Why rural areas seem to have more money than urban areas

Earlier this week, a fellow economist started a conversation on the low money supply in the economy in an election year. Indeed, it is a surprise to many watchers and economic observers. Why is there no excess cash in the economy yet the election spend is highest this year?

On one hand, it is speculated that the Central Bank of Kenya printed less cash in anticipation of campaign money doing the rounds in the country. The induced deflation would be automatically solved by the money being spent by the candidates, political parties, civil society and the government on the upcoming elections.

But the more accurate narrative is that the Kenyan middle class never gets to receive the election cash. The result is that the people at the bottom of the pyramid and businesses serving them are receiving more cash than businesses targeted at the middle class. This is especially true in the rural areas.

INVESTMENT PROPOSAL

A fisherman along the shores of Lake Victoria called me earlier in the week. He gave me an investment proposal to construct fish cages and grow the fish for nine months. As it turns out, one cage is around Sh100,000 so for the five proposed cages he needed Sh500,000. As an enterprising member of the Nairobi middle class, I didn’t have it. And I am not alone.

The offer was pretty good. The return on investment would have been almost five fold in less than a year. That is almost 10 times what I would get in the stock market in a good year. So I reached out to fellow working class Nairobians for pooled capital but it felt like I was trying to get eggs from cockerels.

I have discussed in this column how the African middle class is edgy. While this category of people spends their income generously, the income is much smaller compared to their western counterparts and they are sensitive to economic shocks.

AFFECT SIGNIFICANTLY

If indeed the speculation by my colleagues is true, then a decision like that of the Central Bank of Kenya would affect the Kenyan middle class significantly, especially at a time when food prices are so high. This would mean a lower disposable income and, in turn, less savings. Thus, it is no surprise that my fellow investors treated my offer as a disturbance even though it was quite the deal.

My fisherman nephew could, however, not understand how we could not raise such an amount. There is a general assumption that people living in cities make more money. Collectively, this is true. Nairobi alone contributes about 29 per cent of the Kenyan GDP. It is the seat of government, the commercial hub of the region and houses numerous international agencies. It is also a base for many diplomatic missions. Naturally, there are greater opportunities for income generation.

However, it would seem like devolution is working more than we are willing to admit.

PORT EMPLOYEES

Down in the coast, the traditional middle-class categories were the port employees, bankers, lawyers, local government workers, senior teachers, senior hotel managers as well as staff at the cement factory and the oil refinery. With the exception of a few outliers, there were no other substantial sources of income to create a new category of the middle class. Today, a new group is emerging in suppliers, contractors, consultants and innovative business owners who spotted the opportunity early.

Along Lake Victoria, local entrepreneurs are generating real cash in fishing or agribusiness. My nephew has seen this in the village and so he imagined the same boom was being experienced in the city.

So, what is causing the disparity in growth?

BEING FELT

Devolution money is finally being felt on the ground. Further, more development agencies are shifting their focus to rural programmes while mega government projects like the standard gauge railway seemed to favour the rural folk. The money circulation is creating buying power and a multiplier effect on these micro economies. Micro enterprises are being fed with this cash and are steadily growing into medium enterprises.

Additionally, the rural folk don’t pay rent. They also enjoy low priced food items and don’t have the pressures of image suffocating the urban middle class. Thus, the potential for saving is much higher. With this, savings can be easily converted into investments, leading to real wealth creation.

Given the increased income in the rural areas and the larger savings quotient, it is a logical observation that rural economies seem to be growing faster than the urban economies.

Odhiambo Ramogi is the chief executive officer of Elim Capital.

@Odhiamboramogi