantages Of Departmental Stores
Lack of personal attention to customers.
High running expenses and overhead costs.
Increased risk of pilfering and shoplifting.
Large capital requirements for setup.
Limited return policies and credit facilities.
Supermarket
Supermarkets are large-scale retail shops that primarily offer household goods through self-service. They are situated in urban centres, such as Lagos, and stock a variety of products.
Features Of Supermarket
Self-service operation.
Wide range of goods.
Urban center locations.
Stocking household goods and food items.
Minimal sales attendant presence.
Advantages And Disadvantages Of Supermarkets Similar To Departmental Stores.
Hypermarkets
Hypermarkets are extra-large supermarkets located on the outskirts of towns and cities. They offer a broader variety of goods, including consumer durables, and provide parking facilities.
Mail Order Business
Mail order business involves large-scale retailing conducted through the Post Office or agents, with orders, advertising, and goods delivery all executed via mail.
Features Of Mail Order Business
Retailing through the Post Office or agents.
Intensive advertising through catalogues and newspapers.
Wide range of durable goods.
Need for large warehouses.
Limited workforce requirements.
Advantages Of Mail Order Business
Low rent expenses for warehouses located out of town.
Minimal need for sales personnel.
Reduced fixture and display costs.
Diverse product offerings.
Advertising opportunities through catalogues.
Disadvantages Of Mail Order Business
Dependency on postal system efficiency.
Inability for customers to assess product quality before purchase.
High advertising costs, including catalogue printing.
Risk of goods being lost or damaged in transit.
Retail Co-Operative Society
Retail co-operative societies involve small, independent retailers combining resources for bulk purchases and selling goods at lower prices, with profits shared proportionally among members.
Variety Chain Stores
Variety chain stores combine aspects of departmental stores and multiple shops, featuring many branches nationwide with a uniform shop design, offering a variety of goods under one roof, and employing centralized management. Notable examples are not easily found in Nigeria.
Modern Trends In Retailing
Self-Service Shopping:
Self-service shopping is a customer-centric method that enables shoppers to independently navigate a store with minimal assistance from sales attendants. Goods are prominently displayed on shelves with corresponding price tags. Customers move through the store, examine items, make comparisons, and try on products as needed. They select their preferred items and place them in a provided basket or tray. At the checkout counter, customers pay for their chosen items. This approach, commonly associated with large-scale retailers like supermarkets and hypermarkets, streamlines the shopping process, eliminating the need for bargaining.
Features of Self-Service:
Minimal shop attendants are required.
Goods are displayed with visible price tags.
Use of trolleys and baskets is common.
Customers independently select their goods.
Large retail space is essential.
Security measures, such as personnel or closed-circuit cameras, are employed to prevent theft.
Payment occurs at the checkout counter.
Goods are pre-packed and well-labelled.
Advantages of Self-Service:
Customers have the freedom to choose their preferred goods.
Quick and efficient purchasing.
Reduced labour costs without the need for many sales attendants.
Maximizes benefits of loss-leaders for both sellers and buyers.
Disadvantages of Self-Service:
Increased risk of shoplifting.
Goods may deteriorate faster due to constant handling.
High costs associated with preventing theft, such as closed-circuit cameras.
Expensive facilities required, including larger floor space and trolleys.
Reduced personal attention to customers.
Not suitable for all types of goods.
Reduces employment opportunities for shop assistants.
Prices are non-negotiable.
Purchased goods are not returnable.
Capital-intensive to set up.
Branding:
Branding encompasses names, designs, marks, symbols, or descriptions used by producers to distinguish their goods from those of other organizations. Branded goods carry a recognized trademark or trade name, such as Elephant, Omo, or Ariel for detergents, and Pepsodent, Close up, or Colgate for toothpaste.
Advantages of Branding:
Ensures high-quality goods.
Saves advertising costs.
Allows consumers to easily select products.
Standardizes goods through uniform packaging.
Prevents product adulteration and imitation.
Facilitates inspection and ordering through clear descriptions.
Encourages self-service.
Manufacturers can indicate recommended prices in advertisements.
Disadvantages of Branding:
High advertising costs.
May lead to impulsive buying.
Retailers may need to stock multiple brands to please customers.
Price-cutting wars can negatively impact smaller firms.
After-Sales Services:
After-sales services are additional services provided by retailers to customers after purchasing products to ensure ongoing patronage. These services, often free of charge, may include free delivery, advice on product usage, repairs, fixing or installation, replacement, maintenance, or warranty, primarily for technical goods.
Factors Determining After-Sales Service Level:
Whether after-sales services are provided and to what extent depend on factors such as the type and cost of goods, competition practices, cost considerations, and legal requirements.
Advantages of After-Sales Services:
Increased sales volume.
Improved customer confidence with guaranteed products.
Assured quality of goods.
Enhanced seller goodwill and reputation.
Manufacturers can keep technical details secret.
Products become more useful.
Disadvantages of After-Sales Services:
Higher prices may include the cost of services.
Risk of customers receiving incorrect advice.
Limited choices in maintenance for customers.
Automatic Vending Machines:
Automatic vending involves selling goods to customers through coin-operated or card-operated machines. These machines, located in high-traffic areas, offer small, branded products such as candles, soft drinks, ice cream, coffee, tea, cigarettes, snacks, postage, and even services like automated tellers.
Advantages of Automatic Vending:
Available 24/7.
Wide range of goods.
Time-saving.
Low labor costs.
Uniform pricing.
Suitable for emergency situations.
Ensures self-service.
Economizes space.
Minimizes pilfering.
Disadvantages of Automatic Vending:
High cost of machine purchase.
Customers can typically obtain only one item.
Vulnerable to pilferage.
Incurs additional maintenance costs.
Higher prices due to expensive machines.
Limits the range of items.
No provision for change.
Limited detection of machine faults.
High expenditure on security measures.
Wholesale Trade
Wholesaling, or wholesale trade, involves the purchase of goods in large quantities from producers or manufacturers, followed by the resale of these goods in smaller quantities to retailers. A wholesaler acts as an intermediary, obtaining products in bulk and facilitating their distribution to retailers.
Functions of the Wholesaler:
To the Manufacturer:
Providing valuable information and advice to the manufacturer, such as insights into demand levels for goods.
Offering warehouse and storage facilities to accommodate excess goods, aiding manufacturers in maintaining sufficient space for ongoing production.
Preparing commodities for sale, which may include labeling, packaging, blending, or branding before selling.
Undertaking advertising and promotional activities to create awareness and stimulate demand for goods.
Financing manufacturers by paying for goods in advance and providing transport facilities for efficient distribution.
Engaging in bulk buying, encouraging manufacturers to produce more and benefit from economies of scale.
Sharing the risks associated with production and distribution, such as price fluctuations, changes in fashion, or product deterioration.
Conducting quality control, verifying the quality of products before distribution, including grading commodity products like cocoa.
To the Retailer:
Breaking bulk by selling goods in smaller quantities to retailers.
Providing financial support to retailers through credit facilities.
Offering advice and information on new goods and market trends.
Stabilizing prices by regulating supply and maintaining a variety of goods for retailers.
Types of Wholesalers or Middlemen:
General Wholesalers
Specialist Wholesalers
Cash and Carry Wholesalers
Factors (or Mercantile Agents)
Brokers
Jobbers
Del Credere Agents (Wholesalers)
Auctioneers
Manufacturer Representatives
Commission Agents
Channel of Distribution:
The path through which goods move from producers to consumers can take various forms, such as:
Producer to Wholesaler to Retailers to Consumers
Producer to Wholesaler to Consumers
Producer to Retailers to Consumers
Producer to Agent to Retailer to Consumers
Producer to Agent to Consumers
Factors to Consider Before Choosing a Channel of Distribution for a Commodity:
Nature of the commodity (perishable or durable).
Geographical considerations.
Existing and potential demand for the commodity.
Regularity of demand.
Number of retail outlets.
Producer’s capital, financial position, organizational ability, and selling skills.
Size of customer orders.
Quantity of goods involved.
Channels used by competitors.
Cost implications.
Reasons for Omitting Middlemen from the Distribution Channel:
Large customer orders.
Perishable goods.
Technical nature of goods requiring after-sales services.
Producer-operated retail outlets.
Customer-specific orders.
Mail-order business.
Durable goods with low turnover.
Expensive goods with advance payment.
Introduction of new products.
Maintenance of fixed prices.
Cooperative Consumers’ Association orders.
Why Wholesale Prices Are Lower Than Retail Prices:
Bulk purchases at reduced prices.
Direct purchasing from manufacturers.
Prompt or advance payments for goods.
Availability of trade and cash discounts.
Retailers selling in smaller units.
Effects or Reasons to Limit the Number of Middlemen in Distribution:
Increased prices of goods.
Artificial scarcity through hoarding.
Price differences in different areas.
Contribution to inflation.
Encouragement of distribution of fake or sub-standard products.
Warehousing
Warehousing involves the storage of produced or purchased goods in a designated location until they are required, ensuring a consistent and reliable supply. A warehouse serves as a storage facility for goods until they are needed.
Importance of Warehousing:
Protection and Security: Ensures the safety of goods.
Encourages Large Scale Production: Allows production ahead of demand.
Price Stability: Helps stabilize prices by reducing supply-related price fluctuations.
Re-Packaging and Branding: Facilitates the re-packaging and branding of goods.
Steady Supply: Ensures a constant and steady supply of goods throughout the year.
Employment Opportunities: Creates jobs for warehouse keepers.
Source of Income: Generates income for owners through rent and other means.
Promotes Emancipator Purchases: Fosters liberated and informed buying decisions.
Types of Warehousing:
Ordinary Warehouse: Stores goods for traders and manufacturers, including wholesalers, manufacturers, and public warehouses.
Bonded Warehouse: Holds goods with unpaid customs duties until settled by owners, under Customs Authority supervision, often located near ports.
State Warehouse (Queen’s or Government Warehouse): Stores seized contraband goods until auctioned to the public.
Usefulness of Bonded Warehouse in Foreign Trade:
Security for Imported Goods: Provides safety for goods from other countries with unpaid duties.
Time for Duty Payment: Allows importers adequate time to pay customs duties.
Consumer Buying Patterns: Understanding the purchasing behaviour of consumers.
Infrastructure and Road Network: Availability of good road networks and essential infrastructure.
Power Supply: Regular power supply, especially for frozen food items.
Security and Safety: Presence of security measures for the warehouse.
Documents Used in Warehousing:
Dock Warrant: A transferable document of title issued by warehouse authorities to depositors.
Delivery Order: Document issued by a dock warrant holder to enable a third party to collect specified goods from the warehouse.
Modern Trends In Retail Trade
The advancements in both economic and technical domains have given rise to various contemporary trends in the retail trade sector.
Key developments in retail trade
1. Self-Service System:
Customers independently select goods from store shelves and make payments at the cashier, often without assistance.
Features include well-organized displays, provision of trolleys and baskets, clear price tags, and payment near exits.
Advantages:
Increased sales through attractive displays.
Reduced need for sales clerks, minimizing overhead costs.
Time-saving and convenient shopping experience.
Disadvantages:
Potential for theft (shoplifting).
Limited inspection of goods due to pre-packaging.
Reduced personal attention to customers.
2. Branding:
Assigning a name or mark to a product to distinguish it from similar ones.
Examples include Toyota, Sony, Chivita, and Pampers.
Advantages:
Uniform pricing and easy recognition.
Prevention of product adulteration.
Assurance of high-quality and standardized products.
Disadvantages:
High advertising costs.
Encouragement of excessive buying.
Potential confusion among consumers leading to higher prices.
3. Pre-Packaging:
Goods are packed, weighed, and priced before placement on store shelves (e.g., sweets).
Advantages:
Protection against damages.
Effective advertising and increased sales.
Recycling of packaging material.
Disadvantages:
Higher costs of pre-packaged products.
Deceptive information on packaging.
Limited actual inspection of goods.
Automatic Vending:
Machines dispense pre-packed items upon inserting a specified amount.
Advantages:
Suitable for selling convenience goods.
24-hour service and uniform pricing.
Self-service convenience for customers.
Disadvantages:
High costs associated with machine operation.
Low profit margins due to operational expenses.
Potential for theft and vandalism.
Credit Cards:
Involves using plastic cards to make credit purchases from specific sellers.
Advantages:
Encourages credit purchases.
Convenient to carry.
Disadvantages:
Goods may have higher prices.
Limited bargaining and potential for bad debts.
Electronic Retailing (E-Retailing):
An emerging trend involving online retail shopping with global accessibility.
Advantages:
24-hour services.
Multimedia prospects.
Information provision to customers.
Increased sales.
International Trade
International trade, also known as foreign trade, involves the exchange of goods and services between two or more countries through their residents and governments. In simpler terms, it encompasses the trading of goods and services among people and different nations.
Forms of Foreign Trade:
Bilateral Trade: This occurs when one country agrees to exchange goods and services with another, for example, the trade between Nigeria and Japan.
Multilateral Trade: Involves the buying and selling of goods and services among multiple countries, where each nation engages in trade with various other nations. For instance, Nigeria may have multilateral agreements with countries such as America, Russia, China, and Britain.
Invisible Imports:
These refer to services provided by other countries, including banking, insurance, shipping, and transportation.
Export Trade:
It involves selling a country’s products abroad, encompassing both goods and services.
Visible Export: Tangible goods sold to other nations, such as Nigeria exporting agricultural products and mineral resources like crude oil, cotton, and palm oil.
Invisible Export: Involves selling services to other countries, such as banking, insurance, and transportation services.
Barriers to International Trade:
Currency Differences: Fluctuations and non-availability of foreign currencies hinder the flow of goods.
Artificial Barriers: Imposition of duties like tariffs on imported goods, strict regulations, and tariff limits restrict foreign trade.
Distance: Geographic distance and freight costs impede foreign trade.
Cultural Problems: Customs and traditions in different countries may negatively impact foreign trade.
Difference in Language: Language disparities create communication barriers.
Difference Between Domestic and Foreign Trade
Similarities:
Both are facilitated by aids to trade.
Involve buying and selling.
Use currencies in transactions.
Represent divisions of trade.
Import Trade:
It involves the buying and selling of goods and services from other nations, categorized into visible and invisible imports.
Visible Imports: Physical or tangible goods purchased from other countries, including capital and consumer goods like automobiles, machinery, electronics, and clothes.
Reasons for International Trade:
Inequitable distribution of natural resources.
Differences in skill and technical know-how.
Variances in the quantity and quality of the labor force.
Cost of production considerations.
The need to expand the local market.
Advantages of International Trade:
Leads to interdependence among nations.
Acts as a source of revenue.
Facilitates equitable redistribution of natural resources.
Disadvantages of International Trade:
May lead to the exploitation of poorer countries.
Can result in the dumping of goods.
This comprehensive overview highlights the various aspects of international trade, its forms, barriers, and the reasons behind engaging in it.
Concepts Of International Trade
Trade Terms: This refers to the exchange prices between a country’s exports and imports. Favorable terms of trade occur when the prices of a country’s exports are greater than those of its imports, while unfavorable terms of trade occur when the reverse is true.
Visible exports primarily consist of tangible commodities recorded in a country’s balance of trade. In contrast, invisible exports encompass services, such as insurance, civil aviation, shipping, and tourist services, which are quantified in monetary terms and appear in the country’s balance of payments.
Imports: Visible imports comprise easily observable commodities purchased by a country from other nations, appearing in the balance of trade. Invisible imports consist of services provided to other countries, calculated in monetary terms, and reflected in the balance of payments.
Balance of Payment Deficits: This denotes a scenario where a country’s receipts are lower than its payments over a specified period, indicating an economic lack of self-sufficiency.
Causes of Unfavorable Balance of Payment:
Decline in a country’s exports.
Limited technological advancement or reliance on primitive tools.
Reduced production.
Adverse weather conditions leading to poor harvests.
Excessive preference for foreign-made goods and services.
Measures to Correct Balance of Payment Deficit:
Devaluation of the local currency to decrease the value of exports and increase the cost of imports.
Encouraging the export of goods and services.
Decreasing imports.
Boosting local production to enhance exports.
Selling the country’s foreign investments.
Seeking grants and aids from wealthier nations.
Borrowing from financial institutions such as the International Monetary Fund (IMF) and World Bank.
Documents Used In Foreign Trade
Documents Used in Foreign Trade
1. Bill of Lading:
Definition: A document conferring ownership claim on goods upon arrival, serving as proof of title for goods on board a ship.
Content: Contains ship name, shipper details, and goods’ quality and types.
Preparation: Typically created in three copies by the ship owner for the exporter, shipper, and importer.
Types: Dirty bill (indicating damages or deficiencies) and clean bill (verifying perfect condition).
Importance of Bill of Lading:
Ownership document.
Contract of carriage between exporter and shipping company.
Represents receipt of shipped goods.
Provides evidence.
2. Airway Bill:
Definition: Document for air freight, similar to a bill of lading, made in triplicate but not a title document.
Certificate of Origin:
Definition: States the country of origin for shipped goods, aiding in determining customs duties and securing preferential treatment in organizations like ECOWAS.
Consular Invoice:
Definition: Document signed by the buyer’s consular, assessing liability for import duties and verifying proper valuation of goods.
Weight Note:
Definition: Seller-supplied document specifying weight and measurements of goods during sale, also issued by port authorities upon delivery.
Indent:
Definition: Order to buy goods sent by buyer to seller, specifying required goods. Can be open (unspecified source) or closed (specific goods from a particular manufacturer).
Certificate of Insurance:
Definition: Proof that parties have insured goods in transit, often a marine insurance policy.
Export/Import License:
Definition: Necessary authorization obtained before exporting or importing goods, especially in countries with protectionist laws.
Dock Warrant (Wharf Finger Receipt/Dock Receipt):
Definition: Receipt for goods stored in a warehouse, allowing the holder to take possession, indicating goods are awaiting loading or clearing.
Freight Note:
– Definition: Issued by shipping company to the responsible party for transportation costs.
Shipping Note:
Definition: Instructions sent by an exporter to shipping agents, detailing the shipping process and destination.
Export Invoice:
Definition: Document sent by exporter to importer providing comprehensive details of dispatched goods, including description, terms, quantity, price, etc.
Custom Specification:
Definition: Document submitted to customs authorities, recording import/export values for calculating the balance of trade.
Custom And Excise Authority
The Customs and Excise Authority serves as a government agency tasked with the assessment and collection of revenue related to import and export activities. Operating under the Ministry of Internal Affairs, this department is a key revenue-collecting entity.
The responsibilities of the Customs and Excise Authority encompass various types of duties, including:
Import Duties: These are taxes levied on surplus goods and services entering a country from other nations, commonly referred to as customs duties or traffic.
Export Duties: Imposed on surplus goods and services sent from a country to other nations.
Excise Duties: Taxes applied to locally manufactured goods, which can be either ad valorem or specific.
Key functions of the Customs Authority
Preventing Smuggling: Enforcing measures to deter the illegal transportation of goods in and out of the country.
Data Compilation: Compiling statistical data on both import and export activities.
Revenue Generation: The authority is responsible for generating revenue for the government through import and export duties.
Tax Collection: Collecting taxes on goods, whether imported, exported, or produced locally.
Supervising Bonded Warehouses: Monitoring and supervising warehouses where goods are stored until duties are paid.
Combating Illegal Currency Trafficking: Checking and preventing the illegal trafficking of the national currency.
Providing Information to Traders: Offering information to traders regarding the duties applicable to the importation and exportation of goods.
Implementing Government Policies: Executing government policies related to the restriction of certain goods.
The Customs and Excise Authority plays a crucial role in revenue collection, data management, and enforcement of policies to ensure the legality and regulation of import and export activities.
Export Promotion Council
International Trade:
This involves the sale of a country’s goods and services to other nations, encompassing both tangible products and services rendered abroad. Nigeria engages in export activities with products such as cocoa, crude oil, rubber, and cassava. Export transactions can be categorized as visible (tangible goods) and invisible (services provided).
Re-Export:
This refers to the process of exporting goods that were initially imported from other countries. In essence, it involves the re-exportation of items that were brought into a country but are subsequently sent to other nations.
Export Funding: NEPC facilitates financial support for exports, including insurance and credit guarantee schemes.
Export Development Activities: The council implements measures to enhance both the quantity and quality of goods earmarked for export.
Provision of Trade Information: NEPC disseminates information through trade journals and export directives, keeping stakeholders informed.
Training Initiatives: NEPC conducts seminars and workshops on export management, catering to individuals involved in international trade.
Publicity Function: The council generates and issues publications containing information about its activities, ensuring transparency and awareness.
Export Marketing Activities: NEPC provides information on Nigeria’s exports in the international market, offering insights on how to enhance marketability.
Export Document Preparation: NEPC assists in the preparation of export-related documents, streamlining the export process.
Nigeria Port Authority (NPA)
The Nigeria Port Authority, a federal government body, is entrusted with the responsibility of establishing and overseeing facilities at sea ports within the country. Its aim is to ensure the efficiency and effectiveness of sea transportation by providing essential amenities such as boats, harbors, wharfs, trailers, forklifts, and more.
Notable seaports in Nigeria include those in Apapa Lagos, Port-Harcourt, Warri, Calabar, Sapele, among others.
The key functions of the Nigeria Port Authority (NPA)
Provision of Facilities: NPA offers facilities like granerberth, fork-lifts, and navigational aids at the ports.
Maintenance and Improvement of Ports: The authority is responsible for enhancing ports, including dredging channels for smooth ship passage.
Provision and Maintenance of Security: NPA ensures security, monitoring the movement of ships, cargos, and people within and around the nation’s ports.
Office Accommodation: The port authority provides office space for officials of immigration, customs, and shipping companies operating within the ports.
Revenue Collection: The ports collect harbor and dock dues.
Provision of Warehouse: NPA provides warehouses for storing cargoes before loading and after unloading from vessels.
Maintenance Facilities: The authority offers ship repair and refueling services.
Functions of Seaports
Entry and Departure Points: Seaports serve as entry and departure points for goods and passengers.
Refueling Hub: They act as ports of call for refueling big ocean vessels.
Dockyards for Repairs: Seaports provide dockyards for ship repairs and maintenance work.
Employment Opportunities: They create job opportunities for both skilled and unskilled workers.
Fishing Harbors: Seaports serve as fishing harbors, catering to the needs of fishing travelers and the sale of fish cargoes.
Defense Bases: They can function as bases for defense purposes, monitoring activities within the country’s territorial waters during times of war.
Nigeria Airport Authority (NAA)
The Nigeria Airport Authority (NAA) is a statutory body or public corporation tasked with the management, maintenance, operation, administration, and control of all airports in Nigeria. Notable international airports like Murtala Muhammed Airport Ikeja and Aminu Kano Airport Kano fall under its purview, while local airports such as Calabar airport represent examples of its jurisdiction.
Roles of the N.A.A
Airway Control: The authority oversees both domestic and international airlines.
Facility Maintenance: It provides repair and maintenance facilities for damaged aircraft.
Warehouse Provision: The NAA offers storage facilities for goods and luggage during loading and unloading.
Security Agent Housing: It provides office accommodation for customs, immigration, police, and other agents working at the airport.
Revenue Collection: The NAA is responsible for collecting airport taxes from airlines, shop operators, and other entities within the airport.
Passenger Security: Ensuring passenger safety through the provision of security measures.
Administration: The NAA oversees the general administration, management, and control of the airport.
Infrastructure Development: Ensuring airports in the country have a robust road network for incoming vehicles.
Functions of Airports
Refuelling Points: Airports serve as refuelling points for long-distance aircraft.
Landing Facilities: They provide landing facilities for both domestic and international aircraft.
Commerce and Trade Promotion: Airports promote commerce and trade within and among countries.
Employment Opportunities: They create employment opportunities in both specialized and unskilled sectors of the aviation industry.
Entry Points: Airports serve as entry points for goods and passengers.
Defensive Bases: They function as bases for defense, monitoring activities in the airspace of countries.
Transportation: Road, Air, Water, Rail, Importance, Forms
Transportation serves as a crucial facilitator of trade and commerce, encompassing the movement of people and goods across various modes such as water, road, rail, and air.
Significance of Transportation:
Facilitation of Goods and People Movement:
Enables quick and efficient distribution of goods within a country.
Encourages trade between different nations.
Improved Standard of Living:
Enhances the standard of living by ensuring timely availability of goods and services.
Employment Opportunities:
Creates job opportunities, allowing people to earn a livelihood.
Expansion of Market Reach:
Widens the market for firms, promoting the sale of goods and services.
Encouragement of International Trade:
Promotes and facilitates international trading activities through air and sea transport.
Prevention of Perishable Goods Wastage:
Efficient transport systems prevent wastage by ensuring the quick distribution of perishable goods to areas of demand.
Movement of Productive Resources:
Facilitates the movement of productive resources to areas where they can be optimally utilized.
This involves the movement of people and goods on land and is the most common means, particularly in domestic trade. It includes road and rail transportation.
Road Transportation:
Common in linking towns and villages in Nigeria.
Utilizes various means such as bicycles, cars, lorries, tankers, motorcycles, buses, and trailers.
Involves trains operating on specially made rail routes.
Although slower, it is less risky compared to road transport.
Governed by the Nigeria Railway Corporation (NRC) in Nigeria, categorizing trains into passenger and cargo classes.
Business Units & Sole Proprietorship
Business entities can be broadly categorized into two classes: the private sector, also known as private enterprise, and the public sector, referred to as public enterprise.
The private sector comprises business enterprises owned and controlled by private individuals, while the public sector encompasses enterprises owned and controlled by the government.
Under the private sector, there are five main forms of business units:
Sole Proprietorship: A business owned and controlled by a single individual, also known as a sole trader or one-man business.
Partnership: A business structure involving two or more individuals who share ownership and responsibilities.
Private Limited Liability Company: A company where ownership is in the hands of private individuals, and liability is limited to the extent of their investment.
Public Limited Liability Company: A publicly traded company with shares available for public ownership, also with limited liability for shareholders.
Co-operative Society: A business entity formed by a group of individuals who cooperate to meet common economic, social, and cultural needs.
Public enterprises, or public corporations, are owned, controlled, and financed by the government.
Factors influencing the choice of business unit structure include the amount of capital available, the entrepreneur’s personal abilities and experience, the type of business, market size, risk level, personal motives, and government policies.
Sole Proprietorship is a business structure where one person provides all the capital, bears all the risks, and takes full responsibility for the firm. Key features include ownership, management, and control by a single individual, unlimited liability, non-existence as a separate legal entity, and lack of perpetual existence.
Advantages of Sole Proprietorship include easy setup, low capital requirements, easy management, fast decision-making, flexibility, sole profit enjoyment, privacy, and a sense of ownership pride. However, disadvantages include challenges in raising capital, unlimited liability, non-separate legal entity status, sole risk-bearing, limited scope for expansion, lack of continuity, limited decision-making scope, and difficulties in facing competition.
Sources of capital or finance for a Sole Proprietorship include personal savings, loans from friends/relatives, bank loans and overdrafts, trade credits, retained profits, grants from friends/relations, government grants/loans, and other credit facilities like hire purchase.
A partnership is characterized by the collaboration between two or more individuals engaged in a joint business venture with the intention of generating profits.
In a partnership, individuals contribute their skills and financial resources to establish, own, and manage a business organization with the primary goal of making a profit.
Conditions conducive to the formation of a partnership include its suitability for short-term ventures, the desire to keep ownership and control within a family or among friends, the need for specific skills or expertise from members of the partnership, and situations where a substantial capital investment is not essential, as seen in a limited liability company.
Formation of a partnership typically involves the creation of a partnership deed, a written agreement outlining the rules, regulations, and agreements guiding the conduct of the partnership business.
The partnership deed generally includes details such as the firm’s name, names of partners, nature of the business, capital contributions from each partner, profit and loss-sharing arrangements, duration of the partnership, circumstances leading to dissolution, procedures for dissolution and admitting new partners, dispute resolution methods, and more.
Partnership at will refers to a scenario where no fixed term or period has been agreed upon for the partnership’s duration.
Key features of a partnership include ownership by two to twenty persons, capital contributions from partners, shared profits and losses, unlimited liability for partners, lack of legal entity status, simplicity in formation without special formalities, partners serving as agents of the firm, profit-oriented motives, and active participation of partners in business management.
Advantages of partnerships include increased capital, joint decision-making, shared risks and liabilities, ease of formation, specialization in management, privacy, competitiveness, flexibility for partners, and greater scope for expansion compared to sole proprietorships.
However, partnerships come with disadvantages such as unlimited liability, difficulty in raising sufficient capital, lack of legal entity status, the binding nature of one partner’s actions on others, potential business dissolution due to disagreements, diminished pride of ownership, lack of continuity, shared profits, and slower decision-making processes.
Partners have rights, including sharing profits, participating in business management, accessing and inspecting business records, indemnity for expenses, and acting as the agent of the business. Capital for partnerships can come from personal contributions, loans from partners or banks, trade credits, retained profits, and various credit facilities or grants from government agencies.
Dissolution of a partnership may occur due to various reasons, including the expiration of a fixed term, death or bankruptcy of a partner, mutual consent of partners, insolvency of the business, illegality, insanity of a partner, notice of dissolution from one partner, court order, or the completion of a specific venture or project.
There are two primary types of partnership businesses:
Ordinary Partnership (or General Partnership)
Characteristics:
Membership/Number of partners: Can consist of 2 to 20 persons. However, the restriction of not more than 20 persons no longer applies to certain professionals according to the Companies Act 1967.
Formation: No special formality, such as registration, is required.
Capital/Finance: Obtained through contributions from partners; contributions may vary.
Liability of Partners: Unlimited liability.
Profit Sharing: Profits shared or distributed according to the agreement in the deed.
Powers of Partners: Each partner acts as an agent for others in carrying out the partnership business.
Management/Control: All partners participate in business management.
Legal Status: Not a separate legal entity.
Existence/Dissolution: Automatically dissolved by the death, bankruptcy, or insanity of a partner.
Types of Ordinary Partners:
Active Partner: Actively involved in the management, shares profits, and losses.
Sleeping or Dormant Partner: Contributes capital but does not participate in day-to-day management.
Nominal or Quasi Partner: Allows the use of their name but does not contribute capital or partake in management.
Limited Partnership
Characteristics:
Membership/Number of Partners: Same as for ordinary partnerships.
Formation: Must be registered with the Corporate Affairs Commission to avoid limited partners being liable as general partners.
Capital/Finance: Contributions by partners.
Liability of Partners: Limited partners only lose the contributed capital in the event of bankruptcy or debt; at least one general partner has unlimited liability.
Profit Sharing: Profits shared according to the agreement in the deed among general and limited partners.
Powers of Limited Partner: Limited partners cannot bind the firm in trading contracts but can inspect the firm’s books and offer advice.
Management/Control: Limited partners cannot participate in business management.
Legal Status: Not a separate entity.
Existence/Dissolution: Automatically dissolved by the death, bankruptcy, or insanity of a partner.
Withdrawal of Capital: Limited partners cannot withdraw capital without the consent of other partners.
Demerits or Limitations of a Limited Partner:
Cannot partake in firm management.
Must be registered with the Registrar, Corporate Affairs Commission.
Lacks the power to make binding contracts on behalf of the firm.
New partners can be admitted without their consent.
Cannot withdraw invested capital without the consent of other partners.