The weakening of the Kenyan shilling against major global currencies has lifted the salaries of expatriates and made it easier for them to settle their expenses on the back of cooling inflation, increasing the attractiveness of Nairobi for them.
The Kenyan currency has steadily weakened against major world currencies since the year opened, hitting a record low of 147.36 to the dollar from 123.37 in January, reflecting a 19.4 percent depreciation that has handed an advantage to expatriates.
A weak local currency has the effect of inflating dollar, pound and euro-denominated salaries of expats such as employees of the United Nations, diplomatic missions and multinationals.
Kenya’s annual inflation has dropped for the third straight month to end August at 6.7 percent—the lowest in 17 months.
A weakening shilling amid cooling inflation has presented a perfect mix for the expatriates when compared with locals, many of whom have endured inflation-adjusted pay cuts.
Mercer Cost of Living ranking 2023, which tracked living expenses in different cities, showed at the end of June that Nairobi had improved 13 places, to become 173 most expensive city, compared to the previous year ranking of 160.
Cairo, where the Egyptian pound had weakened by about 25 percent to the dollar by end of May, improved 63 places to 217 out of the 226 cities ranked by Mercer, making it the ninth least expensive city for expats. Mercer's ranking is based on changes of more than 200 items in each location, including housing, transportation, food, clothing, household goods and entertainment.
The improved ranking of Nairobi ties with Mercer’s findings that inflation and exchange rate movement have had a bearing on the attractiveness of cities in the eyes of expatriates.
“Inflation and exchange-rate fluctuations are directly impacting the pay and savings of employees who are internationally mobile,” notes Mercer.
“High inflation and market fluctuations impact the cost of living across the world, impacting our purchasing power and standard of living.”
Lower foreign exchange inflows and higher global interest rates will see the shilling continue to lose ground against the US dollar, according to data analytics and intelligence firm Stears.
“The Kenyan shilling is expected to trade within the range of Sh146 to Sh152 per US dollar in the coming weeks,” said the firm in an analysis as part of its recently launched Africa FX Monitor.
The weak shilling and falling inflation look set to widen the gap between the earnings of expats and the locals earning in the Kenyan shilling.
The protection of expats against runaway inflation is set to benefit owners of restaurants, shopping malls, and safari lodges and resorts where they spend a lot of money.
On average, employees of external organisations and bodies earned Sh313,084 per month last year, up from Sh263,611 five years earlier, making them the best earners in the country, according to data from the Kenya National Bureau of Statistics Economic Survey.
The pay for these expats is nearly twice the average monthly wage of Sh173,506 paid to a worker in the financial services sector, which is the second-best remunerated segment in the private sector.
The number of foreigners coming to work in Kenya has, however, remained largely stable in recent years, with the government issuing and renewing a total of 19,305 work permits last year compared to 18,917 in 2017.
Currency exchange rate fluctuations have a major impact on international employees’ purchasing power, but the ones who stand to benefit most from the weakening local currency are those whose expenses are local, as opposed to those who remit their dollars back home to pay for items such as mortgages and school fees.
The exchange rate is also a factor when international organisations are negotiating pay with their employees, where a weaker shilling offers an opportunity to negotiate lower dollar salaries for incoming expatriates, who peg their pay demands on the prevailing cost of living in the country of posting.
Employees paid in Kenya shillings have had it tough given the new tax measures such as a 1.5 percent housing levy on gross pay and the doubling of value-added tax on fuel, which is expected to drive up the cost of living.
Electricity bills, food, and fuel prices have shot up since the beginning of the year, raising household budgets by thousands of shillings.
The cost of big-ticket purchases such as vehicles has also shot up by hundreds of thousands of shillings, making them more expensive for people paid in the national currency.