Shock Value

Shock Value

The Nigerian economy, like any other, experiences “shocks”— events or policy decisions that can send a ripple of changes through the system. This column zooms in on these ripples in a range of sectors to explore how and why these shocks matter.

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Betting on Ponzis in Nigeria

Ebehi Iyoha

Ebehi Iyoha

Ebehi is an avid reader seeking insights in unexpected places. Her research interests include economic development, political economy and trade.

Ponzi or pyramid schemes seem to be everywhere lately. Last year, one of the largest international Ponzi schemes, Mavrodi Mondial Movement (MMM) set up shop in Nigeria, and about 3 million people joined. Another pyramid scheme, Ultimate Cycler, reportedly registered 2,000 people every week until it shut down in December. And despite reports that people lost about ₦18 billion to MMM, a new scheme, Twinkas, keeps attracting participants, including those who have lost money before.

The media has documented these developments, dutifully pointing out Nigerians' gullibility, but something about this characterization doesn't quite ring true. In a country where being "sharp" and streetwise are hailed as virtues, it is hard to understand why millions of people would be repeatedly conned by various versions of the same scam. Are people really victims or are we victimising each other?

 

Current Winners, Future Losers

A Ponzi scheme is an investment scam that typically operates in the following way: Mr Money Maker rides into town and asks the townspeople to invest in his new business, Money Making Machine (MMM) Inc. He claims the business involves turning oil into gold and is so profitable that he will pay investors a 30 percent return on their investment every month. But there is no oil, and there is no gold. Each month, as payment comes due, Mr Money Maker recruits new investors and uses their money to pay old investors. One month, Mr Money Maker can't find any more new investors; without more cash coming in, he changes his phone number and quietly vanishes into the night. MMM Inc. is no more, and all new investors (or reinvestors) have lost their money. Pyramid schemes differ slightly by paying participants based on how many new members they bring in, but the underlying principle is the same – people only gain money from the future losses of other participants. And so, Peter is robbed to pay Paul. 

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