TRADE

Definition of trade

Trade refers to the exchange of goods and services between people or countries.

Trade was occasioned by the existence of varying environmental and climatic conditions. Trade arises from the
basic human needs such as satisfying food requirements

Methods of trade.

There are two main methods of trade;

1. Barter trade

2. Currency trade.

a) Barter trade

This is the exchange of goods for goods. It is one of the earliest forms of trade that was even taking place during
the reign of King Solomon of the Bible.

Barter trade emerged from the natural needs of the people. For example, among the Kenyan pre-colonial
communities such as the Maasai who kept livestock but did not have grains which the neighbouring kikuyu
possessed. Barter trade sometimes even took place within the same community where some people had some
special talents that others did not possess. E.g ironsmiths

A form of barter trade known as ‘silent trade’ was practiced in some areas where the two involved communities
could not speak the same language. For example, it existed between Morocco and Carthage in 400 BC.

Barter trade can still be witnessed in the modern society. For example, Kenya exchanges tea and coffee with
petroleum, chemicals and machinery from other countries.

Barter trade however has the following disadvantages;

a) It may involve bulky goods in the transaction.

b) There may lack double coincidence. It is difficult always to get the goods one wants.

c) Lack of standards of deferred payment; if a good was borrowed, it would be difficult to decide whether the
same value was returned later or not.

d) Some goods cannot be sub-divided into smaller units. If one wanted cloth equal to a half a sheep, then he could
not divide the sheep into two parts.

e) Lack of store of value for some goods which cannot be stored for a long time since they are perishable. E.g.
milk, vegetables.

f) Lack of measures of value; a specific quantity of goods cannot be measured vis-à-vis other goods.

Advantages of barter system.

b) It benefits where money is non-existent.

c) It avoids wastage as demand and supply tend to equate.

d) It promotes interaction hence good relationship, peace and stability especially among traditional African
societies.

b) Currency trade.

This is a type of trade that involves the use of money.

Money is an item that is mutually recognized as a medium of exchange or a measure of value. In the pre-colonial
times items like Gold dust, cloth, copper rods, and iron and cowrie shells were used as a form of currency.

Advantages of the use of money in trade.

a) Money is a medium of exchange- it is needed to obtain goods or services.

b) Money as a measure of value enables units of goods to be bought. A specific quantity of goods can be
measured Visa- Vis other goods.

c) Money is a standard of deferred (future) payments which allows borrowing and lending to take place.

d) It is a store of value- one is able to defer satisfaction of a want to future times or make provision for one’s want
at a future date.

e) It is a means through which immovable property can be transferred. For example when one sells a house in one
city to go and dwell in another.

f) Money as a unit of account is used as a calculating medium and assigning prices of goods and services.

g) Money is easily divisible into smaller units. For example, if a product is valued at a lower price, the buyer only
pays the agreed cost.

h) The qualities of money and its functions overcome the difficulties of barter.

Money however becomes valuable only when those using it have confidence that it will continue to retain its
value during the period it is in possession.

Technology today has made the use of currency easier. There is the use of Visa Card and Mobile money services
like Mpesa and Airtel Money to carry out transactions.

Difference between barter trade and trade in which currency is used as a medium of exchange.

a) In barter trade goods are exchanged for goods/in currency trade, there is use of money as a measure of value.

b) In barter trade depends on the existence of a double coincidence of needs but in currency method one meets his
needs by the use of money.
c) Items used for barter trade are bulky (some) and inconvenient to handle-and others perishable. Money is not
bulky.

Local trade.

This refers to the exchange of goods between people within the same geographical area such as a village or town.

Origin of local trade.

This form of trade took place between groups of people who produced different goods mainly because of varying
ecological conditions. It was motivated by the following factors;

a) Existence of surplus production e.g. where some community’s harvest was excess; they could sell the excess
commodity to carter for shortages elsewhere and to avoid wastage.

b) Differences in climate and environmental conditions which affected the type of natural resources available in
various places/ not all needs of a particular community can be satisfied by the resources available hence trade.
The kikuyu of Nyeri had to go to Mathira for their foodstuff requirements during drought periods.

c) Specialization and improved technology which always creates a need to exchange skills and goods with those
who do not have. E.g trade between Mathira kikuyu cultivators and the Mukurwe-ini kikuyu ironmongers and
weavers. Some even exchanged skills for money.

d) Population increase making man to begin to supplement his needs by trading with his neighbors.

Sometimes, this trade extended even beyond the local community to the neighbouring community. The Abagusii,
for example, acquired hides, milk, snake poison, and pottery items from their Luo Neighbours.

Some seasonal markets emerged which enabled traders to meet and exchange goods on particular days of the
week.

Factors that facilitated development of local trade.

a) Availability of capital for investments in trade – to generate more wealth.

b) Specialization and improved technology, e.g. specialization in production, in technology and in marketing.
Sometimes people even exchanged their skills for money.

c) Demand and supply; the growing demand for goods and services was met by increase in supply.

d) Enterprise; many people began to take greater risk and invested more in trade.

e) Peace and stability. This enabled people to interact more and hence the growth and expansion of trade.

Impact of local trade

a) There was development of market places which specialized in certain items like pottery, iron tools and baskets.
Others specialized in livestock
b) Local trade helped to strengthen bonds between people in the same locality. It even enhanced intermarriages
and other social functions.

c) Local trade satisfied the requirements of the communities in terms of tools, foodstuffs, medicinal herbs etc.

d) Local trade enhanced acquisition of new products that a particular community did not produce.

e) There was an improvement of transport routes. Some markets were strategically located along transport routes.

f) In centralized governments like Buganda, Bunyoro-Kitara, Mali, Ghana and Wanga, the local markets that
developed due to the trade became important sources of revenue for the kingdoms. In Bunyoro-Kitara for
example, the Omukama had officers whose duty was to collect taxes from the market places.

g) Many people were brought together through trade. In Bunyoro–Kitara, communities like the Alur, Acholi,
Langi, Basoga, Baganda, Kumani, Iteso and Banyankole interacted through trade.

NB; the greatest danger to the local traders was that they risked being attacked by hostile communities and wild
animals.

Regional trade.

This refers to a type of trade between two distinct geographical regions

Characteristics of regional trade.

~ It Takes place within a bigger geographical area.

~ It Involves intermediaries or middlemen between producers and the buyers.

~ The trade often covers long distances to and from the market.

~ It involves people who specialize mainly in trade as their means of livelihood.

~ Larger Varieties of goods are involved.

In regional trade there existed established markets but goods did not have to be sold on a particular market days
like the case of local trade.

It also involved large volumes of trade as compared to local trade