Higher income and lower living costs: All you need to know about “Geoarbitrage”

CatalystLifestyle, Planning, Savings

We’ve all dreamed of working on a sunny beach, where you’d use one hand to type an email and the other to sip away at a long island iced tea.

Did you know that if you moved abroad to reduce your living costs or moved operations to increase your income – otherwise known as “geoarbitrage” – you might be able to live this dream? 

Do the work that you’re good at

There are two aspects to geoarbitrage. The first involves moving operations or outsourcing tasks to lower production costs.

According to Andrew Bradley, CEO of Fiscal Private Client Services, this aspect of geoarbitrage focuses on getting the best outcome in the most cost effective and efficient way. This can be achieved in part through delegation and outsourcing.

He explains that the simplest examples of this are where people employ workers who perform tasks they themselves would have had to do, but either prefer not to do, or cannot do efficiently.

“Doing the task is not an effective use of their time, so they get someone else to do it for them. This allows them to perform tasks they prefer doing or are better equipped to do,” says Bradley.

He believes that everyone should do this to some extent.  

“For example, I would employ a painter to paint my home. I could do it, but not very well and it would not be a good use of my time because I specialise in a different area. I would also not get much enjoyment out of it,” says Bradley.

“It’s best to delegate a task I’m not specialised in so that I can perform a task I prefer doing and am better at. With technological advances, geoarbitrage now allows this principle to be extended into many new areas – especially employing people in other regions, countries, and continents,” says Bradley.

Earn a lot and live low-cost

The second aspect of geoarbitrage involves relocating to optimize your income and reduce your costs.

Bradley says that geoarbitrage is taken to the next level when people or companies are based in one country where they spend their money, while they earn from another country.  

“Imagine a person’s based in South Africa but offering their services in the United Kingdom (UK). For every pound they earn, they effectively make over R20. The cost of labour in South Africa is a lot lower than the UK, so it would make sense for a UK company to hire a South African,” says Bradley.  

“If you live in South Africa and earn in American dollars or British pounds you would have a better standard of living than if you were earning South African rands. Similarly, you could earn in South Africa but live in a lower-cost country, such as Zambia,” he explains.

Bradley says that in a local context we’re also seeing people move to smaller towns, such as Montague and Vrede, where the living costs are significantly lower, but they continue to earn Cape Town and Johannesburg salaries.

Could you do this?

In theory, Bradley believes that any profession could participate in geoarbitrage.  

“For example, some construction workers and engineers go work in Dubai on a contract and then come back to live in South Africa. However, this creates havoc with families. It can be very disruptive with the demands of travelling for work and then returning home for time off,” says Bradley.  

He points out that geoarbitrage works better for virtual workers who can stay at home while working remotely and offer their services globally – for example, graphic designers, online teachers, and IT developers. For example, they are paid in American dollars but live in South Africa and spend in rands.  

“Achieving this objective is not trivial. It will not be possible for many people – unless agencies develop to provide this service,” says Bradley.

As a point of departure, he suggests that you start working on finding clients in another country. He explains that it’s tough enough building a reputation and business in your own town, province and country, let alone achieving that in another country.

“When doing this, make sure you’re paid a premium to what you would be paid in your own country for the same service. If you have to do some traveling, that’s a cost you need to factor in. If you have to travel frequently, it will take a toll on your family. You need consider this also,” says Bradley.

What if everyone did this?

Bradly says that the Covid lockdown experience has taught us that working remotely can work for certain professions.

“The consequences of this are far broader than most people anticipate. It may be pleasing to know that you can stay at home in Pretoria and work for a company in Johannesburg without travelling. But soon the company will realise that if you are working remotely you may as well be in Mumbai,” says Bradley.

“This will create a global workforce for many industries, making it a lot more competitive. The best qualified, hardest workers, living in the lowest-cost areas will have a huge advantage,” he explains.

In addition to this, he believes that there are huge social, political, economic, and tax consequences to this, as countries and governments come to terms with how they manage and deal with these dynamics.

“As this trend develops there will be significant social upheavals in many countries,” says Bradley.

By Isabelle Coetzee