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