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Thread: Nigeria discovers trickle down economics

  1. #1

    Nigeria discovers trickle down economics

    https://qz.com/africa/1327833/kenya-...n-competition/

    A woman working at her computer in Kenya
    Reuters/Thomas Mukoya
    Planning to win.
    WE ALL WIN?
    Giving poor people cash is a good idea. Giving entrepreneurs cash might be a great one
    By Dan KopfOctober 9, 2018

    If you’re a young person in Nigeria, there’s a good chance you’re out of work. A whopping 40% of people between the ages of 25-34 were unemployed in 2017, according to the Nigerian National Bureau of Statistics. As the country’s population continues to grow—the median age of in the country is only 18—the economy is struggling to create jobs at a sufficiently fast pace.

    Faced with an overwhelming problem, the Nigerian government dreamed up a radical measure seemingly inspired by reality TV. It created YouWin, the largest business-plan competition the world has ever seen, awarding cash to young entrepreneurs. Contestants had to be under age 40 to apply; judges based their decisions on who had the most viable business plans that were most likely to generate jobs. From 2012 to 2015, the Nigerian government gave away $100 million to over 3,000 entrepreneurs, all of them under age 40. “When I told people we were doing a business plan competition in Nigeria, they would keel over laughing,” said Michael Wong, an economist at the World Bank who helped design YouWin.

    The contest was unlike any government program that had been rolled out before. But it was incredibly successful—so successful, in fact, that the idea is spreading across Africa, and helping to change the way that economists think about alleviating poverty.
    Give the people money

    The idea of giving poor people people cash, no strings attached, has gotten increasingly popular over the past several decades. Rather than offering education, job training or food, mounting evidence shows that simply handing people money and letting them decide what to do with it, is usually a more impactful poverty alleviation option. Experiments find that people are far less wasteful with that money than you might think, using it almost entirely on food, health, and education.

    This evidence has buoyed the movement for a taxpayer-funded universal basic income (UBI)—an amount of money that would ensure every person can purchase their basic needs. It has also led the US Agency for International Development to benchmark many of their programs against a cash transfer that costs the same amount as the intervention. While giving people cash isn’t a panacea to all the world’s problems, unlike many more complex programs, it is clearly effective at giving people a boost.

    But for all the good giving people money has done, there is research that suggests there might be an even better way to give that cash away. Instead of giving money to just any anybody, governments and philanthropists can give it to entrepreneurs who have ideas for creating or expanding a business, but don’t have access to financing. When their businesses succeeded, they create jobs that allow people to provide for themselves, and governments to spend less on direct welfare. That was the big idea behind YouWin.
    Nigeria Wins

    All sort of companies emerged from YouWin. Almost 30% were manufacturing companies, 15% were agricultural and another 15% were in information technology. A number of education startups also won grants, including several private schools, as well as a company that made educational comic books.

    The World Bank conducted an impact analysis on the first phase of the program,, in which 1,2000 entrepreneurs out of 24,000 applicants were awarded $50,000. Of the the 2,500 finalists in first phase, the 480 best business plans were selected based on the assessments of independent judges from the audit and consulting company PricewaterHouseCoopers and Nigeria’s Enterprise Development Center. Among the other 1,920 top-rated plans, 720 were chosen at random for grants.

    To see whether the grant made any difference, the World Bank would compared those 720 randomly-selected winners to the 1,200 finalists that received nothing.

    YouWin seems to have been an astonishing success. Based on follow-up surveys three and six years after the program, a study by the World Bank economist David McKenzie, published in the American Economic Review (paywall), found that grant winners were far more likely to have businesses with over 10 employees, and that their businesses were both more innovative and profitable than businesses created by those who weren’t selected. In other words, that $50,000 grant made a huge difference—not just to the entrepreneurs, but to the people they hired.

    McKenzie estimates that program generated a little over 7,000 new jobs, costing the government about $8,500 per job. This is an excellent return on investment compared to other job-creation programs, which typically cost between $11,000 to $80,000 per job, according to McKenzie’s research. These other programs include business training, wage subsidies, and smaller grants (pdf). The result is so impressive that the development economist Chris Blattman wondered on his blog if this was the “most effective development program in history.“

    Unfortunately, politics doomed YouWin’s future. In 2015, then-president Goodluck Jonathan lost an election to Muhammadu Buhari. Jonathan was a major proponent of YouWin, and Buhari was not interested in extending a program he wouldn’t get credit for. Rather than conducting more business plan competitions, YouWin has been reorganized into an education program for entrepreneurs, not just those who won the competition. There is little evidence that such capacity building programs work.
    Business-plan fever

    Though YouWin may be essentially dead, the program’s results didn’t go unnoticed. It’s caught the interest of both development economists and leaders across Africa facing youth unemployment issues. And YouWin’s results are not an aberration. Although the Nigerian competition is the most powerful evidence in favor of the business-plan competition, another smaller study of a competition held in Ethiopia, Tanzania, and Zambia also had promising results.

    Several countries across the continent have since held, or are going to hold, competitions for entrepreneurs. The biggest of these competitions is set to be held in 2019 in Kenya. Over $20 million will be disbursed to Kenyan entrepreneurs. The program will be primarily funded by the World Bank.

    Kenya’s competition shares many similarities with YouWin. Quartz spoke with Joseph Kanyi, an entrepreneurship specialist in Kenya’s department of trade who helped get the program off the ground. He said the evidence of YouWin’s success was an essential factor in gaining support from the World Bank and Kenya’s government to implement the program. Through the Kenyan competition, researchers hope to learn even more about what makes these programs effective. For the Kenyan program, 250 applicants will have their business plan randomly selected with only the most minimal screening and no additional support. (In the Nigerian competition, by contrast, once applicants passed the first threshold, they got help developing their business plans.)

    If these unscreened Kenya applicants are successful, it would demonstrate that business-plan competitions might work with little administrative cost. The Kenyan competition will also be testing the impact of grants of $9,000 and $36,000. If smaller grants work nearly as well as big ones, that could also make the program less costly.

    All of these tests are being done with the intention of making future business competitions, in Kenya and elsewhere, more efficient.
    The economics

    The most interesting aspect of these programs is that they suggest that there are a lot of good ideas out there that are not getting financed. Economic theory holds that people with good ideas should be able to get the money to make it happen. Banks and investors exist to make loans and get equity to promising businesses.

    In the US and other rich countries, the financial system generally works well at funneling financing to people with sound business plans. But in many African countries, that isn’t the case. World Bank economist Francisco Camarate de Campos notes that African entrepreneurs often face serious capital constraints because the financial sector isn’t large and sophisticated enough to identify the best loan candidates.

    The business-plan competition solves this problem by surfacing thousands of business ideas that can be judged by experts. If the competition was just for a loan, it might not tempt as many entrepreneurs to apply.

    Some policymakers have worried that handing out grants, rather than loans, might induce winners to embezzle funds or throw the money away. But that rarely seems to be the case.

    As cash transfer research shows, for the most part, people—including poor people—just don’t waste money. They have hopes and dreams, whether it be starting a business or helping their kid get a good education. Given some money, they will put most of it toward their goal.

    Just think about what you would do if someone gave you $50,000. It would probably be used very wisely.

    Sign up to the Quartz Africa Weekly Brief here for news and analysis on African business, tech and innovation in your inbox
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    The road to hell is paved with good intentions. No need to make it a superhighway.
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    The only way I see Trump as likely to affect any real change would be through martial law, and that has zero chances of success without strong buy-in by the JCS at the very minimum.



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  3. #2
    Give a man a fish and you feed him for a day, give him a fishing boat and you feed a whole crew for life.

    Private charity should be doing this but if government is going to be in the charity business they should at least do the most efficient thing.
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

    Robert Heinlein

    Give a man an inch and right away he thinks he's a ruler

    Groucho Marx

    I love mankind…it’s people I can’t stand.

    Linus, from the Peanuts comic

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    Alexis de Torqueville

    Those who fail to learn from the past are condemned to repeat it.
    Those who learn from the past are condemned to watch everybody else repeat it

    A Zero Hedge comment

  4. #3
    Injecting capital on a competitive basis with no interest or loan burden. Low governance overhead. Return comes via future taxes.

    Why wouldn't it be a massive success?

    And yes, it does parallel several of the big advantages of UBI over welfare.

    With a booming extremely young population they simply don't have families with large accumulated capital saved to invest in opportunities. If that is the missing element then such a program would be economic rocket fuel.

    While ambitious entrepreneurs in the United States can raise funds through Kickstarter or venture capital, the capital markets in Nigeria do not operate as efficiently. As a result, many Nigerian entrepreneurs have have to borrow at real annual interest rates of about 20%—or go without funding. Business plan competitions can address this gap in the market.
    holy hell.

    Paper on it:

    http://documents.worldbank.org/curat...df/WPS7391.pdf
    Last edited by idiom; 10-15-2018 at 10:23 PM.
    In New Zealand:
    The Coastguard is a Charity
    Air Traffic Control is a private company run on user fees
    The DMV is a private non-profit
    Rescue helicopters and ambulances are operated by charities and are plastered with corporate logos
    The agriculture industry has zero subsidies
    5% of the national vote, gets you 5 seats in Parliament
    A tax return has 4 fields
    Business licenses aren't a thing
    Prostitution is legal
    We have a constitutional right to refuse any type of medical care

  5. #4
    Guys! We don't have enough entreprenuers! Whaddawedo!?!

    ...I know, let's pay people to be entreprenuers!



    Oh well, it's probably better than what they would done with the money otherwise.

    The idea of giving poor people people cash, no strings attached
    If you must have welfare/subsidies, it is indeed better than it be in cash, no strings attached.

    This would be a good way of gradually phasing out programs like Medicare and Medicaid.

  6. #5
    Quote Originally Posted by r3volution 3.0 View Post
    Guys! We don't have enough entreprenuers! Whaddawedo!?!

    ...I know, let's pay people to be entreprenuers!

    Because no government in the history of the world, including the U.S. has ever given start up capital to a promising industry right? Give people student loans worth $100,000 that 40% of them can't pay back, but God forbid somebody get a loan to start a lemonade stand. Okay.

    Oh well, it's probably better than what they would done with the money otherwise.
    Yep.

    If you must have welfare/subsidies, it is indeed better than it be in cash, no strings attached.
    Yep.

    This would be a good way of gradually phasing out programs like Medicare and Medicaid.
    Not sure I follow you on that one.
    9/11 Thermate experiments

    Winston Churchhill on why the U.S. should have stayed OUT of World War I

    "I am so %^&*^ sick of this cult of Ron Paul. The Paulites. What is with these %^&*^ people? Why are there so many of them?" YouTube rant by "TheAmazingAtheist"

    "We as a country have lost faith and confidence in freedom." -- Ron Paul

    "It can be a challenge to follow the pronouncements of President Trump, as he often seems to change his position on any number of items from week to week, or from day to day, or even from minute to minute." -- Ron Paul
    Quote Originally Posted by Brian4Liberty View Post
    The road to hell is paved with good intentions. No need to make it a superhighway.
    Quote Originally Posted by osan View Post
    The only way I see Trump as likely to affect any real change would be through martial law, and that has zero chances of success without strong buy-in by the JCS at the very minimum.

  7. #6
    Quote Originally Posted by jmdrake View Post
    Because no government in the history of the world, including the U.S. has ever given start up capital to a promising industry right?
    And every time it's been done in the history of the world it's been stupid, and for the same reason.

    Give people student loans worth $100,000 that 40% of them can't pay back, but God forbid somebody get a loan to start a lemonade stand.
    Also stupid

    Not sure I follow you on that one.
    One of the problems with Medicare/Medicaid is that government (with no incentive to be thrifty) negotiates the prices.

    Abolish the programs completely. Take their budgets and pay them out in cash to the current beneficiaries, no strings attached.

    Index those payments to the cost of medical care (which would begin to decline).

    You could then do additional reforms to brings prices down further, e.g. re licensing and drugs.

    Eventually, the cash payments, having already dropped massively along with prices, could themselves be phased out.



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