Recommendations

The first step in the process of crafting and outlining solution strategies or recommendations to the fishing sector requires taking note of the fact that some factors are, theoretically, less controlled by or out of control of the fisheries managers. Two categories of risk factors exist to the problem, that is, systematic and idiosyncratic risk factors. Idiosyncratic risk can be substantially mitigated using relevant diversification, while hedging is vital against systematic risks and other risks to do with disasters. Theory suggests that there are relatively more solution strategies mainly to the firms’ internal compared to its external factors.

Several internal and external factors for fishing business are evidenced in different papers. However, this research outlines, as recommendations, suggestions of solution strategies mainly to the key issues (key factors) bedevilling the Western Cape fishing sector. The study firstly discusses the strategies which relate to the internal factors of the fishing businesses and later extend the discussion to the factors which emanate from outside the firm.

There are a number of solution strategies that the fishing firms may implement to mitigate the impact of internal factors. To start with, fisheries managers need to have a holistic understanding of the nature of their business and the factors involved. Fishing companies need to keep updating and calibrating their systems and methods for assessing fish stocks since uncertainty in fish populations remains a big challenge. The companies which are still using old methods of assessing fish stocks need to adopt the new systems, methods and procedures for assessing fish stocks to improve business performance. As advocated in Kirkwood (2003) and Edwards, Hillary, Levontin, Blanchard and Lorenzen (2012), the companies need to establish rational economic harvest policy to safeguard against stock collapse. They also need to establish an adaptive annual harvest quota and minimum stock

90 level where harvest is curtailed.

The Western Cape fishing sector should implement quantitative risk models in evaluating the business risk and relationships with the associated risk factors as it will help to identify relevant area of concentration of effort and most appropriate hedging strategies, hence improve business performance results. Diversification, utilizing vertical and horizontal integration strategies, can also benefit the sector if effectively implemented. Merger partners can be carefully chosen to place business in the best position to exploit the benefits of scale economies, and creation of operating leverage, in addition to diversification advantages. However, in exercising this strategy, care should be taken to ensure that there is fit of objectives, culture and values between the merged elements to ensure efficient operation of the resultant merged firm.

As evidenced in Norway, future derivative contracts together with other useful hedging securities suits the fishing sector and can be effectively implemented to hedge the position of the business against various uncertainties. The use of hedging may not only be against ecological volatility and market price risk, but may also be used to protect from uncertainty in many other variables of fishing business, such as fuel price oscillations. Since commercial fishing activities consume huge quantities of fuel, a small change in fuel price largely affects business performance in positive or negative direction, depending on the direction of motion of fuel price. Therefore, it is necessary to hedge against unfavourable movements in the price of this fisheries production input.

It is also of paramount importance that the fishing companies hire skilled fisheries managers. The companies must further establish solution strategies to the problem of scarcity of fisheries management skills, through succession planning and other relevant human resources practices. This is suggested since one of the key factors stated in some articles is shortage of the vital skills in the sector.

Nevertheless, the operations of fishing ships are stated to be associated with many accidents. Increased number of accidents impedes production. This has been cited in Kirkwood (2003) and other papers as one of the causes of shocks to the fishing stocks. Therefore, the safety of the seagoing workers and fishing ships should be addressed accordingly. The fishing

91 companies need to establish systematic ways of identifying main causes of the accidents and take major preventive measures to improve company performance.

There are also measures that the firms could resort to in order to curb or hedge the negative effect of the external factors. This includes measures to hedge against fish stock collapse, changes in Total Allowable Catch (TAC) restrictions, natural hazards, exchange rate and fuel price changes. It should be noted that most of the externally-borne risks mainly require hedging as a solution. The discussion of the factors is not exhaustive because of the multiple risk factors of the sector, therefore the solution strategies recommended should serve as a guide particularly for the key issues bedevilling the fishing sector. If GARCH models can be used to identify the factors that contribute most to volatility jumps then the firms will be able to focus on strategies for hedging the identified risk factors.

Where fish stock collapse is the main risk, rational economic harvest policy safeguards against stock collapse by establishing an adaptive annual harvest quota and minimum stock level where harvest is curtailed. This is similar to biological benchmarks developed in the technical fisheries literature (Kirkwood, 2003). The opening of fish-farming activities (aquaculture) with rational harvest policies can stabilize the fish production levels for the companies hence reduce volatility due to variations in production levels. The next section (Section 5.4) outlines the limitations of this study.