A steep rise in the cost of living has pushed Nairobi up the list of Africa’s most expensive cities and diluted the quality of life for its residents, a newly published report indicates.
The Kenyan capital is now ranked Africa’s second most expensive city after Nigeria’s Lagos, putting to test its ability to attract foreign investment and tourists.
This latest ranking is the opposite of last year’s edition when Nairobi was listed as the second least expensive city in Africa after Egypt’s Cairo.
The new survey did not include Angola’s capital Luanda, which has consistently ranked as Africa’s most expensive city.
The Economist Intelligence Unit (EIU), the UK firm that conducted the research, said the change in Nairobi’s ranking is linked to the steep rise in the cost of six goods in a basket used to measure relative prices.
The survey found that the Kenyan capital is 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, beers and wines. A litre of petrol costs an average of $1.3 in Nairobi, up from $1.24 last year – nearly five times the $0.35 price that consumers are charged in Cairo and Lagos’ $0.61.
Egypt and Nigeria offer heavy subsidies to consumers of petrol while Kenya did away with all subsidies in the early 1990s.
The price differences are equally high in Nairobi’s wines market where a 750 ml bottle costs an average of $12.23 compared to $10.09 in January last year.
A similar quantity of wine costs an average of $7.81 in Johannesburg, Lagos ($11.48), Cairo ($7.06) and Pretoria ($8.21).
Nairobi’s consumers are however bearing a lighter burden in the foods compared to other African cities. EIU found that a kilogramme of bread costs $1.4 or nearly half the $2.47 price in Lagos.
EIU says highly priced consumer goods have eroded the quality of life for millions of Nairobi residents than the previous year when the city ranked 174 in the quality of living index prepared by Mercer – an international human resource consultancy.
EIU has placed Nairobi in the 177th position in the quality of living index.
Austrian capital Vienna is the city with the highest quality of living, followed by Zurich, Auckland, Munich, and Vancouver, according to the EIU index.
This year’s index shows that residents of Nairobi are enjoying a lower quality of living than those who live in the Ugandan capital Kampala which is ranked 162.
The Kenyan capital is, however, ahead of Tanzania’s Dar es Salaam (187), Nigeria’s Abuja (205) and bottom ranked Baghdad (221).
The quality of living index is linked to a number of factors including the cost of transport, housing, electricity, cost and quality of water, political stability and security.
Analysts said Nairobi’s latest standing in the two surveys could reduce attractiveness to foreign investors, particularly because they must bear the burden of higher compensation for expatriate staff posted to Kenya to cover the increased costs.
“To appropriately compensate the expatriates, multinationals must include adequate hardship allowances in the compensation packages,” said Slagin Parakatil, a senior researcher at Mercer.
An increase in the cost of compensation for expatriates –usually senior executives and technical staff — ultimately raises the cost of doing business for the companies making the difference among cities.
Some analysts however maintained that the rankings are unlikely to make a big impact on Nairobi’s attractiveness to investors seeking a piece of Kenya’s and East Africa’s consumer markets.
“Kenya is an important market for any investor who is seeking growth in Africa’s frontier markets,” said Sammy Onyango, the chief executive of Deloitte East Africa.
He said a lot more factors remain in favour of Kenya including its relatively bigger economy, a highly-skilled labour force as well as its status as a regional transport and communication hub.
The Kenyan capital has in the past three years attracted a number of global corporations that have established regional manufacturing and distribution networks in the city. The list includes US conglomerate General Electric, beverage firm PepsiCo, vehicle manufacturer Beiqi Foton, and technology firm IBM.
Kenya is betting on the recently launched $10 billion (Sh870 billion) Konza technopolis to attract more investments in real estate and ICT sectors.
Multinationals and diplomatic missions have regularly used the cost of living and quality of life rankings to set hardship allowances and remuneration packages of staff sent to work in a country with lower quality of living compared to their home-country.
Expatriates are also paid a premium on their salaries to compensate for the inconvenience of being uprooted from home and relocated to a foreign country. Transnational companies also rely on the cost of living surveys to determine allowances paid to staff on short business trips.
Nairobi’s latest ranking as a more expensive and less desirable metropolis is expected to further lift the compensation of expatriates whose salaries were hugely inflated in late 2011 as the Shilling weakened against major world currencies.
Globally, the EIU has ranked Japan’s Tokyo and Osaka as the world’s most expensive cities while India’s Mumbai and Pakistan’s Karachi are the least expensive cities to live in.
Last year’s Mercer survey found that Nairobi remains ahead of many African capitals in terms of infrastructure development – a factor that may help offset the city’s high cost of living.
Nairobi is ranked at 173 in terms of infrastructure development out of the total 221 cities ranked. Dar es Salaam finished in the 188th position, Kampala (195), Lagos (214), and Abuja (215).
Analysts see this as a major score for the Kenyan capital that particularly determines a city’s attractiveness to expatriates. “Infrastructure has a significant effect on the quality of living that expatriates experience,” Mr Parakatil said.
“A city’s infrastructure can generate severe hardship when it is deficient,” he said. The infrastructure rankings are based on electricity supply, water availability, telephone and mail services, public transportation, traffic congestion and the range of international flights from local airports Nairobi’s high infrastructure standing has recently benefitted from completion of major projects such as the Thika superhighway and expansion of its airport.
Kenya plans to invest billions of shillings in new infrastructure for Nairobi that should further lift city’s investment credentials. The list includes new highways, a new airport terminal to more than triple its capacity to 9.3 million passengers by 2015.
Mercer names Singapore as having the best infrastructure globally, with its port handling a fifth of the world’s shipping containers. It is followed by Frankfurt, Munich, Copenhagen, and Düsseldorf.