Benin imports are more than it exports. The country should devise ways of increasing its exports and avoid excessive reliance on imports. The majority of its industries are young, and countries export a lot of unprocessed raw materials. The young industries cannot produce goods at low cost and compete with large firms of industrializing countries in the international market. Besides, unprocessed goods are sold at a relatively low price (International trade centre 1).
The government should be more involved in the trade to ensure value addition to its exports. The government should start industries that process cotton and other raw materials. Besides, it should offer incentives to private sector to start firms that process these raw materials. The popular incentives that can encourage private investors are low tax rates and cheap government loans. The value addition will enable the country to sell its output at a high price (Lipsey 20).
The government should subsidize the young domestic industries for them compete successfully in the international market. This subsides reduce the firms' cost of production and enables them to sell output at a low price. The low price of output will increase demand for the countries products abroad. It will also encourage local consumers to opt for locally produced commodities and reduce dependence on imports. To avoid long run dependency on government subsidies firms should only be allowed to enjoy the subsidies for a given period. Besides, to qualify for the subsidies, firms should prove that they will be able to operate efficiently at the end of the proposed period. To meet the second requirement, a firm will be required to use the most efficient machinery and train its labor force on best ways of production. The training of labor force should be carried out in government industrial training centers (Lipsey 22).
According to WTO (1), export promotion is the best way the country can use to improve its terms of trade. This is because the country has adopted a free trade policy. This policy discourages the use of protectionist policies like imposing excessive quotas and tariffs on imports.
Work Cited
International trade centre. "Export Impact For Good." Benin. N.p., 2016. Web. 02 Feb. 2017. <http://www.intracen.org/country/benin/>.
Lipsey, Richard G. Macro economics. Place of publication not identified: Addison-Wesley, 2007. Print.
WTO. "WORLD TRADE ORGANIZATION." WTO | Trade policy review - Benin 1997. N.p., 2016. Web. 02 Feb. 2017. <https://www.wto.org/english/tratop_e/tpr_e/tp59_e.htm>.
