$ Development < $ Underdevelopment

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Not to confuse our readers, the meaning of our title is that development is less expensive than underdevelopment. In other words, underdevelopment is in fact more costly than development.

Take the private sector, for example. Company X earned gross revenues of US$100,000 in the year ending December 31, 2014. This company is owned by Liberians who are not sitting around waiting for government jobs, but have taken the entrepreneurial risk to go into business. Cost of goods sold and services rendered amounted to US$90,000. That means Company X only realized profits of US$10,000 in 2014. Company X is very efficiently run; but one solitary cost item sucks its profit margin dry. Fuel, used to generate electricity. This accounts for US$30,000 of the company’s budget per annum. The country in which it operates does not produce electricity. Home and business owners use what they can afford – anything from candles to diesel. Had affordable electricity been available, Company X projects that it could be doing at least 20% more business, which means hiring more workers (creating more jobs) and widening its profit margins.

Multiply that by 10,000 Liberian businesses, and this amounts to tangible economic growth that does not require the manipulation of the numbers.

A Liberian banking official recently told the Daily Observer that his bank is presently caught between a rock and a hard place, as are most banks operating in the country. In order to compete in the banking sector, his bank wants to begin offering debit cards. However, the servers that will keep the system operational 24/7 will need to be powered 24/7. In the absence of affordable electricity, that would be a major expenditure that the bank may not be able to afford. In business, the logical thing to do would be to pass the cost on to the customer; but if said cost is too high, customers may opt for a competitor who offers the same service for less. So if Bank X charges customers
US$5 per debit card transaction while Bank Z charges US$4, customers may opt for Bank Z unless Bank X offers other services that offset the cost and appeal to customers, causing them to stay.

This banking official said that even foreign based banks operating here in Liberia are feeling the pinch of high energy costs; but for them, high profit margins in other markets absorb the losses incurred in Liberia. Unfortunately for small and medium-sized Liberian businesses, they do not have the luxury of subsidiaries that can absorb losses. As such, SMEs and large corporations alike struggle despite their best efforts to stay afloat.

It applies across the board. Bad roads (underdevelopment) make business and private cars much more expensive to maintain and own. Bad roads also make transportation much more difficult, hence expensive. Business owners then have to pass the cost on to customers and the price of food skyrockets.

How does this relate to development? If an enabling environment is created to enable businesses to thrive, they will. If, due to the availability of affordable electricity, the cost of doing business is lower, the prices of goods and services, especially essentials such as food and water, will also be lower for consumers, who may then opt buy more. Businesses will themselves be empowered to expand and pay taxes into government coffers. In this way, development (affordable electricity) is less expensive and more profitable than underdevelopment for businesses, consumers and government alike.

Underdevelopment becomes even more unprofitable for governments from a legacy standpoint and from a stability standpoint. An administration that leaves a country underdeveloped will be judged very harshly in the annals of history. Every cabinet minister and executive who worked in that administration will be judged accordingly. Stability-wise, it is no secret in underdeveloped nations that when the level of underdevelopment reaches the critical point where it threatens citizen’s ability to feed their families, the perception of corruption takes over and anger sets in. The rest is effectively what we call history.

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