Why There Is A Need For A Long-Term Investment Model In Ethiopia


In the last several years, a growing number of global apparel companies have begun having their products manufactured in Ethiopia. For these firms, Ethiopia has become the new low-wage frontier. The East African country now competes with Bangladesh, Vietnam and other South and East Asian nations for a share of the massive volume of global garment production. In this competition, Ethiopia has the dubious distinction of offering the lowest pay anywhere in the worldwide clothing supply chain—and that’s the main reason the big brands are drawn there.

But increasingly it has become clear that these firms need to invest more resources into Ethiopia both to make their make production profitable and sustainable over time, and to ensure that Ethiopians are better off because of their presence. Among the steps they will need to take are to increase wages, enhance training, and help provide housing and other basic necessities to the young women who come from around the country to work in the clothing factories. The challenge these firms face in Ethiopia is to balance the pressures to reduce the costs of production with the realization that to succeed over the longer term, they will need to invest more money.  This longer-term view is in tension with what many Wall Street investors and analysts are expecting them to do, driven in part by a mistaken understanding of directors’ legal duties to shareholders.

For the last half-century, most analysts and investors have embraced an antiquated investment model that focuses heavily on maximizing short-term shareholder returns. They have focused on these short-term returns at the expense of longer-term wealth creation for corporations and society at large. This focus took shape in the 1970s, when economist Milton Friedman and then others asserted that corporate CEOs are merely agents of shareholders, responsible for conducting business in accordance with shareholders’ core interest: maximizing stock prices. In an often-quoted 1970 article in The New York Times Magazine, Friedman wrote that corporate executives have a fiduciary duty to conduct business in accordance with the desires of shareholders, which he defined as making “as much money as possible while conforming to the basic rules of the society, both those embodied in law and those embodied in ethical custom.”

Since Friedman first articulated this rigid view almost 50 years ago, the negative consequences of his perspective have become more apparent. Wall Street’s preoccupation with short-term returns has led too many corporations, like the apparel firms in Ethiopia, to forgo the longer-term investments they need to create maximum societal wealth and to build sustainable business models. Instead, they are doubling down on cost-cutting measures and excessive share buybacks or simply declining to make needed internal investments. What results is a chronic failure to invest in the future and a global financial system that is leaving too many people behind.

One cause of this problem is the mistaken notion that corporate directors “duty of care” to their shareholders necessitates that they deliver maximum quarterly earnings. But, in Delaware, where over 60% of Fortune 500 companies are incorporated, the courts are increasingly clear that corporate directors need to be thinking about and maximizing long-term value for their shareholders. The Chief Justice of Delaware Supreme Court, Leo E. Strine, Jr., has advocated for a broader understanding of business’ role in society than that of the Friedman model, writing: “the generation of durable wealth for its stockholders through fundamentally sound economic activity, such as the sale of useful products and services, is the primary goal for the for-profit corporation.” Strine has highlighted the role investors have to play in encouraging this mindset, saying: “To foster sustainable economic growth, stockholders themselves must act like genuine investors, who are interested in the creation and preservation of long-term wealth, not short-term movements in stock price.”

And indeed, in the last decade, we have seen greater interest by a rapidly growing number of investors who wish to incorporate both longer-term horizons and a broader range of social considerations into their decision making.  Large public funds are at the vanguard of this trend as are a new generation of individual investors led by women and millennials who are looking to invest in businesses that deliver more than just “as much money as possible.” In 2017, Nobel Laureate Oliver Hart of Harvard and Chicago Booth’s Luigi Zingales published an article advancing this broader vision of shareholders’ desires, arguing: “A company’s ultimate shareholders are ordinary people who, in addition to caring about money, are also concerned about a myriad of ethical and social issues: They purchase electric cars to lower their carbon footprint; they buy free-range chicken or fair-trade coffee because they view this as the ethical—albeit more expensive—choice.” They conclude: “If consumers and owners of private companies take social factors into account and internalize externalities in their own behavior, why would they not want the public companies they invest in to do the same?”

This perspective is especially strong in Europe where the legal and economic landscape is much more open and where investors are routinely assessing company performance through a broader, longer-term lens. In recent years, some prominent U.S. business leaders also have begun to embrace this more expansive approach. Last June, two prominent leaders of the financial community, legendary investor Warren Buffett and Jamie Dimon, chairman and CEO of JPMorgan Chase, rejected what they termed “an unhealthy focus on short-term profits at the expense of long-term strategy, growth and sustainability.” Their admonition echoed the International Business Council of the World Economic Forum, which said in 2017 that “society is best served by corporations that have aligned their goals to serve the long-term goals of society.”

Still too many analysts, money managers and investors continue to focus on short-term growth, as measured by revenue. They pressure companies to shave pennies off production costs without paying sufficient attention to the longer-term costs associated with this model. The governance challenges these companies face, in Ethiopia and elsewhere, are indeed linked to the long-term goals of society. As they look to the future, company leaders will need to adopt a much more comprehensive model that will address the broader needs that workers face in a place like Ethiopia. But it will be difficult, if not impossible for them to take these actions if investors penalize them for incurring these near-term expenses.

Instead, institutional investors and asset managers should support companies that think proactively about their impacts on society and devise business models that will stand the test of time. In his letter to corporate CEOs earlier this year, Lawrence Fink, the CEO of the BlackRock investment management firm, presented a framework that should guide the apparel companies and those who invest in them: “Companies that fulfill their purpose and responsibilities to stakeholders reap rewards over the long-term,” Fink said, “Companies that ignore them stumble and fail. This dynamic is becoming increasingly apparent as the public holds companies to more exacting standards.”

The challenge now for BlackRock and other major corporate investors is to put these salutary words into practice, and to use their financial leverage in ways that persuade companies in the apparel sector, and other industries, to reexamine their business models and make the changes needed to turn their rhetoric into reality.

I am the Jerome Kohlberg professor of ethics and finance at NYU Stern School of Business and director of the Center for Business and Human Rights. I served in the Obama …


  1. የአሜሪካን ዲያስፖራ በተባበሩት መንግስታት ሰልፍ አድርገን መናገር አልብን:: ስለ ተመሳሳይ ጉዳዮች በቻያናም በሰልፍ እንኩዋን ባይሆን በተከታታይ በደብዳቤዎች ማሳሰብ አለብን ::
    ስቴት ዲፓርትመንት እና ዋይት ሃውስ ተመላልሰን ብቻ ሳይሆን የተባበሩት መንግስታት ኒው ዮርክ በብዛት ተመላልሰን ሰልፍ ማድረግ አለብን:: ደግሞም ከተቻለም በአለም ዙሪያ ባሉ የቻይና ኢምባሲዎች በብዛት ሰልፍ ማድረግ አለብን::

    International Covenant on Economic, Social and Cultural Rights (ICESCR) is a multilateral treaty adopted by the United Nations General Assembly on 16 December 1966 through GA. Resolution 2200A (XXI), and came in force from 3 January 1976.It commits its parties to work toward the granting of economic, social, and cultural rights(ESCR) to the Non-Self-Governing and Trust Territories and individuals, including labour rights and the right to health, the right to education, and the right to an adequate standard of living. As of September 2018, the Covenant has 169 parties. A further four countries, including the United States, have signed but not ratified the Covenant.
    The ICESCR (and its Optional Protocol) is part of the International Bill of Human Rights, along with the Universal Declaration of Human Rights (UDHR) and the International Covenant on Civil and Political Rights (ICCPR), including the latter’s first and second Optional Protocols.
    The Covenant is monitored by the UN Committee on Economic, Social and Cultural Rights.
    Also The right to food, and its non variations, is a human right protecting the right for people to feed themselves in dignity, implying that sufficient food is available, that people have the means to access it, and that it adequately meets the individual’s dietary needs.
    Currently in Ethiopia food is a Constitutional right , implicit in broader rights or as directive principle.

  2. Peace , law and order is the most important thing Ethiopia needs now but is unable to find , because in Ethiopia right now it is said four million people had been forcefully displaced from their homes in the last couple of years by by their farm animals and chickens being stolen from them.

    For peaceful countries such as Brazil beef and chicken export is a double digits 10 billion USD dollars a year foreign currency income generator.

    An estimated one million to seventeen million farm animals and also an estimated 10 million to 25 million chickens are said to be stolen from their owners during this recent forceful displacements. Grazing lands , chickens and other farm animals had been the main reason ethnicities had been fighting each other and many people ended up being forcefully displaced. If there was peace and rule of law, Ethiopia would have been able to be a number one beef and chicken exporter of the world by beating Brazil, currently Brazil exports BEEF AND CHICKEN AMOUNTING close to $10 BILLIONS DOLLARS (TEN BILLIONS USD) double digits USD billions of US dollars each year.

    Unfortunately Ethiopia is a failed state which cannot guarantee safety to it’s pastoralists, so Ethiopia is nowhere near Brazil in meat export and Ethiopians pastoralists has to leave their farms behind and slave themselves to these big factories at the industrial parks , go in exile to foreign lands or just simply die in their country of birth.

    If only there was at least one person who is dollar millionaire with ethnically Gedeo background , things would have been different for us Gedeo people with us arming ourselves and protecting our animals ourselves rather than hoping the Oromo government of Ethiopia will secure our animals for us.

    Gujis got many dollar millionaires but not us Gedeos.

  3. The habit of Infrastructure development is the most important habit Ethiopia needs.Unlike the Sudanese government where the city of Khartoum is expected to reach growth of being the 6th largest city in the world by the year 2100 with Khartoum’s population growth reaching up to 56 millions residents, the government of Ethiopia is aware Addis Ababa will be the 20th largest city in the world with a population of 35 millions residents by the year 2100. That’s why the Ethiopian government is currently working to build infrastructures in Addis Ababa. Even South Africa is developing Addis Ababa’s infrastructures so people don’t migrate to South Africa from Addis Ababa in search of infrastructures . Currently the foundation is being laid to build infrastructures that sustain the 242 millions of Ethiopians that call Ethiopia their home by the year 2100, within eighty years and a half years from now.

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