Businessafrica.net Newsletter ISSN 1563-4108
Dr. QUENUM & ASSOCIATES
INVESTMENT AND BUSINESS PLANNERS
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WE TAKE CARE OF
BUSINESS IN AFRICA™
ECONOMIC ANALYSIS

TRUE CAUSES BEHIND THE COLLAPSE
OF MOZAMBIQUE'S CASHEW NUT INDUSTRY

(Part 3 )
TO SURVIVE AND THRIVE
IN THE CUTTHROAT COMPETITION OF THE MARKETPLACE
A
COMPANY NEEDS A SEASONED FINANCIAL MANAGER


This delivery is the continuation to these preliminaries
It is also a continuation to:
"Strategy for an African Country"

© Copyright Dr. B.M. QUENUM All rights reserved
SYNOPSIS


In Part 2 of this series titled:
"Case-study: Evaluation of a Feasibility Study On the Transition From Raw Nut Selling to Finished Products Marketing" we reached the conclusion that the collapse of Mozambique's cashew nut industry as per May 2001 is the result of the combination of the following:

- Wrong economic recommendations made by the IMF and the World Bank to the Mozambique's authorities.
Click here for more.
- Bad management decisions made for the operation of Mozambique's cashew nut industrial plants.
Click here for more.
- Bad follow-up by Mozambique's authorities who do not get proper economic feedback from the processing plants' management.


The management of the Mozambique's cashew nut processing units, however, is more accountable for the collapse of the industry.
For lack of a sufficient financial analysis of the industrial operations

In this final delivery of the series (1 - 2 - 3) on the collapse of Mozambique's cashew nut industry, the importance of the presence of a seasoned Financial Manager in the organization chart of a company dealing in the commodities business is highlighted. His contributions to profit making economic decisions are discussed.

Financial Manager's Importance / Conclusions

Less than 10% annual growth rate?

PART - 1
CONTINUATION PART - 2
FREQUENTLY ASKED QUESTIONS

IMPORTANCE OF THE FINANCIAL MANAGER'S CONTRIBUTIONS

To find out the real causes behind the collapsing Mozambique's cashew nut industry as per May 2001 we considered in two previous parts of the current delivery:

- The global market and pricing structure of Cashew nut Click here for more.
- The accuracy and soundness of the proposals and recommendations made by an engineering company for the transition of the cashew nut industry of a African country from raw nut selling to finished products marketing.
Click here for more.

Now, based on the findings revealed in these preliminaries, we can move a step further to demonstrating the importance of a Financial Manager's contributions for the success, prosperity and survival of a company in the cutthroat competition of the marketplace whatever may be the line of business considered.

Sure, any department manager in a company's administrative chart is important. The outputs and inputs coming from all managerial positions contribute to efficient decision making process in the company. However some managers' contributions are more crucial; namely the Head of Sales and the financial manager ones.

The Head of Sales is responsible for the sales of company's production and services. If there is no sales, there is no revenues, no cash-flow and the company is heading for financial disaster and bankruptcy.

If the production level is not sufficient; or if product quality is not competitive; if production costs are too high and therefore selling prices non competitive on the marketplace, the Head of Sales, in spite of all his efforts and dedication, cannot make miracles. He will sell nada in spite of his selling stamina.

- We are then confronted with the problem of who, at management level, is capable of better accessing and analyzing production costs. Who better assists the company in deciding for the best selling price for the production in order to be a winning competitor on the marketplace.

The Head of Sales provides data and relevant information on competitors' pricing. But is that enough? Is knowing competition prices enough for the company to produce at less cost and beat the competition? Is selling cheaper than the competition sufficient to assure revenues and a profitable bottom line. We have seen already that all that is not enough

Implementing a systematic discounting policy may just send the company - sooner or later - crashing against the wall of bankruptcy.

Sure, a dumping policy staged by a company, which assumes the leadership in its economic sector may help that company - with a deep safety cash net and hefty cash flow - destroy and eliminate competitors from the marketplace.

African commercial and industrial companies are not financially strong enough to using such a bulldozer' strategy. In the contrary they are often cash hungry and on tight financial ropes. Particularly those involved in commodities trading or processing. Their revenues heavily depend on the highs and lows fluctuations of the international selling prices of their products. Dramatic fluctuations on which they have absolutely no say as decision-centers are a continent away in Paris, London, Chicago, Singapore. Etc. Sometimes a minor nose dive of the international selling prices of tropical mineral or agricultural commodities triggers painful tightening of belt or final closing of shops.

- It is then an absolute necessity for any company involved in commodities trading and which objective is to beef up its bottom line to know exactly its production costs.

That is where the financial manager's contribution is paramount.

The critical analysis of the feasibility study drafted by an engineering company for the transition of an African country's cashew nut industry from raw nut selling to finished products marketing revealed important economic and operational facts, which are alternatives to the recommendations made (by the engineering company) for the settlement of the industry.

If the management of a company takes these recommendations on good faith and relies on data and inputs of such kind of feasibility study to take investment decisions it is surely heading sooner or later for financial disaster.

An additional screening of these facts, data and recommendations by a competent financial manager would have disclosed hidden and vital economic data and information.

The financial manager would have been therefore in the position to providing the company's decision making body with an accurate and documented financial control panel. Investment decisions would have been more elaborated and profit making oriented. The right selling price of the production would have been setup and therefore the company would have competed more efficiently on the local and international marketplaces.

- With the efficient and vital job performed by the financial manager, the company would have been in good position:

-1- To better plan its investment. It would have opted for Alternative N° 2 - that is to say not to invest heavily as advocated by the feasibility study but instead postpone the purchase of the second processing line. That way:

- The drain on scarce and vital financial resources would have been less drastic.

- Repayment of loan principal and interest service less important.

- More funds would have been available for commercial marketing Etc.

-2- The company would have had a better organized production shift. And therefore be in the position to:

- To adjust the selling prices of its products.

- To sell either non processed raw material or finished value added products.

- Or even balance the proportion of raw material and processed products to be sold on the marketplaces in accordance with the international selling prices of these commodities. Etc.


- 3 - And always achieve a profitable bottom line or at least limit losses to the bearable.

These above mentioned observations clearly show the importance for any company - particularly for a company dealing in highly and volatile competitive business - to have a good financial management system; forecasted prospective plans and a constantly updated Business Plan.

- With a good Business Plan in hands, a company - whatever maybe its line of business - have more chance to survive in the cutthroat competition atmosphere prevailing in today business world; where only those prepared and equipped to tackle the tinniest detail linked to their production costs are sure to survive and thrive in prosperity.

- You say that all that is obvious? No need to make so much fuss about it?

Yes good financial management theory and practice are taught at all business schools. However it is not effectively implemented by managers particularly in African countries. That way of managing companies without proper and frequently revised and updated financial tools is one of the fundamental reason why all industrialization efforts had not yielded good results in most of sub-Saharan African countries.

- Just one anecdote to make you fully realize what we are talking about.

When Yves-Michel Fosto, Cameroon's business tycoon, was appointed by Cameroon's government to take over the driving seat of CAMAIR - Cameroon Airlines; the national flag carrier - to avoid its foreseen crash and total disintegration, he found himself sitting in the cockpit without any control system.

You won't believe it! The cockpit was completely without navigation instruments. CAMAIR was flying since years (five actually) without "security tools". That is to say not a single balance sheet had been established for five years running. Yves-Michel Fosto is now doing the good and painful job of having all backlog of financial data in order. He had till now, despite a lot of banana slips, live up to his reputation of efficient manager and performed a good job. He will certainly avoid the crash.

- CAMAIR is not peculiar in Africa's industrial landscape.

Many African countries public companies had been carelessly managed during 1965-1990's period as CAMAIR was before the arrival of Yves-Michel Fosto. Hence the financial and budgetary difficulties experienced by African government, which triggered the controversial interventions of IMF and World Bank Structural Adjustment Program throughout the continent.

CONCLUSIONS

After a thorough review of the cashew nut industry - worldwide production level, pricing structure - and the analysis of a case study - the transition from raw nut selling to finished products marketing - we reached the conclusion that the IMF and the World Bank cannot be the only entities to be blamed for the collapse of Mozambique's cashew nut industry as per May 2001.

- We would be delighted to reviewing the famous Secret Report these institutions waived in front of Mozambique's authorities to pressure for the devastating policy of integrally selling raw nut on the marketplace instead of processed finished cashew almond.

Does that Secret Report covered the price comparison between raw nut and finished products? Does that report envisaged investment to improving productivity in the existing processing plants? Does that report made management and organizational recommendations to increasing production and management efficiency? As we exposed here? Yes? Then the IMF and the World Bank can be considered guilty for withholding vital information from Mozambique's authorities just to enforce their credo of strict free entrepreneurship or liberalism. No? Then the IMF and the World Bank can be considered guilty for blatant incompetence.

- One way or another the IMF and the World Bank shot in the air the goose that is the second budgetary hard currency provider to Mozambique's national budget. The least these institutions can do now to correct their mistake is to provide substantial funds to Mozambique to rejuvenating and boosting up the cashew nut industry.

- To a certain extent, Mozambique's authorities also are guilty for blindly accepting the IMF and the World Bank's wrong recommendations to sell raw nut instead of processed products to the marketplace. They should have made alternative propositions to salvage their vital cashew nut industry. The lack of economic data and feedback between the then public companies in charge of the cashew nut industry and the Mozambique's authorities proved to be suicidal.

- The management of the then public companies operating the cashew nut industry is the guiltiest. They performed poorly; and, certainly like CAMAIR - before Yves-Michel Fosto's management era - managed without proper financial tools.

Most of the time, in Africa, particularly during the 1965-1990's period, management positions were granted to non trained people. No job description drafted; and hierarchical positioning of staff member not clearly defined, which also contributed to the mismanagement of many industrial concerns throughout Africa; and certainly helped dragging down the cashew nut industry in Mozambique to the dramatic standstill as per May 2001.

This political game of appointing (or should we say squeezing) the wrong person into the bad position is frequent and persisting in many African countries, and is one of the main reason of the failure of the industrialization policies undertaken throughout the continent.

© Dr. B.M. QUENUM
Investment and Business Planner
Click here for Part -2 and here for Part 1
2001 Dr. Bienvenu-Magloire Quenum. All rights reserved
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