No money, more problems

It is trite to say “wealth makes life more affordable”. For instance, in low-income developing countries, a daily commute of private vehicle privilege can relatively be cheaper and more income efficient than one of a public transport, or rural long distance commute.

Consider the often told narrative of rural dwellers travelling kilometres everyday just to attend work or school; or the urban, high-density residents dependent on a congested, oversubscribed transport system that eats at least two hours of their day every day.

These struggles are not atypical of low income countries alone, and while the meagre sustenance of low-income countries seems well-articulated in mainstream economics, less interpreted is how life in low-income countries is relatively more expensive than life in high-income countries!

The context of “relative” is important.

The notion of expenditure is relative based on two things: what you spend on, and what you earn.

While a 25-year-old IT apprentice in a high-income country commutes an average of 20 minutes in a US$10 000 private vehicle, it can be interpreted that his daily travel expenditure is cheaper than that of a low-income country 25-year-old IT apprentice who commutes two hours on a congested, oversubscribed transport system from his high-density household to work.Now, it may contest superficial logic how the higher earning, monetarily higher spending, apprentice is attributed to a cheaper travel budget.

However, metrics such as time efficiency, marginal spending power, and career earning potential, factor in to make the low income apprentice relatively challenged by steeper daily travel expenditure.

This is the relativity context which economic governance and politicians from low-income developing countries under-appreciate.

While wealth makes life more affordable, in our countries, low incomes make life much more expensive and entrapped in strife.

At the lower end of wealth distribution is the poverty trap; where many means of sustenance cannot supercede the low-income economic stature that the poor are entrapped in.

These include general labourers, vendors, and informalised craftsmen excluded from enterprise protections that assimilate them into mainstream value chains.

At the professional end, citizens are relieved from the poverty trap; however, their wealth projectile has a lower trajectory than their professional counterparts in high income countries.

To revert to the low-income country apprentice, time efficiency means that he is losing out two hours of productivity to the high-income apprentice.

This includes actual work that he is doing, and also his own professional development in terms of continuous studying or technical development.

His marginal spending power is lessened by his lost productivity.

If he earns US$400 a month, the US$60 he spends on travel is marginally greater than a creditworthy, more productive IT apprentice in a high-income country.

Moreover, his career-earning potential due to lost productivity, low career development and working in a low-growth economy means that he will comparatively earn less income through his career than the IT apprentice in high-income vibrant markets. These are factors that are often mute from low-income country governance and politicians.

Perhaps these may seem like abstract notions of economic welfare, but these are the real factors that manifest as the wide disparities between developed countries and low-income countries.

So, across many income strata in low-income countries, life is relatively much more expensive yet less rewarding than it is for higher income countries.

This is at the micro-level of citizen welfare.

To offer a macro-perspective, the sustained liquidity crisis in Zimbabwe, preceded by a credit slump since 2014, serves as ideal illustration.

Even though monetary authorities have chosen to contain credit and liquidity challenges within a balance of payments and externalisation context, the deepening credit and liquidity challenges in Zimbabwe are also accurate reflection of the relatively more expensive and less rewarding economic circumstance of having a low-income citizenry.

Firstly, consider the higher borrowing rates in Zimbabwe.

Granted that it is also due to lack of capital abundance, higher rates or higher costs of credit in a country are attributable to lower widespread wealth in the ownership of enterprise or private assets!

More simply, low-income countries are faced by higher costs of borrowing because they lack creditworthy assets to secure cheaper lending, both in terms of businesses and private citizenry.

Higher costs of credit in our case can also be attributed to the relatively lower consumer demand in Zimbabwe for the output in which debtors borrow to produce and sell to market.

When a country has a low-income consumer base, borrowing becomes more risky, thus expensive as many enterprises in Zimbabwe will attest to.

This is why non-performing loans were so rampant; there was no boost in consumer demand to sustain the fresh capital that came with dollarisation.

Secondly, the liquidity crisis itself is an entrapment, and also exacerbating low incomes in Zimbabwe.

For the financial sector, the costs of serving a low-income client base are higher than the returns to serve such a base.

For the citizens themselves, it costs more to use financial services than it is to remain informal.

This is why financial exclusion is difficult to overcome in Zimbabwe. It is voluntary both for banks and low-income clients. This is also why digitisation of platforms is struggling to gain widespread traction.

Cutting edge services like mobile platforms require a certain kind of device that many low-income citizens cannot afford.

This is why it still makes sense for thousands of citizens to travel into the Central Business District of large cities to source liquid cash!

Cash is a low-income economy’s opium; hence in high-income countries, an economy can be virtually cashless.

High-income countries have widespread wealth levels to utilise monetary platforms that are alternative to cash dependency.

With careful assessment, Zimbabwe’s credit and liquidity issues can be interpreted as low-income base issues as well.

It may seem counter-intuitive without giving it curious thought, but in Zimbabwe, just like in many other low-income countries, no money equals more problems.

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