Weak shilling boosts Nairobi on list of expensive cities

What you need to know:

Cost of living survey ranks Nairobi at position 78 compared with 69 last year, meaning Kenya’s capital became less expensive for expats.

The weakening of the Kenyan currency helped Nairobi improve its standing on the list of the world’s most expensive cities for expatriates, a new report says.

The Economist Intelligence Unit (EIU) cost of living survey that was released last week ranks Nairobi at position 78 compared with 69 last year, meaning Kenya’s capital became less expensive for expats.

Nairobi is home to the United Nations Environment Programme (Unep), multinational companies and embassies with diplomats, international civil servants and employees being paid in hard currencies such as the US dollar and the Euro.

“With the falling cost of oil and a strong US dollar pushing down prices, local inflation has been relatively low across the US. Given that the ranking uses New York as base city, most cities have also become relatively cheaper,” the report says.

The study, which compares prices of goods and services such as food, home rents, transport, utility bills, private schools and recreational costs, involved 133 cities.

The shilling shed about 16 per cent to the dollar last year due to falling revenues from tourism, tea and horticulture — Kenya’s key foreign exchange earners — amid a rising import bill.

The Kenyan currency hit a low of Sh106 in September compared to Sh90 in January last year. It is currently trading at Sh101 to the greenback.

A weak Kenyan unit has the effect of inflating dollar, pound and Euro-denominated salaries of expats who are finding it easier to foot their bills the local unit.

This made expatriates in Kenya among the biggest winners of the weakening of the shilling against the US dollar.

READ: Weak shilling lifts central bank’s profit to Sh48bn

It means that while an expat on a monthly salary of $5,000 took home Sh450,000 in January last year when the shilling was at Sh90, the same amount rose to about Sh510,000 in December on the account of exchange rate fluctuations alone, representing a pay increase of 13 per cent against an average inflation rate of about seven per cent.

That translates into higher purchasing power for an expatriate living in Kenya than their counterparts who are stationed, for instance, in New York on the same salary.

Kenya’s rate of inflation ranged between 5.61 per cent and 8.01 per cent last year. The cost of living measure last month eased to 6.84 per cent from 7.78 per cent in January on falling food and petroleum prices.

Improved ranking of the Kenyan capital should in the near term ease pressure for wage increments on United Nations agencies, diplomatic missions and multinationals.

It also determines the city’s ability to attract and retain foreign investment, expatriates and tourists.

“The survey itself is a purpose-built Internet tool designed to help human resources and finance managers calculate cost-of-living allowances and build compensation packages for expatriates and business travellers.”