Aids to trade: removing the hindrances to trade: WASSCE Commerce

A cocoa farmer in Kailahun and a chocolate maker in Europe will never meet. Between them lie hundreds of kilometres, months of waiting, risks of loss, the need for money and the need for information. Each of these is a hindrance to trade, and each is removed by an aid to trade. This lesson explains how.

Learning objectives

By the end of this lesson you should be able to:

define aids to trade and the hindrances to trade
explain how each aid to trade removes a hindrance
explain the importance of aids to trade to commerce and to Sierra Leone

Hindrances to trade

Definition

A hindrance to trade is anything that makes it difficult for goods to pass from producers to consumers. Aids to trade are the services that remove these hindrances, so that trade can take place smoothly.

Six hindrances to trade, each linked to the aid that removes it: distance by transport, time by warehousing, risk of loss by insurance, lack of finance by banking, lack of information by advertising, and traders far apart by communication

Figure 1. Each aid to trade removes a hindrance. WASSCE Tutor diagram.

How each aid helps trade

1. Transport: the hindrance of place (distance)

Goods are produced in one place and wanted in another. Transport moves raw materials to factories and finished goods to markets and consumers by road, rail, water, air and pipeline.

It widens the market, so producers can sell beyond their own area.
It makes goods available where they are needed (place utility).
It helps to even out prices between areas of surplus and shortage.

2. Warehousing: the hindrance of time

Many goods are produced at one time and consumed over a longer period (rice is harvested once or twice a year but eaten every day), or produced continuously for seasonal demand. Warehousing stores goods until they are needed.

It ensures a steady supply all year round (time utility).
It helps to stabilise prices by releasing stock when supply is short.
It protects goods from damage, theft and the weather.

3. Insurance: the hindrance of risk

Goods and business property can be lost through fire, theft, accident, flood or loss at sea. Insurance spreads the risk: many people pay small premiums into a fund that compensates the few who suffer losses.

Traders and transporters can operate with confidence.
Banks are more willing to lend against insured goods and property.

4. Banking: the hindrance of finance and payment

Traders need money to buy stock, and they need safe ways to pay and be paid. Banks provide:

loans and overdrafts to finance trade
safe means of payment: cheques, transfers, cards, mobile banking
safe keeping of money and valuables
services for foreign trade: letters of credit and foreign exchange

5. Advertising: the hindrance of ignorance (lack of information)

Consumers cannot buy what they do not know exists. Advertising informs and persuades buyers about goods, prices and where to buy them.

It creates and increases demand.
It introduces new products and helps firms reach new markets.

6. Communication: the hindrance of distance between traders

Buyers and sellers must exchange information: enquiries, orders, prices, delivery dates and payments. Communication (telephone, letters, email, SMS, the internet, courier) makes this possible without travelling.

It speeds up business and lowers its cost.
It links traders across the country and the world.

Common mistake

Do not mix up the hindrances. Transport removes the hindrance of place (distance between producer and consumer); communication removes the hindrance of distance between traders who need to exchange information. They are different aids.

The importance of aids to trade

Importance	Explanation
Make trade possible	Without them, goods could not move easily from producers to consumers
Widen markets	Producers can sell to distant buyers, at home and abroad
Encourage specialisation and large-scale production	Firms can rely on supplies, finance and markets
Create employment	Drivers, bank staff, insurers, warehouse workers, advertisers, telecom workers
Stabilise prices and supplies	Warehousing and transport move goods from surplus to shortage
Raise living standards	Consumers get a wide variety of goods all year round
Earn revenue	Governments tax transport, telecoms, banking and insurance services

Worked example

Which aid to trade is most needed? Identify the aid for each problem.

Problem	Aid
Tomatoes from Bo rot before they reach Freetown markets	Transport (faster lorries, better roads) and cold storage (warehousing)
A shopkeeper wants to buy stock but has no cash	Banking (a loan or overdraft)
A trader fears a fire could destroy her shop	Insurance
A new soap brand is not selling because no one has heard of it	Advertising
An importer needs to confirm prices with a supplier in China	Communication

In Sierra Leone

Sierra Leone's aids to trade include the Queen Elizabeth II Quay in Freetown and the international airport at Lungi (transport), mobile networks such as Orange, Africell and Qcell (communication), commercial banks and mobile money (banking), insurance companies supervised by the Sierra Leone Insurance Commission (insurance), cold stores and warehouses (warehousing), and radio, billboards and social media (advertising).

Key points

Hindrances to trade: place, time, risk, finance, ignorance and distance between traders.
Aids to trade: transport, warehousing, insurance, banking, advertising and communication remove them.
Aids to trade widen markets, encourage specialisation, create jobs, stabilise prices and raise living standards.

WASSCE examination focus

WAEC tests this

A favourite question: "Explain how each of the aids to trade helps commerce" or "name the hindrance removed by each aid". Write each aid as a heading, name the hindrance it removes, then give one or two specific ways it helps, with an example.

Quick check

Which hindrance does insurance remove?
How does warehousing create time utility?
Give two ways banks help traders.
Why is advertising called an aid to trade?

Answers: 1. The hindrance of risk. 2. It stores goods until they are needed, so they are available when consumers want them. 3. Any two: loans and overdrafts, safe means of payment, safe keeping, foreign exchange and letters of credit. 4. It removes ignorance by informing buyers about goods, so it creates and increases demand.

Aids to trade: removing the hindrances to trade