In a fascinating podcast, NPR’s Planet Money looks at a business plan competition in Nigeria with big results and potential consequences for how to encourage entrepreneurial growth.
In developing countries most businesses are very small, consisting of one worker and one owner, often the same person. In Nigeria, 99.6% of businesses have fewer than 10 workers.
While Nigeria enjoys a flourishing informal entrepreneurial environment, small business growth is capped by lack of access to cash. Small business loans from banks are notoriously difficult to get, and even for those few who are successful in getting the loan, it comes with very high interest rates.
How, as government, do you unlock capital for small business owners? How do you identify entrepreneurs with potential for growth from their subsistence entrepreneur peers? How do you encourage transformational entrepreneurs to grow their businesses and create more jobs? The Government of Nigeria in partnership with the World Bank decided to address these questions by creating a national business plan competition called YouWin! in which 1,200 business owners who submitted winning business plans each received $50,000 towards scaling up their businesses.
Chris Blattman, the development economist and blogger believes that YouWiN! could be the most effective development intervention in history.
In 2011, in its inaugural year, the competition received just under 24,000 applications. When compared with the control group (of randomly chosen runners up) after three years, those who received the $50,000 were more likely to still be in business and more likely to have grown their businesses. In addition, these businesses enjoyed a 25% increase in profit.
From a cost effectiveness perspective, the results are remarkable. The 1,200 winners generated more than 7,000 jobs. While this may seem like a drop in the bucket for the Nigerian economy (Nigeria has about 10,6million unemployed people) consider the cost per job per year figure of $3,606 for the YouWiN! competition compared with the average cost of $92,136 – $145,351 per job per year in the United States.
YouWiN’s results have not yet been replicated, but it opens up the question: what would South African entrepreneurs do with $50,000 cash injection?