Planet Money: Nigeria, You Win!

A really nice and positive podcast on Nigeria’s effort to provide young entrepreneurs with capital to grow their businesses:

The episode is well worth your time, but Chris Blattman has the gist of it:

In 2011 the Nigerian government handed out 60 million dollars to about 1200 entrepreneurs, and three years later there are hundreds more new companies, generating tons of profit, and employing about 7000 new people.

David McKenzie did the incredible study.

24,000 Nigerians applied, the government selected about 6,000 to get some training and advice to develop their plan, the plans were scored, and about 1,200 were funded. They got an average of $50,000 each. Fifty thousand US dollars! Who the hell thought this was a good idea?

All the highest scoring plans got funded automatically, but McKenzie worked with the government to randomize among the runners up.

The results are amazing. Looking just at the people who had no firm to begin with, 54% of the control group have a firm after three years, compared to 93% of those who got the grant. And these firms are bigger. Just 11% of the control group have a firm with at least 10 employees, compared to 34% of those who got the grant. They’re more profitable too.

The Nigerians did a lot of things right for this one, especially when it came to choosing the winners and avoiding graft. The results are amazing and inspiring.

The important implication of findings like these is that while there will always be a minority who will waste the money, the vast majority of humans are a good investment under the right circumstances. And the cost of weeding out the duds (like in social security and development programs that require extensive proof of need and high prescribed standards to meet) is far higher than the cost of just giving away cash and accepting a few failures.