Saturday, 26 September 2015

Free Lunches End up in the Dustbin

Call me a cynic if you like, but I've learnt to take certain statements by our politicians and government officials with a jar of salt, not just a pinch! Statements like "We will diversify from a mono-product economy" or "It's time to go back to agriculture!" and "SMEs are the way forward for economic development" are all empty promises. You won't blame me for not believing any of it because, years after saying these things, nothing changes.

For instance, weeks after my state governor's inaugural address in which he promised to revamp farming in the southwestern state, I saw about thirty new tractors driving into the state capital. I was very excited at the sight and praised our new 'action' governor. Unfortunately, three years into his tenure, farming largely remains subsistential and manual in the rural areas; with the new tractors broken down and covered up in dust at the various local government secretariats. Why can't we ever get it right?



I was also filled with much hope when the last administration came out with the YouWin! programme. As a business-plan competition designed to train and fund SME entrepreneurs through a transparent and rigorous process, a lot of expectations rode on it. What was even more impressive was that the government did put its money where its mouth was; providing capital ranging from N1m to N10m to successful applicants. YouWin! was not a myth because I met with at least 5 awardees. But like a gangrene, the programme was consumed by internal inefficiencies before being phased out.

Against conventional wisdom, the YouWin! office was run like a Santa Claus grotto. The happy Santa Claus pulls out gifts from his enormous bag, stuffs them in your socks and doesn't care what you do with it; that's what happened to YouWin! The funds were given out as a grant instead of awarding it as a loan. If banks which are in the business of providing loans after carrying out due diligence still find it difficult to manage their clients, you can only imagine how difficult it is to achieve strict adherence when it's a gift. None could put it better than Henry Boyo, an expert economist and industrialist:

"There is YouWin! for instance. Have you ever seen anybody's character being built on just being given money without discipline or any sustainable control attached to it? Yes, young people are doing business. But why should you throw as much as N8 million or even N10 million to them and you say, "Go and continue doing business and employ people," without the proviso that this money being given belongs to the people and that they have a responsibility to repay it. Any business done using [other] people's money, and the person doing the business are not made to know that there is a schedule for repayment, is money thrown down the drain."
 
 

I have it on good authority that some awardees collected the grant and didn't set up any business; they diverted it to personal use. The grant was given in tranches after awardees attained certain milestones but where monitoring/mentoring isn't present and there is no repayment stipulations, anything goes. One awardee approached an existing business and connived with the owners to deceive government officials into thinking that it was the business he set up with the initial tranche. He collected the remaining tranches and spent it on cars, building a house and living large.

Don't get me wrong; it's not that grants are wrong. But as Benedict Clements et al suggested in their paper Foreign Aid: Grants versus Loans, grants work better where there are strong institutions to ensure compliance. The million dollar question therefore is, Do we have strong institutions? If the answer is negative then government funding for SMEs should be awarded as loans with strict monitoring for compliance or we'll just keep daydreaming about building that sector of the economy.

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