The contribution margin can be stated on a gross or per-unit basis. It represents the incremental money generated for each product/unit sold after deducting the variable portion of the firm’s costs.
The contribution margin is computed as the selling price per unit, minus the variable cost per unit. Also known as dollar contribution per unit, the measure indicates how a particular product contributes to the overall profit of the company.
Where to begin? How to proceed? Go or No-Go? When to stop? Without the answers to such questions, any project or activity design will be very ineffective indeed. Asking these questions is one thing, filling in the blanks and providing a roadmap to follow is another. Finally, we need to follow the roadmap to arrive where we want to be and find ways to review and adjust our course every now and then. Plan the journey first and then follow the plan is the principle to follow. Process flow is an important part of management and process flow design is an art by itself. Entire theories exist about process flow and many design programs have been developed to allow for efficiency, be it for the production of goods, decision making processes or for traffic for that matter. Point of departure however always is to know exactly what the desired end-product is and how to get there. The process of how to get from the beginning to the end is often described as the “black box” because very few people know the precise details of the production process. And yet, the way in which the process flow is designed will determine whether or not the process is efficient and leads to the desired results. Planning, technology and skills are critical aspects of effective and efficient process flow and it is here where we often fail. Ineffective planning leads to inefficient use or even waste of resources, including workers, materials, time and money, while sub standard technology and skills lead to poor quality. The combination of poor planning and sub-standard technology and skills is disastrous.
Process flow is about one phase of a certain process flowing smoothly into the next, like in a supply chain or in a value chain. A chain is as strong as its weakest link so if one link breaks, the entire process is disrupted as is seen for example when a mechanical problem of an aircraft results in the loss of its entire freight, which consisted of perishable goods destined to Europe and could not wait to be transported.
The construction industry provides another example of what happens when phases in the building process are not well planned and coordinated. I visited a real estate project the other day and while entering some of the nearly completed mansions, the results of inefficient planning and coordination can be noticed immediately. The walls are plastered and painted before the plumbing and electric wiring is completed. As a result, the plumbers and electricians begin breaking the walls again to do their part. It is clear, that covering up the damage thus done will not be as smooth as it was before, while large parts of the walls are covered with hand and finger prints left behind by the workers. An additional paint job needs to be done as a result. The painters in their turn fail to free the electricity sockets while painting the walls, leaving the sockets full of spilled paint. I could go on, but the point is that a lot of time, material and money is lost unnecessary.
Now, I am no expert in farming, but I guess there is room for improvement in the production processes here as well. We are over hundred million people now, who all need to eat. The farming techniques of years ago will thus not be sufficient anymore calling for a change in planning and techniques, which need to result in more production per acre of land. Early preparation of the land and modern intensive farming techniques will help and planning-ahead is essential. And once you have a good plan, it is possible to make adjustments on the way, as the plan would include assumptions, risks and ways to mitigate those risks.
I’d like to challenge the reader to take a look at his or her own business and especially into the critical process flows of the business. Try and answer the following questions:
Now begin to plan for improvements and make the black box transparent.
Ton Haverkort
This will conclude my series of articles that began outlining the critical pillars for the Ethiopian Capital market to thrive (the ecosystem approach), now this as a final piece I discuss the importance of investor protection and broader challenges in sub–Saharan Africa and how investor protection enhances economic growth and broader participation and financial inclusion.
Investor protection in the capital markets context refers to the measures and regulations designed to safeguard investors’ interests and ensure fair, transparent, and efficient markets. Investor protection measures vary at across countries.
Efforts to safeguard investments are evident across international, regional, and domestic levels, with several initiatives and treaties aimed at providing protections for foreign investors and their investments. For instance, Investor protection in Sub-Saharan Africa has been a focus of development and improvement in recent years. As of October 2022, there were 525 Bilateral Investment Treaties (BITs) with African countries, including almost 50 intra-African BITs, which set out a number of protections in favour of foreign investors and there are more than 30 multilateral treaties with investment protections, such as the COMESA Treaty, the OIC Investment Agreement, and the ECOWAS Supplementary Act for Common Investment Rules.
In addition, almost 50 African states have adopted Foreign Investment Laws (FILs) which provide substantive protections for foreign investors, like the guarantee of fair and equitable treatment, national treatment, and protections from expropriation. In recent years countries that have promoted political and macroeconomic stability and implemented essential structural reforms have begun to attract long-term investment flows. Despite the clear potential for solid returns over the long run, long- term investment flows have not kept pace with the region’s potential. While these efforts indicate a commitment to improving investor protection, challenges remain. The actual levels of long-term investment have remained modest compared to the potential, suggesting that there is still room for growth and enhancement in investor protection mechanisms in Sub-Saharan Africa. The region’s economic landscape is changing, with rapid urbanization, technology absorption, and a growing labour force, which presents both opportunities and challenges for investment protection and attraction.
It is fair to say, investor protection in Sub-Saharan Africa faces several specific challenges that can affect the confidence and activities of investors in the region. The main challenge remains Political risks, as they can lead to abrupt changes in investment policies or even expropriation of assets. There are inherent weaknesses in regulatory and institutional frameworks can lead to low liquidity in stock markets and hinder the development of a robust investment environment and discourages retail investors to take investment risks. Concerns about the legal framework, particularly regarding Independent Power Producers (IPPs) (private entities that generate electricity for sale) access to market, permitting, and land issues, can create uncertainty for investors.
Investor protection is a shared responsibility among various stakeholders in the capital markets. As an overarching principle government enacts legislation that provides the framework for regulation and enforcement. It also establishes regulatory agencies and endows them with the authority to protect investors. These could be Exchanges and Self-Regulatory Organizations (SROs): Stock exchanges and SROs have their own set of rules and regulations designed to protect investors. They
monitor the market, oversee the conduct of their members, and can take disciplinary actions when necessary. For instance, in Kenya, the primary responsibility for protecting investors lies with the Capital Markets Authority (CMA). The CMA is tasked with regulating and overseeing the Capital Markets to ensure transparency, fairness, and efficiency. In more advanced economy like Australia, investor protection is primarily the responsibility of the Australian Securities and Investments Commission (ASIC). ASIC oversees business conduct and consumer protection in financial markets. There are additional government statutory bodies like the Australian Prudential Authority (APRA) that supervises deposit-taking institutions, insurance companies, and pension funds, ensuring their financial soundness and protecting the interests of depositors and policyholders. In addition, apart from the government the Australian Shareholders’ Association (ASA) plays a crucial role in advocating for the rights and interests of retail shareholders through policy advocacy, education. Corporate monitoring and, community building.
To enable investor protections Financial Service Providers: Banks, brokers, and investment advisors must adhere to strict fiduciary duties and act in the best interests of their clients. They are responsible for providing accurate information and suitable investment advice. Similarly, Companies that issue securities are responsible for providing truthful and complete information about their financial status, business operations, and risks involved in their securities. Further professional service provides (auditors and accounting firms) are responsible for verifying the financial statements of companies, ensuring that the information provided to investors is accurate and conforms to accounting standards. Lastly Investors themselves also have a role to play in protecting their own interests (similar to the Australian Shareholders Association). They should conduct due diligence, stay informed, and be aware of the risks associated with investing.
Investor protection is a key factor in increasing investor participation and stimulating economic activity. Strong investor protection laws and regulations build confidence among investors. When investors are confident that their rights are protected and that there is a lower risk of fraud or mismanagement, they are more likely to invest. This increased participation can lead to a more dynamic market with a greater variety of investment products and services. Furthermore, effective investor protection measures help mitigate risks associated with investing. This includes the risk of losing money due to company bankruptcy, fraud, or market manipulation. When these risks are reduced, more individuals and institutions are willing to invest, leading to increased capital inflows.
The added benefit of Investor protection contributes to market efficiency by ensuring that all participants have access to reliable and timely information. This transparency allows investors to make better-informed decisions, which in turn leads to more efficient pricing of securities and allocation of resources.
The cumulative effect of strong investor protection is . it increases investor participation. So does the availability of capital for businesses. This capital can be used for expansion, research and development, and other activities that contribute to economic growth. A well-functioning capital market is essential for economic development, as it facilitates the transfer of funds from savers to those who can invest them productively. By encouraging a broader base of investors, investor protection helps to distribute risk more widely across the economy. This diversification can contribute to financial stability, as the impact of a downturn in any one sector or asset class is less likely to have a systemic effect. We have seen time and again, countries with strong investor protections are more attractive to foreign investors. This integration into global financial markets can lead to an influx of foreign capital, which can be a significant driver of economic activity
Finally, with better protection, investors are more likely to fund startups and innovative projects that could be too risky without such safeguards. This fosters an environment of entrepreneurship and innovation, which is vital for economic progress.
In summary, investor protection is fundamental to creating a conducive environment for investment, which is a precursor to increased investor participation and enhanced economic activity. It helps to establish a virtuous cycle where secure investments lead to more investments, driving economic
growth and prosperity.
Mengistu Weldemariam is Senior consultant in business and finance. He was previously a lecturer in corporate finance and accounting and currently works in consumer and investor protection. – Senior Program Manager. He can be reached via weldemariammengistu@gmail.com
A number of official reports indicates that Genetically Modified Organisms (GMOs) are not essential for feeding the world, but if they were to lead to increased productivity, did not harm the environment and did not negatively impact biodiversity and human health. The fact is that GMO technology would still be owned and controlled by certain very powerful interests. Several scholars strongly argued that, in their hands, this technology is first and foremost an instrument of corporate power, a tool to ensure profit.
Professor Michael Hudson, a well known American Professor in International Economic Relations argued that, American foreign policy has almost always been based on agricultural exports, not on industrial exports as people might think. It’s by agriculture and control of the food supply that American diplomacy has been able to control most of the Third World. Professor Michael Hudson further noted that the Project for a New American Century and the Wolfowitz Doctrine show that United States foreign policy is about power, control and ensuring global supremacy at any cost, and part of the plan for attaining world domination rests on the United States controlling agriculture and hijacking food sovereignty and nations’ food security.
In his book ‘Seeds of Destruction’, William Engdahl traces how the oil-rich Rockefeller family translated its massive wealth into political clout and set out to capture agriculture in the United States and then globally via the ‘green revolution’. GMOs represent more of the same due to the patenting and the increasing monopolisation of seeds by a handful of mainly United States companies, such as Monsanto, DuPont and Bayer.
Findings of a report by researchers at Cambridge University in the UK indicated that in India, Monsanto has sucked millions from agriculture in recent years via royalties, and farmers have been compelled to spend beyond their means to purchase seeds and chemical inputs. The report also indicated that a combination of debt, economic liberalization and a shift to GMO cash crops such as cotton, has caused hundreds of thousands of farmers to experience economic distress, while corporations have extracted huge profits. BBC reported by quoting an official figures as of 2013 that over 270,000 farmers in India have committed suicide since the mid to late nineties.
Agriculture is the bedrock of many societies, yet it is being recast for the benefit of rich agritech, retail and food processing concerns. Official report released by GRAIN recently stated that small farms are under immense pressure and food security is being undermined, not least because the small farm produces most of the world’s food. Whether through land grabs and takeovers, the production of non-food cash crops for export, greater chemical inputs or seed patenting and the eradication of seed sharing among farmers, profits are guaranteed for agritech corporations and institutional land investors.
Vandana Shiva, a noted Indian social activist argued that the dominant notions that underpin economic ‘growth’, modern agriculture and ‘development’ are based on a series of assumption that betray a mindset steeped in arrogance and contempt: the planet should be cast in an urban-centic, ethnocentric model whereby the rural is to be looked down on, nature must be dominated, farmers are a problem to be removed from the land and traditional ways are backward and in need of remedy.
She stated that Western corporations are to implement the remedy by determining policies at the World Trade Organization, IMF and World Bank with help from compliant politicians and officials, in order to depopulate rural areas and drive folk to live in cities to then strive for a totally unsustainable, undeliverable, environment-destroying, conflict-driving, consumerist version of the American Dream.
According to Vandana Shiva, it is interesting and disturbing to note that ‘developing’ nations account for more than 80% of world population, but consume only about a third of the world’s energy. United States citizens constitute 5% of the world’s population, but consume 24% of the world’s energy. On average, one American consumes as much energy as two Japanese, six Mexicans, 13 Chinese, 31 Indians, 128 Bangladeshis, 307 Tanzanians and 370 Ethiopians.
Professor Arundhati Roy of Indonesia stated that despite the environmental and social devastation caused, the outcome is regarded as successful just because business interests that benefit from this point to a growth in GDP. Chopping down an entire forest that people had made a living sustainably from for centuries and selling the timber, selling more poisons to spray on soil or selling pharmaceuticals to address the health impacts of the petrochemical food production model would indeed increase GDP. It’s all good for business. And what is good for business is good for everyone else, or so the lie goes.
Food policy analyst Devinder Sharma adamantly argued that the ‘green revolution’ and now GMOs are ultimately not concerned with feeding the world, securing well-rounded nutritious diets or ensuring health and environmental safety. Biotechnological innovations have always had a role to play in improving agriculture, but the post-1945 model of agriculture has been driven by powerful corporations like Monsanto, which are firmly linked to Pentagon and Wall Street interests. Motivated by self-interest but wrapped up in trendy PR about ‘feeding the world’ or imposing austerity to ensure prosperity, the publicly stated intentions of the United States state-corporate cabal should never be taken at face value.
Devinder Sharma further noted that, in India, Monsanto and Walmart had a major role in drawing up the Knowledge Initiative on Agriculture. Monsanto now funds research in public institutions and its presence and influence compromises what should in fact be independent decision and policy making bodies. According to Devinder Sharma, Monsanto is a driving force behind what could eventually lead to the restructuring and subjugation of India by the United States. The IMF and Monsanto are also working to ensure Ukraine’s subservience to United States geopolitical aims via the capture of land and agriculture.
William Engdahl in the above mentioned book stated that only the completely naive would believe that rich institutional investors in land and big agribusiness and its backers in the United States State Department have humanity’s interests at heart. At the very least, their collective aim is profit. Beyond that and to facilitate it, the need to secure United States global hegemony is paramount.
According to William Engdahl, the science surrounding GMOs is becoming increasingly politicized and bogged down in detailed arguments about whose methodologies, results, conclusions and science show what and why. The bigger picture however is often in danger of being overlooked. GMO is not just about ‘science’. As an issue, GMO and the chemical-industrial model it is linked to is ultimately a geopolitical one driven by power and profit.
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