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 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.
Jon Copestake, 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,” said Mr Copestake.
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.
Mr Copestake says that 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.
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.
On Tuesday, the Monetary Policy Committee (MPC) held steady its lending rate citing a stable inflation and exchange rate outlook even as it warned that political instability in Eastern Europe, Middle East and North Africa posed a risk to oil prices.
February’s inflation stood at 6.86 per cent and the Kenya National Bureau of Statistics said the drop from January’s 7.21 per cent had defied marginal increases in food, fuel and transport costs.
In what appears to question Kenya’s official economic data, the EIU researchers say their survey had produced higher inflation figures than what KNBS has stated.
“Despite official inflation of 3-4 per cent, we recorded price rises in our basket of goods of over 8 per cent last year reflecting a difference between official inflation measures and the items we survey,” said Mr Copestake.
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.