Last week thursday the Federal Government announced winners of its flagship entrepreneur project, Youth Enterprise With Innovation in Nigeria (YouWin). By most counts the project has been lauded by pundits and seen as an effective and plausible job creation tool by the Federal Government. Funds disbursed to selected participants are also not loans but paid to them as equity to help fund their projects. It is also expected that the project will generate between 80,000 to 110,000. All of these seem laudable on paper except for one thing….you have to “Win” to be availed the funds. This is where I draw the line.
It is bad enough for Government to be involved in any other business apart from securing the lives of its citizens, providing welfare and ensuring law and order is in place, let alone engage itself in a competition akin to “who wants to be a millionaire” or dragons den” or even “the apprentice”. Government in my opinion does not have the competence or experience to determine which project has the most potential to succeed or generate jobs. Even seasoned financiers who are well placed to unearth potentially successful businesses mostly find success after several failures. How does an ability for one to win a competition transcend to being able to be successful in a market where the competition is real? Beats my imagination.
Who Stands to loose? Well, everyone (including the winners) except the government in power. How is that possible? If history is anything to go by, Nigeria is still laden with corruption and mismanagement. Look at all the businesses where government has investments in and that will give you an inkling as to how these investments will be monitored and run. What you’d probably see is another rent seeking venture which the government will use as a compensation to reward youths who support them. Some will be nominated to the board of these companies (since the government put in equity they will surely nominate directors). Some of the companies will comfortably remain unprofitable as long as the directors are paid their fees and emoluments on time (after all its a share of the national cake). This all leads to a grand waste of tax payers money. Even the “winners” themselves stand to suffer. They mostly will lack the technical support that they require to make their business grow as the government themselves are not properly equipped to provide it. They government also does not lack any incentive to ensure its success as their failures are seen as an effort by the government to help. The Start Up’s themselves will be blamed. The Start Ups face the same harsh market conditions indigenous businesses face, such as power, quality manpower, multiple taxes, poor infrastructure, lack of market information, high maintenance cost etc. as such they likely do not have the right managerial and technical know how to deal with these challenges as they arise. In addition, getting seed funding from the government also does not guarantee that all the funding that they need for this business to succeed is in place as cash requirements mostly change as the dynamics of the business evolve.
So should the government allow their dreams to die? Absolutely not!! The government will always have a role to play in the way businesses succeed or not. Just the same way taxation can be the difference between company A and B in terms of profitability. I have always advocated for a market driven policy in job creation stemming from small businesses than a policy where government picks winners which I consider as utter rubbish. Government should allow the market determine which businesses are worth investing their money in through the simple logic of risk and rewards. That way financiers who take a huge risk on “Start Ups” with businesses considered risky, will see their investments rewarded when the businesses succeed. That provides additional incentive for the risk takers to ensure proper oversight functions are in place within these start ups, ensure that they have the right managerial and operational support that they need to help their business grow and leave the founders of the start ups more time to concentrate on developing the core idea and strategy behind their business. This they might not get with a government grant which merely just selects businesses based on theoretical ideas that is not fool proof of sentiments, rent seeking and random selection.
What should the government then do? The Government should rather give this grants to Venture Capital Firms (VC’s) who are in the business of finding a goldmine in a landmine. These guys are equipped enough to source for the next big thing. The managers of the VC’s can be rewarded and incentivise by benchmarking their salaries and bonuses on performance and ability to unearth successful companies. This is no nuclear physics. It is market driven and is does not require any government involvement apart from providing the funding. It is a popular belief that VC’s seek for projects are over N50m. Yes, that is because start ups are not expected to venture into businesses that are existing. VC’s source for new and innovative ideas that can impact on the market in the short to medium term. Why would a VC invest in a Start Up that wants to provide open movie rental shops in the whole of Nigeria when you can invest in a Start Up that can digitalize movie rentals. Or why would a VC invest in a clothing line, when it can invest in a Start Up that has created an application that connects shoppers with clothiers?
Finally, Small Businesses, Start Ups are the bedrock of job creation in any society. If any country is to successfully grow economically, it must rely on innovating businesses that seek to change people live. However, that will be determined by the foundation as well as the manner in which these Start Ups are funded as well as supported
If the government gets to pick which venture capitalist to give the money to, then your suggestion would not be any different from YouWin.
Its different, the government's pick is market driven and not based on some artificial competition. Besides, by giving money to VC's they expect an ROI just the same way SWF's invest through Investment banks, PE's and Mutual Funds the world over. The government is also not the only source of revenue to VC's as such can be rest assured their investments is hedged
Your article is not right. VCs, Bankers, etc have one goal: reduce risk and maximize profit. The easiest way to do so is to focus on safe-bets and seasoned people with capital, etc and stick to existing businesses.My cousin was one of the winners of YouWin. He had nothing to do with the government. He knew nobody. He just got picked randomly. Another friend of mine got randomly not picked.The money given with YouWin is small enough that the people will not be dumb enough to use to buy a car or build the foundation of their house. Most likely, they will use to to start businesses. And the ones who do not – even if they waste it in drinking parlours, it will still go to stimulate the local economy.YouWin is a brilliant idea, because it randomly spreads capital in all parts of the country without screening too deeply. Deep screening will always tend to be biased, because everyone is always biased. A random selection algorithm with some basic filtering is much better as a way to create businesses.Remember, you now have 1000+ people who are doing all they can to multiply this money. They are being productive. And that's driving up the GDP of the country.Don't forget, there is a basic filter. Lazy people or drunkards, etc, would not bother to do all the steps neccessary to actually win. YouWin is a great scheme. It's a good complement to the market based funding sources – and those already exist.
A point of correction, VC's on the contrary invest in high risk assets and that is why they expect to maximize returns. VC's have led the world in terms of investing in innovative businesses and job creation. YouWin remains a competition and we all know how that is not a measure of success in the real world. If you want real job creation that supports innovative ideas, better get the market in and get the government out. Haven't you wondered why Bill Gates or Warren Buffet don't fund a competition for ideas?? There is nothing brilliant about YouWIn except for an opportunity to get free grants from the government which may be used wisely or foolishly. Nothing creative about it
There had to be some sorta selection criteria for the choice of whose biz to invest in. They chose the youwin “competition”. I don’t see anything wrong with that. As all other selection exercises, some “win”, others lose. To say Govt is not qualified to determine this reminds me of how much ppl don’t remember that govt is made up of PEOPLE. People that are professionals in different fields too (or at least claim to be). They are not aliens or robots with no experience programmed to eat the money and come up with committees. So let’s give them that benefit of a doubt that they actually had competent ppl doing the selection screening.
As for the corruption angle, even though true, we can’t continue to put down everything just on the basis of likely corruption, else we would have nothing going on at all, cos everything in Nigeria is an avenue for looting and corruption. Even in the private sector.