Between cash transfers and enterprise support-By Seun Kolade

Nigeria’s newly elected president stated recently that the government need to, as a matter of urgent necessity a “conditional cash transfer” programme by which those without jobs can be given a sum of N5,000 a month to help them to survive and meet their basic needs. Among other things, he stated that “if we have to wait until the industries are functional and the government is able to provide jobs for everyone, most people will be dead by the time we get to that stage”.

The government’s proposal as articulated by the vice president is well intended, but it is wrong headed all the same.  The idea of social protection is in itself a noble one. The state has a duty to protect the most vulnerable in society, and that includes the infirm, the sick, the children and the destitute. For the poor who are able bodied and often possessing basic skills, the goal of the state is to empower them so they can get out of poverty. That approach achieves several goals in one move: it raises the overall productivity of the nation, promotes the welfare of citizens, and advances the cause of human dignity.

Alright, let’s take a step back to further examine the “conditional cash transfer” plan. By several estimates the number of Nigerians living in abject poverty is in tens of millions, some say 70 million. N5,000 a month is pittance, but let’s work with that. In fact let’s assume that the very poor among the poor are 20 million, the government will still require 100 billion naira a month just to give out N5,000, which is really not enough to keep people alive with food and stuff. That is 1.2 trillion naira for the year. The big question is not so much in the amount of money, but in the sustainability of such a plan. How long can government keep up such a programme of handouts.

The essential nature of handouts is that it is incapable of regeneration. You spend it on consumables, and it is gone forever. It can be argued, albeit tamely, that the money is serving some economic purpose since it is being circulated within the national economy. However, if you are to put in on the productivity scale of 1 to 10, the money cannot possibly achieve more than a score of 2, because it is achieving much less than a small fraction of its potential. One, because it is not given in bulk, there is little the poor recipients can do with it by way of profitable investments. Two, because the poor are disadvantaged with regard to access to information and opportunities, the potential for investment is significantly hindered.

Consider, then, an alternative plan where governments organise the poor in groups of five each, say. Each group, assisted by a dedicated team of advisors, come up with a business plan in selected sectors of the economy- agriculture, light industries and basic services. The sectors are chosen to reflect appropriate skill sets of the poor. The government then provide each group with, say a 0% interest loan of N500,000 to N1million each, an equivalent of less than N10,000 each for every member of the group. The fund can be released in batches as incentive for progress and performance of the enterprise, and the group can be given up to two years or so to repay the 0% loan. Ideally then, in two years, the government recovers the fund to use for another cycle of the enterprise funding, or indeed for one or the other intervention programme.

This sketchy idea is of course not without its challenges and pitfalls, the biggest of which is the problem of default.  Even with these potential pitfalls, there is no good excuse to refuse to try, and you only need bits of imagination and creativity to anticipate and mitigate potential challenges. One obvious example is to use a public-private platform to disburse the funds.

The truth is, an enterprise funding initiative is a million times better than a free cash transfer programme. Where a cash transfer diminishes and condescends to the poor, an enterprise funding programme empowers and elevates them. Where cash transfer cultivates dependency, enterprise funding stimulates productivity. Cash transfer is parasitic, enterprise support is catalytic. The one consumes capital, the other generates capital.

Finally, let’s consider the political logic. In terms of impact, cash transfer is short term and short sighted. Enterprise funding is long term and far reaching. Cash transfer is unsustainable, especially in a less developed economy like Nigeria. It is also problematic in terms of the politics of selecting recipients and disbursing funds. As past experiences have shown, the process is a fertile ground for corruption, fraud and waste. On the other hand, enterprise funding is less problematic, and the challenges of implementation are easier to fix. Moreover it impacts the lives of more people in a real and lasting way.

It is not, as vice president Osibanjo suggests, the role of government to create jobs. It is rather their responsibility to create the environment and provide necessary supports and resources for businesses to flourish and for citizens to make positive contribution to the economy and to society. There is much the government can do. I hope they get it right.




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