Assuring Success for the Youth Fund




Ethiopia’s youth bulge seems to have reached a point of undeniability. While the national statistics tell the tale, we can also see it by observing the scenes in the city centers, small towns and rural areas.

A large proportion of the population commuting, working, trading, consuming and wandering in all these places is recognizably young. The energy, hope, versatility and endurance of the young is visible across the nation. It is even so colorful that a painter would be tempted to paint the whole nation as a swath of attractive landscapes hosting masses of youth with distinct beauty.

Closely examining the situation of the youth in the nation, however, one would understand that the picture is not as simple as it seems. The stories, levels of hope, proficiency, access, networks and financial capability of the youth are starkly varied. And in large part, the picture is bleak.

Restricted access to resources, poor educational readiness and skills base, lack of information, thin social capital and dismal political leverage put the youth in a disadvantageous position compared to the older generation. And the result is increasing unemployment, massive internal displacement, huge migration, hopelessness, rampant social tension and political instability.

It takes no genius to recognize that the recent unrest in some parts of the country, which resulted in huge loss of lives and property, is primarily driven by this rather dismal state of the nation’s youth. It is sad that it took this much of a cost for policy makers to recognize the youth issue and bring the same to the center of the planning table. As the saying goes, however, “It is better late than never.”

As the country tries to untangle itself from the aftermath of the rather destructive unrest in the two major regions of the nation, with the instrumental state of emergency still in place, planners did some self-reflection and brought the issue of a youth fund to the table of decision makers. Of course, the story line from the side of the government is that it is never a reflexive response to the unrest. It is, they claim, a well-planned effort included under the Second Growth & Transformation Plan (GTP-II). What is true, nonetheless, is that the unrest has, at least, pushed the agenda to the fore.

The fund – a financial window aimed at financing the entrepreneurship, self-employment and job creation efforts of the youth – is now being proposed as the major pill to the widespread youth unemployment in the nation to fuel social tensions. The 10 billion Br fund is arranged as a revolving finance, which entails that it is designed to be a self-financing scheme to be given out as loans. Reallocated from the budgetary line assigned for the achievement of the Sustainable Development Goals (SDGs), it is going to be a major undertaking for the government that seems to be overwhelmed by the mismatch between the widespread inefficiency it hosts and the increasing public disenfranchisement. One could see the mantra of “in-depth reform” being echoed around and the series of meetings that the officialdom spends time in to see the pressure in that regard.

As it stands, the fund is going to be a federal financing line to be allocated for regions based on plans. Much as the plans will be defined by the regional cabinets, the fund management is said to be undertaken through the Commercial Bank of Ethiopia (CBE) or state-owned microfinance institutions. Implementation, follow-up and support is to be given by bureaus with mandates related to SME development, youth and sport issues, women affairs and youth structures. A multi-stakeholder platform to be established in each of the regions will be overseeing the process at regional level.

This suggested arrangement might bring benefits in so many ways. For one, it entails high-level political commitment at federal and regional level. The engagement of various stakeholders with varying responsibilities means that there is a chance to appraise each business plan in view of multiple aspects. No doubt that this structure also enables strong check and balance.

In light of a sustained solution to the financing problems of the youth, however, a rather independent youth fund structure is advised. I would argue that a well-structured independent youth fund will be a better choice for financing youth endeavors than super-imposing a 10 billion Br financing window on existing structures.

Structurally speaking, the planned youth fund requires key functions that none of the existing institutions provide. And these include market information, research and business development services, networking, upskilling and reskilling. Without these vital services, there is a high chance for the youth fund to be consumed in the problematic traditional SME development process.

From the side of the policy makers, there is a determination to push the fund to churn out more SMEs. The directions being followed by regions, as far as the draft plans for the use of the fund are concerned, is to copycat their annual SME development plans with emboldened figures and ask for the allocation of finance. No serious technical evaluative exercise has been done on the past experiences of regional SME development efforts and hence no new approach (innovation).

Honest reflection into the SME development effort of the past 12 years shows that the process is marred with problems of rent-seeking, impartiality, poor design, quota-based push, poor product quality, high defaults, narrow product lines, politicization and unwise financial allocation. Due to all these problems, there is a sort of unhappiness and unease in the minds of the youth when the issue of forming SMEs is raised. By way of extending the new financing window through this channel, then, there is a chance of furthering these problems to a new height.

The magnitude of problems and inefficiencies is not so much different with all the other stakeholders conceived to take part in the allocation of the new fund. It is not difficult to imagine the exponential risk embedded in sending the new fund through the way of the old system. A better way, therefore, is to have a flexible and structurally independent youth fund targeted at supporting the self-employment, job creation and business development efforts of the youth.

For starters, plans for accessing the youth finance ought to be evaluated based on their business merit. Individuals should not be restricted to apply for financing solo. New ideas, products and services ought to be given opportunity. Collateral and forced savings should not be pre-requisites. Instead, for ideas worth financing, the fund ought to serve as a venture financier.

Even then, essential services ought to be fulfilled. So far as the youth have little information about the market (including trends, patterns, behaviors and gaps), a full-fledged market information service has to be included within the fund. Compiling data on various aspects of the market and availing the information to the youth in a way that serves their interest could be the value proposition of this service.

If the youth is to venture into successful self-employment and job-creation endeavors, then, they also ought to be supported by strong research and business development services. From doing basic research about products, market size, demand, supply, prices, competition, sourcing and inputs to sailing through the processes of production, quality assurance, marketing, packaging, branding, logistic and so on, the efforts of the youth ought to be underpinned by flexible support system. Without disposable research and business development service, the failure rate of youth endeavors will be high. Not only would this affect the effectiveness of the youth fund, but it will also demoralize the youth and have a chain consequence of spreading hopelessness.

One area where the youth stand in disadvantage is networking. Be it networking with like-minded peers or networking with successful market players, most youth live handicapped. It is common to see youth endeavors failing to succeed because of lack of proper networks. As such, a successful youth fund could happen only if this networking issue is solved properly.

An equally important element an impactful youth fund could not work without is skilling and reskilling. It is obvious for even a layman that there is mismatch between the evolving market and the rather sticky education system of the nation. Part of the problem in the rising unemployment of the nation which comes from this mismatch. Much as the TVET system too is victim to this problem, it could not serve as a solution. Hence, the youth fund needs its own skilling and reskilling element that prepares the youth for the current and foreseeable evolution of the market. It is only through such a service that bridging the skills gap of the market could be ensured.

No less important an element that could be fulfilled by an independent youth fund is scaling. Assisted with effective market information and business development services, the youth fund could embark on a successful production scaling both at firm or sector level. As such, matching the rate and magnitude of scaling with the market demand will be possible. And this entails more profitability at firm level and market outreach at sector level.

The fact that all these elements could not be fulfilled under the proposed youth fund structure shows that the need to establish it as an independent structure of its own. The justification to do so will even be weightier considering the popular line by the government that they would like to attend the youth bulge in a rather sustainable manner, than with a fire-fighting mood.

A comprehensive and sustainable solution to the financing problem of Ethiopian youth is to have a flexible, structurally independent and innovatively designed youth fund, not a reflexive act of imposing a new financing window on recognizably problematic public structures.



By Getachew T. Alemu
Getachew T. Alemu is a business development consultant and former OP-ED Editor of Fortune. He can be contacted at getupfront@gmail.com.

Published on Feb 13,2017 [ Vol 17 ,No 876]


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