Academic journal article Asian Social Science

A Comparison of Economic Performance of Emerging and Established Fishing Enterprises at Lake Kariba, Zimbabwe

Academic journal article Asian Social Science

A Comparison of Economic Performance of Emerging and Established Fishing Enterprises at Lake Kariba, Zimbabwe

Article excerpt

Abstract

This research compares the economic performance of established and new entrants in kapenta fishing industry at Kariba in Zimbabwe. The paper uses primary data to compare profitability, technical and marketing ecomonies of scale between established and emerging companies. The results show that both company types have positive net profit. Emerging companies with generally less fishing units have higher technical economies of scale than establsihed ones. Emerging companies use illegal fishing practices to catch more fish using less operating costs. The results show that established companies have higher marketing economies of scale largely because of contractual arrangements established overtime.

Keywords: economic, performance, kapenta, fishing, Zimbabwe, emerging and established company

1. Introduction

Lake Kariba was built in 1958 by damming the Zambezi River. The inland Lake was created as a strategy to alleviate shortages of electricity within the Rhodesia and Nyasaland Federation particularly for Southern Rhodesia (now Zimbabwe) and Northern Rhodesia (now Zambia). However, new secondary resource uses and activities ensued and one of the most thriving is the pelagic semi-industrialized fishing industry. The industry is based on the exploitation of Limnothrissa miodon, a fresh water sardine, locally known as Kapenta.

The fishery commenced in 1974 when Zimbabwe was under colonial rule. From the onset, the criteria used to allocate Kapenta fishing rights favoured white commercial farmers against the black peasant farmers. Thus prior to independence, established entrepreneurs built big Kapenta fishing companies some with a minimum of five fishing boats. At independence in 1980, the Government of Zimbabwe had a challenge of eliminating extreme inequalities generated by discriminatory regulations created during the colonial era (1890 to 1980) (Government of Zimbabwe, 1981). The government embarked on strategies designed to equitably redistribute access rights to the fishery and promote sustainable use of the resource. State redistributed access rights to the resource from established companies to emerging black entrepreneurs. Government preferred to broaden participation to a large number of applicants. New entrants were getting a fishing license that allowed them to use between 1 and 4 fishing vessels. However, despite the government's redistribution efforts, many established companies managed to remain with more than four fishing vessels. Majority of them are still operating as many as eleven fishing vessels. Although government redistributed access rights, it made no similar efforts to level off differences in experience and skills between small new entrants and the established companies. This paper uses business economic concepts to determine the difference in performance of emerging business enterprises when compared to the established ones.

2. Theoretical Framework

The short-term objective of all business ventures is to make sure that contribution margins (the amount remaining from sales after variable costs have been deducted) are exceeding operating costs (Nelson and Robinson 2009). To continue operating in the short run, a company is expected to earn positive contribution margins (Kaplan and Cooper 1998). The non-negative profit (or situation where all fixed costs are covered) is the pre-requisite for the long-term viability of any company. Companies with negative gross profit are clearly not viable, especially if this situation continues for some time. Fishing companies with positive operating profit but negative net profit may be undergoing temporary problems (for example, a bad fishing season) or living off their capital.

The concept of economies of scale is premised on the understanding that a large company is inherently more efficient than a smaller company (Burt & Sparks, 2003). In other words, average costs of producing one unit of goods decreases as the volume of productivity increases. …

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