Weaker shilling boosts Nairobi’s ranking in list of expensive cities

The Kenyan capital, which is home to the United Nations Environment Programme (Unep) and a host of multi-national companies, dropped 14 places in the list of the world’s most expensive cities to position 122, enhancing its attractiveness to diplomats, international civil servants and employees of multinational companies who are paid in hard currencies such as the US dollar.

A weakening of the shilling has boosted Nairobi’s standing in the list of the world’s most expensive cities, according to a new report on the cost of living across the globe.

The Kenyan capital, which is home to the United Nations Environment Programme (Unep) and a host of multi-national companies, dropped 14 places in the list of the world’s most expensive cities to position 122, enhancing its attractiveness to diplomats, international civil servants and employees of multinational companies who are paid in hard currencies such as the US dollar.

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The new cost of living index compiled by Mercer, an international consultancy firm, puts Nairobi as the world’s 122nd most expensive city, dropping from position 88 and 108 in 2010 and 2011 respectively.

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Improved ranking of the Kenyan capital should in the near term ease pressure for higher wages among employees of United Nations agencies, diplomatic missions and locally based multinationals.

The Mercer index is used by multinationals and governments to determine the level of compensation for employees serving outside the home countries.

The new ranking has placed Nairobi as Africa’s 22nd most expensive city dropping one place from position 21 last year.

People familiar with the ranking said improvement in the cost of living for Nairobi-based expats at the global and continental levels is mainly linked to the steep depreciation of the local currency and a stagnation of rents in high-end of the housing market.

“A weakening of the Kenya shilling was one of the major drivers of Nairobi’s drop in the rankings,” said Zaid Kamhawi, Mercer’s Middle East Business Leader.

He added that the cost of housing is one of the biggest items measured in the survey that covers the comparative cost of more than 200 items in 214 major cities, including transport, food, clothing, household goods and entertainment.

The cost of renting a high-end of market residential house in Nairobi has stagnated or slowed down in the past couple of years on increased supply of units, cushioning Nairobi-based expats from rental inflation.

Mercer uses the US dollar and New York City as the base currency and city respectively.

In the survey period covering the 12 months to March, the shilling weakened against major world currencies, trading at a monthly average of 89 units to the dollar and hitting an all-time low of Sh107 against the greenback in mid October 2011 compared to an average of Sh80 to the dollar in 2010.

A weak Kenyan currency has the effect of inflating dollar, pound and Euro-denominated salaries making it easier for the expats to foot their bills in shillings.