The most promising concept in the profession of accounting is the ‘Going Concern’ concept, explained in terms of time. There is no company for a day or a month; companies are formed for an indefinite period of time in the future. This concept works when firms are incorporated in a form of sole proprietorship, or companies whose liabilities are limited and share companies, as well as multinational companies. The business will continue to exist in the unforeseeable future.
The going concern concept will be challenged by the emerging risks that the continuity of companies in any business cannot be guaranteed without adapting changes in the business environment. Emerging risks and the concept of going concern is on edge; and the thirst for growth on the other edge in the change spectrum is the business puzzle of profit making companies.
It is time for change. The going concern concept will not be sufficiently applied in the new business environment. Business leaders should rather pay attention to new risks in cyber vulnerabilities, terrorism and political risks. How can the balance of growth be maintained in this spectrum of change is usually the first assignment of dynamic leaders.
Theory of growth, in any economy, suggests that companies should transcend from customary performance parameters. They must search the best strategy; in fact, the most effective one that will interlink with grid of inefficiency. This theory is not a mere vacuum concept where countries and companies strive for.
The gear for growth is shifting from developed to developing countries with the lubricant being the think-tank and a profound commitment of transformational leaders who do not believe in incremental changes. They should have the audacity in leadership departed from the 19th Century’s concept of the ‘going concern’.
Over the past two decades, the center of the global economy has been shifting to the global south. Today, growth rates in developing economies are much higher than in developed economies. Sub-Saharan Africa, in particular, is one notable case in point. Two years ago, Sub-Saharan Africa’s GDP grew at 4.5pc, making it the fastest-growing economic zone in the world, outpacing Asia’s regional average of 4.3pc.
Africa is on the move. McKinsey’s 7 Company’s report titled, “Lions on the Move: The Progress and Potential of African Economies”, finds that Africa’s combined Gross Domestic Product (GDP) will reach 2.6 trillion dollars by 2020. The report further says, “Africa’s consumer spending by 128 million households, with discretionary income, is expected to be around 1.4 trillion dollars.”
Africa is the world’s largest sources of raw materials, which is being used in different parts of the world. That alone puts Africa at the forefront in terms of growth prospects in future.
I believe that the potential of Africa, including Ethiopia, as a source of raw materials. But I would also argue that the existence of institutions whose role is to provide research and analysis is as much important. It is the ultimate wisdom of leaders and their commitment to their nation and interest to change through growth theory and concept that taps these potential resources.
No doubt that without growth theory remarkable results such as seen in Rwanda could not have been achieved. Rwanda is a country with a history of civil war and genocide for more than 20 years. The gear shifted from war to a national determination for growth through its wise leadership.
Rwanda’s GDP has increased from 4.7pc in 2013 to seven percent the following year. Doing Business, a World Bank project that measures business regulations, finds that getting access to credit in Rwanda is not comparable to any other economy in Africa as it comes second best in the world to Georgia. The growth prospect for the two years beginning 2015 was seven percent each.
Again another illustration of what a clear and concise strategy can do in uplifting countries is Mozambique. Its major export item, coal, has contributed to its steady growth. Moreover, there have been large infrastructure projects as well as credit expansion driving the economy from 7.2pc in 2015 to 8.1pc last year.
Yet, another example is Ethiopia, where the agriculture sector has enhanced the growth and development of its people. Agriculture has helped cut poverty by seven percent in the six years since 2005, despite having the lowest human development index in the 1990s, according to the Gates Foundation’s report dubbed, “One Foot on the Ground, One Foot in the Air”, and compiled by the Overseas Development Institute.
Ethiopia is “maintaining teams of agronomists across vast rural areas to boost productivity by recommending best agricultural practices and scientific innovation,” the report finds. “Further, a doubling of Ethiopia’s road network in two decades has allowed more farmers to bring their produce to market.”
On average, Ethiopia’s economy is growing at 10pc a year and it is expected to continue with this growth trajectory in the next seven years. By 2025, it aspires to join the group of middle-income nations. This achievement is a result of a growth strategy the country followed and the commitment paid in terms of a resolve to fight abject poverty.
We were a great nation; and we still are. We can have more success in the years to come with the grand growth concept through which all economic activities are inspired, driven and regulated. Ethiopia is a country competing in East Africa and all other countries around the world. So far it has won many of its races. Thinking big rewards bigger. It is all about the first and second editions of the Growth & Transformation Plan (GTP).
The analogy is not only for the country. Any business, within this framework should understand the rule of the game, which requires strength of mind to deal with competition. In a country with growth driven strategy, I would argue that a company and a business, particularly in the finance sector, would have few clients, low investment, profit and margin of safety if it adapts any other strategy than growth.
Ethiopia’s financial sector supports the growing economy of the country. Its pace and focus of growth should be revitalized to put serious departure from other competing banks and insurance firms in the continent. Those in the service sectors – banks and insurances, airlines, as well as the hospitality and the entertainment industries – can multiply their growth in many parameters if they follow the same fundamental growth strategy. Insurers will become successful following larger portion of investments to secure potential risks and possibly enjoy tremendous returns from attracting large number of premiums, as bankers can obtain large growth mobilizing savings. The growth strategies naturally shifts the income curve; ultimately reduces the total cost per unit and or service cost per delivery of service to a client.
Fundamental change of a nation seeks fundamental shift in thinking befitting growth dynamics. Only those who are determined to keep the momentum remain to prevail.
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