NAIROBI OUSTS LAGOS AS AFRICA’S MOST EXPENSIVE CAPITAL

Business Daily Africa

By MUGAMBI MUTEGI, pmutegi@ke.nationmedia.com

A steep rise in the cost of living in past 12 months has seen Nairobi dethrone Lagos as Africa’s most expensive city.

London-based Economist Intelligence Unit (EIU) says in a new listing of the world’s most expensive places to live in that rapid increase in consumer good prices linked to new taxation measures propelled the Kenyan capital to the top spot on the continent, ahead of Côte d’Ivoire’s Abidjan.  Though it dropped one position from last year’s global ranking to position 73, Nairobi’s emergence as Africa’s most expensive city should catch the attention of Kenya’s policy makers, especially over its possible impact on the quest to become East Africa’s commercial hub.

The EIU’s 2013 index survey looks at over 50,000 individual prices which are collected in the 131 countries surveyed. It looks at everyday goods and services including food, drinks, rent, petrol, clothing, household supplies and transportation, the prices are then converted into dollars to help create the index whose base city is New York.  The Economist list is only one of the other lists mainly used by expatriate and government workers to determine compensation and allowances. It is also used by travel companies to advice their customers when travelling to these cities.  One other popular one is the Mercer’s cost of living survey, taken annually in March. This survey covers over 200 cities and though it covers some of the same things as the Economist, the strength of the local currency against the US dollar is considered.

The ranking, which is based on the cost of living, is important because it determines a city’s ability to attract and retain foreign investment, expatriates and tourists.  EIU says a slight steadying of the exchange rate helped Nairobi to improve its global ranking from last year’s position 72 to 73 in 2014.  An EIU analyst said that despite the relatively stable exchange rate Nairobi still performed worse than other African cities.  Any gains that may have accrued from this stability were eroded by an increase in the cost of commodities and services, according to the Worldwide Cost of Living 2014 survey that was released on Monday.  “Nairobi has risen up the ranking over the past decade due to a number of factors, including an increase in the local cost of living”.  This has been compounded by relative stability in the Kenyan currency, which only fell slightly against the US dollar leaving goods and services more expensive than other African cities in dollar terms.

Nairobi’s competitiveness in terms of cost of living has been undermined by the fact that there were sharper currency declines in other African cities (notably South Africa) and lower inflation levels.  The survey, which sampled eight African cities, placed Morocco’s Casablanca as Africa’s third most expensive city followed by Lusaka (Zambia), Cairo (Egypt), Lagos (Nigeria), Johannesburg (South Africa), Pretoria (South Africa) and Algiers (Algeria).  The latest EIU ranking is in stark contrast with the 2012 edition that listed Nairobi as the second least expensive city in Africa after Egypt’s Cairo.  Like in 2012, this year’s survey did not include Angola’s capital Luanda, which has in the past consistently ranked as Africa’s most expensive city.  The 2014 survey indicates that Kenyans are digging even deeper into their pockets in to pay for basic needs like food, toiletries, rent, fuel and utility bills besides paying a premium for political stability and security. 

The survey, which tracks prices of over 160 items, says Nairobi residents are having a tougher time buying luxury goods, including beer, wine and cigarettes.  The survey indicates that the cost of a kilogramme of bread in Nairobi increased from last year’s $1.46 to $1.63 this year while a litre of unleaded petrol rose to $1.35 from $1.30.  A litre of petrol now costs Sh111.55, after a Sh0.96 per litre increment mid last month.  With $1.4 (Sh122) you can get at least a kilogramme of bread in Nairobi. The same bread costs $2.47 in Lagos and 1.74 in Johannesburg. In the most expensive city, Tokyo it costs $9.06 (close to Sh800) compared to $0.86 (Sh59) in the least expensive city, Mumbai.  Nairobi’s high ranking in the list of most expensive cities could help multi-national companies justify high salaries and hardship allowances they pay employees stationed in the Kenyan capital. But it could also work in the reverse, encouraging transnational companies to overlook Kenya while considering where to invest.

During the period under review, introduction of value added tax on a range of previously tax-exempt and zero-rated goods was one of the main drivers of the high cost of living in Nairobi (and the country at large).  The new taxes have hit low-income earners hardest through its introduction in basic commodities such as exercise books and textbooks, electricity, and cooking gas.  Nairobi has in the recent past attracted a number of global corporations that have established regional, manufacturing and distribution networks in the city. These include General Electric, PepsiCo, and technology firm IBM.

The 2013 EIU survey found the Kenyan capital particularly expensive for the middle and upper class residents who consume luxury goods and prefer private cars to public transport.  The high cost of living in the Kenyan capital is mainly driven by the prices of consumer goods such as petrol, beer and wine, whose taxes have been on the increase.  The average price of an okay bottle of wine in Nairobi is $12.23 (Sh1,064) compared to $7.81 (Sh679) in Johannesburg, and $11.48 (Sh999) in Lagos, according to the survey.  “It is sorely tempting to figure out a new base in Africa at times because Nairobi has become so expensive. However, due to its geographical location and excellent connections to the rest of the continent, the Middle East, and South Asia, I will most likely keep it as my base. Because of this, it will continue to grow and attract multi-national companies and organisations.”

If Japan has been in your bucket list then maybe you need to re-think it.  Two of its cities Tokyo and Osaka, topped this year’s list of the most expensive places in the world.  For Tokyo, it did not have come as a surprise as it has remained top of the world’s most expensive cities for 14 out of the last 20 years.  When it was not tops, the position was either held by Zurich, Paris or Oslo, who are still ranked among the top 10 this year.   

Nairobi is expensive but it can’t be compared to cities in Australia. Two of its most popular cities, Sydney and Melbourne, rank as the third and fifth most expensive, with Oslo ranking fourth.  The report notes that 10 years ago there were no Australian cities among the 50 most expensive cities but from two years ago, they have begun to feature mainly driven by economic growth and currency swings to make them more costly with South Asia providing some of the cheapest cities, according to the EIU.  The Indian subcontinent - India, Pakistan, Bangladesh, Nepal and Sri Lanka – provides five of the 10 least expensive cities in the world. Mumbai and Karachi share the position of the least expensive cities.  The irony is, if you take Asia as a whole, it is the continent that has six of the 10 cheapest cities and at the same time the world’s 20 most expensive cities fall in this vast continent.

…… and I choose to live here.