Profit Maximisation in Zimbabwe
PROFIT MAXIMISATION IN ZIMBABWE
The traditional economist’s view is that firms are profit maximizes, with each decision based on the need to maximize profits (Griffiths and Wall, 2005). Although the assumption of profit maximization has come under repeated criticism, it still remains relevant to the Zimbabwean firm today irrespective of size. To begin with, a profit objective is often the principal reason for the original formation of the smaller companies, the majority of which are under the direct control of the owner. For the larger firms other objectives such as turnover, market share, growth and the influence of agents who manage them, shift attention from profit maximization. Nevertheless, for both types of firms profit remains an important objective because:
(i) It provides rewards for stakeholders
Even though companies have different rates of payment or retention of dividends, declared dividend still remains an incentive for large companies like OK, Econet and Old Mutual to make profit. Profits also allow companies to increase salaries especially for management who often have profit sharing agreements in their contracts. When companies make profit, it’s easier for them to offer better products to the consumer for example promotions, discounts and competitions.
(ii) It ensures long-term survival of the business
Given the unstable political, and economic environment in Zimbabwe firms which focus on other objectives other than maximizing profit may not survive in the long run. The Indigenization and Economic Empowerment +
/--Act of 2007, which stipulates that at least 51% of the shares of foreign companies should be -**7-*7-*owned by indigenous Zimbabweans, clearly deters further investment for companies like the Zimplats and their incentive to continue operations under such legislation is to amass as much profit as possible. Lack of respect for property rights for example in the Agriculture industry where some white farmers literally lost
The traditional economist’s view is that firms are profit maximizes, with each decision based on the need to maximize profits (Griffiths and Wall, 2005). Although the assumption of profit maximization has come under repeated criticism, it still remains relevant to the Zimbabwean firm today irrespective of size. To begin with, a profit objective is often the principal reason for the original formation of the smaller companies, the majority of which are under the direct control of the owner. For the larger firms other objectives such as turnover, market share, growth and the influence of agents who manage them, shift attention from profit maximization. Nevertheless, for both types of firms profit remains an important objective because:
(i) It provides rewards for stakeholders
Even though companies have different rates of payment or retention of dividends, declared dividend still remains an incentive for large companies like OK, Econet and Old Mutual to make profit. Profits also allow companies to increase salaries especially for management who often have profit sharing agreements in their contracts. When companies make profit, it’s easier for them to offer better products to the consumer for example promotions, discounts and competitions.
(ii) It ensures long-term survival of the business
Given the unstable political, and economic environment in Zimbabwe firms which focus on other objectives other than maximizing profit may not survive in the long run. The Indigenization and Economic Empowerment +
/--Act of 2007, which stipulates that at least 51% of the shares of foreign companies should be -**7-*7-*owned by indigenous Zimbabweans, clearly deters further investment for companies like the Zimplats and their incentive to continue operations under such legislation is to amass as much profit as possible. Lack of respect for property rights for example in the Agriculture industry where some white farmers literally lost
References: 1. Griffiths, A. and Wall, S. (2005): Economics for Business and Management, 1st Edition, Prentice Hall, London. 2. Indigenization and Economic Empowerment Act, 2007, [Chapter 14:33]. 3. Mankiw, G. N. (2004): Principles of Economics, 3rd Edition, Harvard University Press, USA.