Navigating Economic Challenges: Freelance Workers in Emerging Markets

Khalil Osman

Head of Growth, Elevate Pay

Dec 23, 2023

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7 minute read

In the fast-evolving landscape of remote work, professionals from emerging markets have found unprecedented opportunities to work with international employers. However, amidst the global reach and connectivity, a significant pain point remains—freelancers often face challenges when it comes to getting paid for their valuable services. In this in-depth exploration, we will shed light on the formidable hurdles faced by freelancers when working for international employers in emerging markets. Additionally, we will delve into how Elevate offers profound solutions to address these challenges.

Inflation in Emerging Markets Erodes Local Currency Value

Inflation erodes the purchasing power of currency over time, leading to a higher cost of living. The steady decline in purchasing power means that the same hard-earned amount they receive today may hold much less value tomorrow. Consider a freelance graphic designer in an emerging market country who signed a contract with an international client for a fixed fee of $500 USD at the beginning of the year. However, as inflation starts to rise, the cost of living surges with essential goods and services experiencing significant price hikes. For instance, bread rises by 20%, internet costs increase by 30%, and public transportation fares surge by 25%. As a consequence, the freelancer's hard-earned $500 USD, which was initially meant to cover their living expenses comfortably, now holds much less value, forcing them to cope with rising costs. Inflation's impact on freelancers in emerging markets goes beyond mere financial constraints and budgeting challenges. It also takes a toll on their overall quality of life and well-being. They may find themselves cutting back on essential expenses such as groceries, utilities, healthcare, and transportation to make ends meet.

Freelancers in emerging markets often face irregular income streams due to the nature of their work, and inflation compounds this uncertainty (see graph below). The fear of not having stable earnings or enough savings to weather economic downturns can weigh heavily on their minds, causing anxiety about the future due to macro-economic circumstances outside of their control.

USD Strength and Currency Crises in Emerging Markets

The strength of the United States Dollar (USD) holds significant sway over the global economy, with implications that extend to emerging markets. However, this apparent strength can create substantial challenges, including currency crises that profoundly affect citizens living in these emerging markets.

Capital flows play a crucial role in emerging markets, attracting foreign investors seeking higher returns and diversification. However, when global economic conditions change or market sentiment shifts, investors may opt to withdraw their funds from these markets and repatriate them to the US or other safe-haven destinations. This sudden reversal of capital flows puts pressure on emerging market currencies, leading to devaluation against the USD.

Another consequence of USD strength is the burden of external debt. Emerging market countries often borrow in foreign currencies, especially USD, to finance development initiatives. While this initially offers more favorable borrowing terms, it exposes these economies to exchange rate risk. A weakening local currency against the USD increases the burden of servicing external debt, potentially leading to debt crises felt across the nations.

The culmination of these factors often leads to an emerging market currency crisis. When a country's currency experiences a sharp and sustained devaluation against the USD, it creates a host of challenges for its citizens, which include freelance workers. The cost of living rises dramatically, the purchasing power of earnings from international clients dwindles, and financial instability becomes a serious concern.

In recent years and especially after the COVID-19 pandemic, emerging market countries have witnessed a notable shift in their economic landscape as they increasingly rely on freelancers to drive foreign currency inflows and stimulate local economies. Their ability to work remotely for clients across borders, while earning in stable foreign currencies like the USD, has positioned them as key contributors to the economic growth of their home countries. Their expenditure on everyday essentials, such as housing, food, transportation, and entertainment, stimulates domestic demand, thereby supporting local businesses and contributing to the growth of the service and retail sectors. As local governments witness the rising importance of freelancers as a substantial source of foreign exchange, they may be incentivized to create a more conducive environment for freelancers to thrive.

Limited Payment Platforms for Freelancers in Need of Efficient Payouts

Freelancers in emerging markets face significant challenges when it comes to receiving timely and secure payments from international clients. Traditional payment methods like SWIFT or alternative remittance options can be slow, costly, and subject to various intermediaries, leading to prolonged payment processing times and transaction fees that can reach as high as $50 per transfer. Moreover, outdated banking systems and limited access to international financial networks make it challenging for freelancers to receive payments in a seamless and timely manner.

Working with international clients often means receiving payments in foreign currencies, which adds another layer of complexity for freelancers in emerging markets. Currency conversion can incur high fees, and unfavorable exchange rates further diminish the value of their earnings when converted into the local currency. These fluctuations not only reduce the purchasing power of their earnings but also introduce uncertainty in saving.

Freelancers often find it challenging to find suitable payment rails that cater to their specific needs. While international clients may prefer payment methods common in their home countries, these methods may not be accessible or supported in the freelancer's country. As a result, freelancers may have limited options to receive payments, leading to delays and potentially forcing them to resort to unconventional and riskier means. Furthermore, the absence of secure and regulated payment options in one's home country raises valid concerns about potential fraud or unauthorized access to sensitive financial information. This, in turn, fosters a sense of hesitancy among freelancers when it comes to sharing their payment details, making it increasingly challenging for them to trust and engage in cross-border transactions confidently.

The struggles with payment rails have a profound impact on the financial stability of freelancers in emerging markets. Delayed or unreliable payments can create a negative domino effect. Moreover, the lack of consistent and reliable payment systems undermines the freelancer's confidence in pursuing international clients, limiting their growth prospects and potential earnings.

Elevate: Empowering Freelancers with Borderless Banking Solutions

Elevate's FDIC insured USD account grants freelancers the freedom to manage their finances with unparalleled ease and efficiency. The platform streamlines payment processes, offering faster and more reliable cross-border transactions. This means freelancers can receive payments from international clients without the traditional challenges and delays associated with currency conversion and intermediary banks.

Elevate's partnership with a renowned U.S. banking institution, recognized on Forbes' prestigious 2020 World's Best Banking list, guarantees an exceptional level of security and trust. The platform prioritizes data protection, ensuring that freelancers' financial information remains safe and confidential. Elevate's commitment to compliance and regulatory standards ensures that users can confidently transact and store their earnings with peace of mind.

Elevate is revolutionizing the landscape of borderless banking by offering freelancers and remote workers in emerging markets a dedicated USD account, redefining the very essence of financial empowerment. Elevate enables freelancers to thrive in the global marketplace, granting them enhanced financial stability and security, and unlocking a myriad of opportunities for growth and success on their professional journeys.

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© 2024 Elevate Pay. Bloom Financial Technologies Inc trading as Elevate Pay is a financial technology company, not an FDIC insured depository institution. Banking services provided by Bangor Savings Bank, Member FDIC. FDIC insurance coverage protects against the failure of an FDIC insured depository institution. Pass through FDIC insurance coverage is subject to certain conditions. The Elevate Pay Mastercard® Debit Card is issued by Bangor Savings Bank, Member FDIC, pursuant to license by Mastercard International Incorporated. Mastercard is a registered trademark, and the circle design is a trademark of Mastercard International Incorporated. Spend anywhere Mastercard is accepted.

© 2024 Elevate Pay. Bloom Financial Technologies Inc trading as Elevate Pay is a financial technology company, not an FDIC insured depository institution. Banking services provided by Bangor Savings Bank, Member FDIC. FDIC insurance coverage protects against the failure of an FDIC insured depository institution. Pass through FDIC insurance coverage is subject to certain conditions. The Elevate Pay Mastercard® Debit Card is issued by Bangor Savings Bank, Member FDIC, pursuant to license by Mastercard International Incorporated. Mastercard is a registered trademark, and the circle design is a trademark of Mastercard International Incorporated. Spend anywhere Mastercard is accepted.