Companies in Nairobi and Kigali seeking the services of foreign experts will dig deeper into their pockets after a survey ranked the two cities the most expensive in the region.

The 2012 cost of living survey, carried out by an international human resource consultancy firm shows that Nairobi and Kigali have become less attractive to international workers living in the region.

Dar es Salaam and Kampala were ranked third and fourth respectively.

However, Nairobi and Dar es Salaam improved in the rankings compared with last year, when their currencies weakened.

Nairobi was ranked at position 122 up from 108 in 2011, while Dar was at position 193, up from 187 last year.

Kigali and Kampala rose in their rankings with the former rising to 136 from 156 last year and the latter slightly, from 202 to 200.
The survey attributed the high cost of living to weak local currencies that pushed up inflation.

The Kenya shilling traded at a record low of Ksh 107 to the dollar last year, as did the Tanzanian shilling at Tsh 1,823 and the Ugandan shilling at Ush 2,901.

While the weakening of the currencies hurt the economies, of employees living and working outside their home countries, benefited.

“The fact that a dollar now exchanges for more shillings means that expats can be paid the same salary and afford a more comfortable lifestyle, so foreign workers are happy,” said Martin Openda, a human resource consultant based in Nairobi. “But for the local workers it’s a negative thing, because the local employer is not increasing salaries to keep up with inflation.”

Inflation is in the double digits in all the EAC economies, with the exception of Rwanda’s-latest figures show Burundi’s inflation is at 25.2 per cent, Tanzania 18.6 per cent, Uganda 18.2 per cent and Kenya 12.2 per cent. The Mercer survey is seen as the most comprehensive one on measuring the cost of living, and is designed to help multinational companies and governments determine compensation allowances for their expatriate employees.

Human resource analysts said high rankings for the EAC capitals could send investors with large numbers of expatriates back to the drawing board.

Growing pressure for higher expatriate compensation could affect ongoing efforts to cut operating costs and ultimately erode profitability.

Kenya’s commercial banks for example, have seen their wage bill rise sharply. The Central Bank in its latest banking sector report said that total salaries and wages in the banking industry rose from Ksh 47 billion ($552 million) in 2010 to Ksh 52 billion ($611 million) in 2011.

The Mercer survey used New York City as the reference city and the US dollar as the base currency, and two main factors determined the rankings.

The study monitored the performance of local currencies against the dollar between March 2011 and March 2012.

According to Mercer, the cost of housing is often the biggest expense for expatriates, and it plays an important part in where the cities are ranked.

20 African cities were ranked in the top third of the list, including Luanda, which is the Africa’s most expensive, and the world’s second most expensive after Tokyo, Japan.

In the past few months, the East African region has become increasingly attractive for multinational companies to set up base while local companies are hiring expatriates to boost their human capital offering. In Kenya, for example, several global companies have recently entered the market, including US advertising firms BBDO and TWBA, both subsidiaries of advertising conglomerate Omnicom Group. Increased interest in oil and gas in the region has also seen major international players in the oil industry such as Tullow Oil, Total and Anadarko Petroleum Corporation extend their footprint in East Africa.

European hotel chain Kempinski Hotels announced two weeks ago it was entering the Kenya market.

“Deploying expatriate employees is becoming an increasingly important aspect of multinational companies’ business strategy, including expansion.

“But with volatile markets and stunted economic growth in many parts of the world, a keen eye on cost efficiency is essential, including on expatriate remuneration packages” said Nathalie Constantin-Métral, who is in charge of the survey at Mercer.

“Making sure salaries adequately reflect the difference in cost of living from the employee’s home country is important in order to attract and retain the right talent where companies need them,” she said. 

The Mercer survey covers 214 cities across five continents and measures the comparative cost of over 200 items in each location, including transport, food, clothing, household goods and entertainment. The lower the country is ranked, the cheaper it is for foreigners to work there.

With a few exceptions, the majority of European cities have all dropped in the rankings, mainly due to a considerable weakening of local currencies, including the euro, against the US dollar. In Asia, more than six in 10 cities moved up in the rankings, including all surveyed cities in Australia, China and Japan. New Zealand. Cities in Australia and New Zealand witnessed some of the biggest jumps, as their currencies strengthened significantly against the dollar.