With the advent of globalization, many African countries are opting for free trade to enable them to participate effectively in the international market and therefore boost their growth. There are, however, certain barriers that these countries face, which limit them from actively participating in international trade.
This state of affairs has contributed to the slow pace of development in these countries. The common barriers to international trade in most of African countries include tariffs, quotas and other non-tariff barriers such as domestic content requirement and import licenses.
A tariff refers to a tax that is imposed on imports by the federal government of a country so that it can manage to raise the price of the imported goods to the final consumer. Tariffs are aimed at limiting imports and raising the revenues of a nation. A Quota, on the other hand, refers to a limit on the amount of a commodity that is being imported into a country (Koo & Kennedy, 2005).
The effect that Tariffs and Quotas have in common is that they have the capacity to regulate imports and in the protection of domestic companies from foreign competition. A tariff, for example, has the effect of raising the price of foreign goods beyond levels that the local consumer would be willing to pay, thereby decreasing the demand for the product. This then limits the supply of the foreign good to the local market.
However, while many African countries raise the price of imported capital goods and regulate the amount of imported capital goods, most of them fail to understand that they require capital goods to stimulate their development agendas. With the high tariffs therefore, what is evident is that the prices of capital goods are also high thereby forcing many African countries to invest heavily in the purchase of capital goods.
This then limits the availability of funds that the countries can use for other development goals ( Koo & Kennedy, 2005). In addition, when African countries raise their tariffs to levels that exporters cannot afford, many exporters withdraw from the African markets thereby limiting the amount of revenue that the governments of these countries earn. This in return slows the investment levels of these countries thereby leading to low rates of economic growth.
Domestic content requirement has also been a practice that many African countries engage in as a barrier to international trade (Summer & Smith, n.d). The intention here is to stimulate the growth of the local industries. This regulation specifies the percentage of a product that should be produced domestically so that the product can be sold in the local market. Most of the African countries have imposed this requirement in order to foster textile and agricultural production.
They impose a policy of import substitution whereby imports are replaced by domestic production. However, most of these countries are incapable of producing goods that meet the needs of the local customers, and the customers are therefore forced to result to imports because of their high quality and reliability.
Import licenses are observed to be very effective in terms of regulating and restricting imports in African countries (Summer & Smith, n.d). There are those countries which require imports of a specific commodity so as to obtain a license for any shipment that they import into a country.
There are also certain countries, which restrict licenses by limiting licenses to specified importers. This thereby limits their participation in the international market. To actively participate in the international market therefore, many African countries should regulate their barriers to levels that encourage active participation of foreign investors.
Koo, W. W., & Kennedy, P. L. (2005). International Trade and Agriculture. New York: John Wiley & Sons.
Summer, D. A., & Smith, V. H. (n.d). Tariff and Non-Tariff Barriers to Trade. Retrieved February 8, 2012, from http://www.farmfoundation.org/news/articlefiles/816-sumner.pdf