Middle East becomes cheaper for expatriates
July 15, 2011 by admin
If you can put up with the occasional government crackdown, interruptions in Internet and cellphone service and a bodyguard following you around, then the Middle East has become a better place to work in the past year for expatriates, at least from a cost-of-living point of view.
Of 18 Middle East and North African (MENA) cities surveyed in March for cost of living relative to a benchmark of New York, all but two showed substantial declines from a year ago, according to a survey by the global human resources consulting firm Mercer. Among the biggest drops, Cairo fell 41 places to rank 128th among 214 cities covered in the global survey. Tehran dropped 27 places to No.130 and Dubai 26 places to 81.
A lot happened in the region between March 2010 and March 2011, but the decline in living costs for expatiates generally had more prosaic reasons than toppled leaders, mass protests and civil war. The biggest factor was that many of the region’s currencies are linked to the US dollar, sending costs down for expatriates living on dollar incomes, said Nathalie Constantin-Metral, a senior researcher at Mercer.
“As the dollar depreciated against other currencies, it pushed down relative costs,” she told The Media Line. “Other cities around the world have gone up in the ratings, while Middle East cities have gone down. If you look at the cost of living in local currencies, costs have remained quite stable.”
Although the list of top-10 top-cost cities was relatively stable, the expense of keeping someone housed, clothed, fed and entertained jumped in dollar terms in Australia, where the local currency gained 14% on the dollar in the year ending in March. Asian cities also grew more expensive because of the limited housing supply meeting expat standards. Latin American cities became costlier for expats due to a strong local currency in Brazil and high inflation elsewhere.
Mercer’s survey measures the comparative cost of more than 200 items, including housing – the single biggest factor – transportation, food, clothing, household goods and entertainment.
The only two MENA cities to show a relative rise in costs were the Saudi Arabian capital of Riyadh, which rose nine places to 135th, and Beirut, which advanced five to no. 75.
“Generally speaking, the cities in the Middle East are quite low in the ranking relative to New York,” Constantin-Metral said. ”In Riyadh, however, rental accommodation costs have increased quite a lot. There is rising demand and limited supply. In Beirut, prices for accommodation have also increased quite strongly and to a lesser extent so have prices of food.”
In fact, by global standards the Middle East is a relatively cheap place to live if you are collecting a dollar salary. By far the most expensive city in the region is Tel Aviv, but it ranks only 24th. After that, Abu Dhabi comes in at 67 and Beirut at 75. The big expatriate center, Dubai, ranks 81 in the Mercer survey. Four cities rank among the world’s cheapest, including Manama in Bahrain, Kuwait City, Doha in Qatar and Rabat, Morocco’s capital.
However, Constantin-Metral pointed out, the costs do not include security, which has likely become a bigger factor for expatriates living and working in the region this year.
The cost of living in Dubai for expats fell because of declining rents and a tepid economy still struggling to recover from the real estate and financial crisis that hit in 2008. Many tenants have been moving from larger units to smaller ones due to reduced household income and a “more cautious approach” towards household expenditures, Mercer said.
Jones Lang Lasalle said in a report that after sharp falls in 2009 and 2010, villa rents in Dubai grew 4% in the second quarter in certain “established areas.” But, it said, apartment rents continued to decline, by 1% in the three months and by 3% from a year earlier.
Cairo’s big 41-place drop in costs was largely due to the deprecation of the Egyptian pound that followed the mass protests and strikes that led to President Husni Mubarak’s ouster last February and the resulting sharp slowdown of the economy. The pound was down more than 8% at the end of March 2011, compared with March 2010.
But if it had relatively little impact on costs themselves, the Arab Spring did have some impact on collecting data for the survey.
The main factor attributable to the Arab Spring was in collecting data. Bahrain’s capital Manama was gripped by protests followed by a Saudi-led crackdown over the course of March, while in Libya civil war divided the country between government and rebel territories and paralyzed the economy. As a result, the data for Manama and Tripoli reflect September 2010 prices, except for accommodation, which is from March 2011, Constantin-Metral said.
Interestingly, even as relative costs are stable or in decline, Mercer says that the Middle East’s expat executives are in-line for pay raises this year. A survey of multinational companies in June said that across the region, which excludes North Africa but includes countries as far east as Pakistan, executives are set to increase compensation an average of 5.7%. Among the biggest increases will go to countries that have suffered violence, including Pakistan (13.5%) and Bahrain (6%), according to the Mercer estimates.