Compensatory trade is the movement of goods between parties to a transaction designed to mitigate hard currency deficiencies and ensure that the flow of goods between the parties is as close to balance as feasible. African Trade Group is a capable engineer and manager of compensatory trade arrangements.
There are numerous transactions under the umbrella of the techniques of compensatory trade. However, the followingtechniques are extremely important in the prevailing trade and economic conditions in African countries.
Offset is a transaction in which the beneficiary of a purchase agreement is required to create business investments equal in value to a pre-determined and agreed proportion of the original purchase. The technique is very helpful to countries and governments. It enables them to reduce the domestic or hard currency impact of a purchase by introducing investments that create jobs and improve areas of critical importance to the economy.
This is a transaction in which the payment for foreign inputs is made through the re-supply of the resultant products form the business created by the inputs. For instance a plant for manufacturing clothing can be developed on the basis of payment being made through a contract to supply the products from the plant back to the supplier of the foreign inputs.
Evidence Accounts trade is an umbrella trade agreement engineered as an agreement between one or more countries (participation is unlimited and only dependent on the ability of the managing authority) similar to a trading cooperative. It is one in which companies in the participating countries trade with each other while maintaining a ledger system to track the credits and debits due to the participants. It is designed to facilitate a smooth flow of trade between the members with a stipulated time frame for balancing accounts. Individual trade transactions do not need to be offset by counter deliveries, but total transactions at the end of specified periods per the terms of the agreement have to be balanced. Evidence Accounts transactions are monitored by financial institutions, one in each country. The designated manager and the financial institutions in each country are responsible for processing all documentation.
Counter-purchase is a trade arrangement that requires that both sides buy for each other simultaneously. The value of each purchase doesn’t have to match but has to be significantly offset the monetary value of first purchase. Both transactions are usually paid in cash independent of the other transaction.
A barter transaction is a goods for goods exchange in which value is not compensated for in cash but rather in compensatory goods. Both sides agree to exchange pre-set quantities of each side’s products for the other.