West African Trade

A Study of Competition, Oligopoly and Monopoly in a Changing Economy

P. T. Bauer

• Publisher: Taylor & Francis
• Year: 2012
• eBook ISBN: 9781136878435
• Edition: 1
• Topic: Economics
• Subtopic: Business General
• Index: Economics

This groundbreaking work from the hugely influential economist P. T. Bauer, first published in 1954 and reissued with a new introduction in 1963, is a thorough and detailed analysis of the findings of the Colonial Economic Research Committee, from their investigation into the structure of West African Trade and especially the monopolistic tendencies inherent within it. Materials for the study were collected and analysed between 1949 and 1952, offering an invaluable insight into dominant features of contemporary West African Economies and an analysis of their implications.

PART 1

GENERAL ASPECTS OF THE WEST AFRICAN ECONOMIES AND OF THE ROLE OF TRADE

CHAPTER 1

UNDERLYING FORCES AND INFLUENCES

This chapter treats of certain underlying forces and influences in the West African economies of special relevance to this study. The selected aspects are the impact of the money economy and of its recent and rapid growth; the imperfect specialization of economic activity; the low level of certain productive resources, especially of capital; and the unemployment of unskilled general workers. These have been chosen because an understanding of the phenomena is fundamental to an appreciation of the trading situation in West Africa.

1. DIFFICULTIES OF ADJUSTMENT TO A MONEY ECONOMY

Although by Western standards the real income of the population of the West African colonies is still low, and very low in some territories, these economies are not stagnant. In fact, many of their problems arise from the very rapid and necessarily uneven development which has taken place, and especially from the impact and progress of a money and exchange economy. There has been trade between Europe and the west coast of Africa since the sixteenth century, but its character, composition and volume have changed fundamentally during the last few decades. Until about fifty years ago there were no exports of cocoa, groundnuts, hides and skins or timber, and the export of palm products was only a fraction of what it is today. The Ibo, who today play an important part in Nigerian trade, were in an almost savage state as recently as 1910. It would call for anthropologists and sociologists to analyse many facets of the progress and the effects of this rapid transition. But those which bear closely on the present study require discussion here.

The comparatively recent emergence of a money economy explains the presence of institutions and attitudes which are largely unsuited to its requirements. The family system is an example.¹ In West Africa a reasonably prosperous man is frequently obliged to support even distant kinsmen and relatives. A moderately successful man may find that a score or more relatives descend on him, expecting to live off his bounty. Some of the successful Africans probably enjoy the status and sense of power attaching to the support of their relatives, but many admit in private discussion that they dread these extensive obligations.

The system is not without redeeming features. It exhibits elements of real charity and generosity. Moreover, it often results in the pooling of family resources for such purposes as the education of promising children or the setting up of a member of the family in trade or in a profession. In such circumstances it amounts to a circulation of capital within the family. Persons supporting a number of needy kinsmen may themselves have been supported by distant relatives a few years earlier.

The principal weakness seems to be the comparative absence of discrimination in its exercise. Relatives who might be able to support themselves qualify for assistance on much the same basis as those who cannot find employment. Quite clearly the system is largely the legacy of a subsistence economy.¹ Excessive and indiscriminate hospitality is a feature of subsistence economies where surpluses cannot be marketed, and where it is therefore expected that these should be used for charity, and in particular for liberal entertainment of kinsmen, friends and visitors.

The excessive hospitality and the indiscriminate maintenance of distant relatives are likely to diminish in West Africa as economic and social life increasingly sheds the habits and institutions of subsistence economies. Meantime capital formation and economic development are retarded; thrift, enterprise and initiative and the productive use of accumulated savings are discouraged, and an incidental premium is placed upon idleness. The fear of the obligations of the family system is partly responsible for the widespread use of textiles and trinkets as outlets for savings, in preference to more productive forms of investment which are more likely to attract the attention of relatives.²

The comparatively slow spread of banking in parts of the Gold Coast and Nigeria may also be partly attributed to the family system. Africans often mistrust the bank clerks, fearing that they may disclose the size of their accounts to members of their families. They therefore prefer to keep their savings under the fireplace or buried in the ground.³ An educated African chief told a bank manager in the Gold Coast that were it not for this particular suspicion the banking habit among Africans would spread very rapidly. The failure of some prosperous traders to keep bank accounts makes it more difficult for them to secure bank advances, since bankers do not like lending to customers who do not pass all their transactions through the bank.

The complexities of African land tenure, which are connected with the family and the tribal systems, require only brief mention here. Both in Nigeria and in the Gold Coast family and tribal rights in rural land are often so complex that land is an unsatisfactory security for loans. This obstructs the flow and application of capital to certain uses of high return, which in turn retards the growth of income and hence of accumulation.

The people often exhibit a pronounced ignorance of the operations of an exchange and market economy, again partly because of its novelty. The profit margins of the European firms and of the Levantine¹ and African intermediaries are believed to depend solely or largely on their own decisions, which are only remotely connected with such academic matters as supply and demand. Accumulated wealth is thought to have been earned solely by the impoverishment of customers or competitors. It is a widespread article of faith that the wealth of the mercantile firms has been extracted from the Africans and has in no way been created by the activities of the merchants.

Unfortunately, many of these fallacies have now become respectable doctrine in more sophisticated countries, and are often explicitly supported by members of the European community in West Africa. This has an important practical corollary: even the cruder notions current in West Africa are not effectively refuted, because the underlying fallacies are not discerned. Consequently certain unreasonable African demands are not resisted, even where a little analysis would show that the proposed measures would not only be harmful but would also defeat their own ends. It is by no means a foregone conclusion that the Africans would be unable or unwilling to understand the confused and self-frustrating character of some of their demands if this were clearly shown to them, but this must remain an open question for the time being.

This imperfect understanding of the operation of market forces is also evident in the widespread complaint of Africans that whenever they attempt to establish themselves in business, especially in the direct importing of commodities from overseas, the European merchant firms deliberately reduce prices to put them out of business. As we shall see later there may have been instances where firms have engaged in localized or temporary underselling with the deliberate intention of destroying a competitor. But Africans are apt to regard any fall in prices as evidence of a deliberate attempt to put them out of business.

The smaller African importers 1950 some of the groundnut and traders have great difficulty in understanding the various government regulations affecting them. Some government departments, especially the Department of Commerce and Industries in Nigeria, attempt to give wide publicity in simple language to the various licensing regulations, especially to those relating to import control, and they have obtained some measure of success. But there are still many bona fide traders who do not understand the operation of these and of other regulations. There is a steady increase in direct government control and direction of economic life. The administration of these regulations, especially the compulsory inspection of export produce, opens the door to corruption, graft and oppression. This is only to be expected where the regulations are not understood by the majority of those affected by them, and where those who are injured are unable or unwilling to protest effectively.

Many African traders, especially importers, are not always meticulous in honouring commercial contracts. This naturally makes commercial intercourse between foreign firms and African traders more difficult, and slows down economic development in West Africa, as well as the Africanization of commerce and industry. Many examples of African commercial dishonesty stem from the period of imperfect import and price control during and after the war. Quick and almost riskless profits were open to those traders who were able to obtain short-supply merchandise at controlled prices or who were allotted the necessary import permits. The trade attracted many ad hoc traders (including schoolboys), who, because they regarded their activities as isolated and discontinuous ventures, were not averse to breaking contracts if owing to changes in market conditions their fulfilment was no longer advantageous. In 1949 the warehouses of Lagos and Accra were stacked with consignments addressed to African importers on firm orders which they had refused to accept, either because the market had turned against them, or because they hoped that the goods would eventually have to be auctioned and that they would thus obtain them direct, or through nominees, at prices well below the contract terms. But this weakness should properly be associated with conditions which make for episodic commercial relationships, when lapses from commercial standards of honesty are likely to be frequent in all trading communities in Africa or elsewhere. In fairness it should be stated that some overseas suppliers of African customers are also apt to follow standards very different from those prevailing in Britain and Western Europe.

Africans in the import trade may sometimes appear to be dishonest when they fail to meet their obligations. Often the failure is not due to dishonesty or even to irresponsible risk-taking, but to a combination of small capital, severe price fluctuations, and a tendency to overtrade which is often encouraged by European exporters eager to secure business.

These differences in the trading methods of Europeans and Africans arise from social, institutional and political factors. The comparatively recent emergence of a money economy has, however, also played a part, since the importance of continuity in business relationships, and of integrity as a condition of this continuity, has not yet come to be generally appreciated. But the observer cannot fail to be impressed by the numerous examples testifying to the commercial trustworthiness of African traders and intermediaries. Continuous business relationships, often of long duration, exist between parties in produce buying and in the distribution of imported merchandise. European merchant houses grant substantial trade credit to African customers or make advances to Africans to finance produce buying. There are also extensive credit transactions between Levantines and Africans. Loans are often outstanding for considerable periods on conditions which require much mutual trust.

2. IMPERFECT SPECIALIZATION

The economic activities of large sections of the population of West Africa are still partly or largely unspecialized. The preponderance of a few staple exports is compatible with a low degree of economic specialization. Many farmers produce a number of products on a very small scale.¹ Even in northern Nigeria and in the Northern Territories of the Gold Coast many farmers spend a substantial part of their time in non-agricultural activities, or in activities away from their home as migrant labourers or traders. In other parts of these countries, especially in southern Nigeria and the colony area of the Gold Coast, the great bulk of the population has other occupations, generally some form of trading, in addition to their main activity. The lack of specialization becomes more apparent when the economic activities of wives and children are taken into account. Africans frequently do not regard trade as an occupation (especially when carried on by dependants), and would not refer to it as such. They regard it as part of existence and not as a distinct occupation.²

The lack of specialization which affects a large section of West African economic life derives from narrow markets which are an aspect of the low level of the local economy. In turn it impedes efficiency and retards economic progress. Thus it is both a symptom and a cause of the low standard of living.

This imperfect specialization and the importance of secondary activities carried on by members of the household greatly diminish the value and relevance of the conventional occupational classifications of statistical compilations. This fact has not been sufficiently recognized. Official reports and standard works state, for example, that five-sixths of the population is engaged in agriculture,¹ and they rarely mention trade among the lists of the economic activities of the population.² In fact, in many of these so-called agricultural households the head of the family trades part-time even during the normally short farming season, and more actively outside the season, whilst members of his family trade intermittently throughout the year. It is misleading to ignore these trading activities and to imply that the great bulk of the population is engaged in farming only.

The fluidity of activity extends to personal relations where they bear closely on economic life. A prominent African trader in Lagos, whose children are being educated at expensive residential schools and universities in Britain, told me that his wife was one of his principal customers, and that she bought goods from him both on cash and on credit terms. He did not consider this unusual; indeed, it is not so, as similar commercial relations exist between other prominent Africans and their wives and children. It is not unusual for wives to sue their husbands for commercial debts.

It is well known that many African doctors and lawyers have extensive trading interests. Government employees are also frequently part-time traders. Every servant or driver who worked for me on my two visits to Nigeria was either in trade or asked for my assistance in finding trading contacts for him. Many of these requests were simply advanced to obtain either free samples or else so-called short-supply goods at controlled prices for re-sale at easy and immediate profit. But at least one of my drivers, a full-time employee of a government department, displayed an excellent knowledge of market prices and of market conditions for provisions throughout southern Nigeria, and acted upon it.¹

Quite apart from this imperfect occupational specialization there is still widespread lack of specialization in trading operations both horizontally (by type of commodity handled) and vertically (by successive stages of distribution). These will be considered when the import trade comes to be reviewed.

3. THE LOW LEVEL OF PRODUCTIVE RESOURCES

West Africa is generally poor in disclosed and accessible natural economic resources, acquired capital and technical and administrative skills. It is preferable to speak of the low level of capital rather than of its scarcity. The comparative lack of local technical and administrative skill aggravates the effects of the scarcity of equipment; it is not lack of capital alone which retards development. For this reason indiscriminate import of capital, or even substantial capital accumulation in the hands of public organizations, alone would not necessarily improve the situation.

The African communities are very poor in acquired reserves of fertile soil, in accumulated plant, buildings, roads and railways, as well as in stocks of working capital and in liquid assets with which external capital can be obtained. Though the measurement of capital raises conceptual difficulties, it is quite easy to illustrate its low level in West Africa. Nigeria may be taken as an example. The territory has an area of approximately 372,000 sq. miles and a population of about 30 millions. The f.o.b. value of its exports is at present over £100 m. a year. Two of its major export crops originate in the north, 700–1000 miles from the sea. The bulk of the meat supply also comes from that area or even farther north. The volume of the shipborne cargo handled in the ports of Nigeria in 1949 was almost 2

m. tons. The capital equipment sustaining this very large trade is extremely small. At the end of 1949 the total track mileage of the Nigerian railway was 1900 miles. There were only 900 miles of bituminous roads in the country. There were about 11,000 commercial vehicles, almost one-half of which were over ten years old, and the poor roads and inadequate maintenance reduce their effectiveness. There were less than 900 telephone subscribers and about 8000 instruments.

The low level of fixed capital increases the working capital requirements of the economy by tying up large quantities of resources in the form of stocks and goods in transit. The large accumulation of unrailed groundnuts in Kano is well known, but it is only one instance of a general problem. Part of the Benue, the principal tributary of the Niger, is open for navigation during two months of the year only, and the annual requirements of the substantial hinterland of the upper Benue have to be transported within that short period. Considerable quantities of export produce are evacuated by the Benue, and if they are not shipped in time they may have to wait for almost another year before they can be removed. Similar difficulties also arise in the movement of palm produce from certain areas of the Eastern Provinces. In short, owing to the dearth of fixed capital much...

Table of contents

• Cover
• Halftitle
• Title
• Copyright
• Contents
• List of Tables
• List of Charts
• Preface
• Preface to the 1963 reissue
• Introduction. Scope and method of the study.
• Part 1: General Aspects of the West African Economies and of the Role of Trade
• Part 2: The Import Trade
• Part 3: Monopolistic and Competitive Influences in West African External Trade
• Part 4: The Export Trade
• Part 5: The Statutory Marketing Boards and Their Policies
• Part 6: The Economics of Marketing Reform
• Part 7: Internal Trade
• Appendices
• Index