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African, Asian, and European cities dominate list of most expensive locations for expats

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Just as foreign exchange costs create headwinds for many multinational organisations, currency fluctuations – driven by economic and political unrest – are contributing to the cost of expatriate packages for those on the front line of globalisation of their organisations. 

Mercer’s 21st annual Cost of Living Survey finds that factors including instability of housing markets and inflation for goods and services impacts significantly the overall cost of doing business in a global environment. 

“As the global economy has become increasingly interconnected, close to 75 per cent of multinational organisations are expecting long-term expatriate assignments to remain stable or increase over the next two years to address business needs,” says Ilya Bonic, Senior Partner and President of Mercer’s Talent business. “Sending employees abroad is necessary to compete in markets and for critical talent, and employers need a reliable and accurate reflection of the cost to their bottom line.”  

According to Mercer’s 2015 Cost of Living Survey, Asian and European cities – particularly Hong Kong (2), Zurich (3), Singapore (4), and Geneva (5) – top the list of most expensive cities for expatriates. The costliest city for the third consecutive year is Luanda (1), the capital of Angola. Despite being recognised as a relatively inexpensive city, the cost of imported goods and safe living conditions in this country are available at a steep price.

Other cities appearing in the top 10 of Mercer’s costliest cities for expatriates are Shanghai (6), Beijing (7), and Seoul (8) in Asia; Bern (9); and N’Djamena (10). The world’s least expensive cities for expatriates, according to Mercer’s survey, are Bishkek (207), Windhoek (206), and Karachi (205).

Mercer's authoritative survey is one of the world’s most comprehensive, and is designed to help multinational companies and governments determine compensation allowances for their expatriate employees. New York is used as the base city, and all cities are compared against it. Currency movements are measured against the US dollar.

The survey includes 207 cities across five continents and measures the comparative cost of more than 200 items in each location, including housing, transportation, food, clothing, household goods, and entertainment. 

“Aligning workforce and mobility strategies by ensuring the right employees are in the right places is more critical than ever to manage globalisation,” says Bonic. “Properly compensating employees on international assignments is as important as it is costly.”

According to Bonic, this is especially important for emerging mobility programs with smaller pools of candidates and higher business needs for sending employees on international assignments. It is essential that these organisations have accurate and transparent data as they consider how to compensate fairly and in line with market demands.

Three European cities exist in the list of top 10 most expensive cities for expatriates. Zurich (3), the most costly European city, is followed by Geneva (5) and Bern (9). Switzerland remains one of the most expensive locations for expatriates due to the surge of the Swiss franc against the EUR. Moscow (50) and St. Petersburg (152) dropped 41 and 117 spots, respectively, as a result of Russia’s ruble losing significant value against the US dollar, lower oil prices, and a lack of confidence in the currency following Western sanctions over the crisis in Ukraine.

Aside from cities in the United Kingdom, Western European cities dropped in the rankings mainly due to the weakening of local currencies against the US dollar. In the UK, London (12) remained steady, while Birmingham (80) and Aberdeen (82) rose in the ranking and Glasgow (109) and Belfast (127) dropped. Paris (46), Vienna (56), and Rome (59) fell in the ranking by 19, 24, and 28 spots, respectively. The German cities of Munich (87), Frankfurt (98), and Berlin (106) dropped significantly as did Dusseldorf (114) and Hamburg (124).

“Despite moderate price increases in most of the European cities, European currencies have weakened against the US dollar which pushed most Western European cities down in the ranking,” explains Ellyn Karetnick, Head of International Mobility at Mercer. “While currency fluctuations have a major impact on costs, local conditions like high property prices or a two-tier economy for expats and nationals, as in the case of Luanda, can counter balance the impact of currency movements. Companies must understand, globally, where their employees are heading to and coming from to help manage these costs. This is no easy task in multinationals with thousands of employees crisscrossing the world. Hand-in-hand with this must come frequent reviews of expat pay packages. Local circumstances can change so fast that companies must be able to adjust their expat pay levels – to hold on to talent and manage their costs.”

As a result of local currencies depreciating against the US dollar, most cities in Eastern and Central Europe fell in the ranking, as well. Prague (142), Budapest (170), and Minsk (200) dropped 50, 35, and 9 spots, respectively, despite stable accommodations in these locations.

Tel Aviv (18) continues to be the most expensive city in the Middle East for expatriates, followed by Dubai (23), Abu Dhabi (33), and Beirut (44), which have all climbed in this year’s ranking. Jeddah (151) continues to be the least expensive city in the region despite rising 24 places. “Many currencies in the Middle East are pegged to the US dollar, which pushed the cities up in the ranking. Steep increase for expatriate rental accommodations particularly in Abu Dhabi and Dubai also contributed to the increase of the cities in the ranking,” says Nathalie Constantin-Métral, Principal at Mercer with responsibility for compiling the survey ranking.

Several cities in Africa continue to rank among the most expensive, reflecting high living costs and high prices of goods for expatriates. Luanda (1) remains the most costly city in Africa and globally, followed by N’Djamena (10), Victoria (17), and Libreville (30). Despite climbing 5 spots, Cape Town (200) in South Africa continues to rank as the least expensive city in the region reflecting the weak South African rand against the US dollar.

Cities in the United States climbed dramatically in the cost of living ranking due to the strengthening of the US dollar against other major currencies. While New York (16), the highest-ranked city in the region, remained the same as last year, cities on the West Coast, including Los Angeles (36) and Seattle (106) climbed 26 and 47 places, respectively. Constantin-Métral says: “The sweeping rise in the rankings of US cities this year is due unquestionably to the strength of the US dollar compared to the other currencies around the world.” 

In South America, Buenos Aires (19) climbed 67 places to rank as the costliest city this year due to a strong price increase for goods and services. The Argentina capital and financial hub is followed by São Paolo (40) and Rio de Janeiro (67). Other cities in South America that rose on the list of costliest cities for expatriates include Santiago (70) and Managua (199). Caracas in Venezuela has been excluded from the ranking due to the complex currency situation; its ranking would have varied greatly depending on the official exchange rate selected.

Canadian cities dropped in this year’s ranking with the country’s highest-ranked city, Vancouver (119), falling 23 places. Toronto (126) dropped 25 spots, while Montreal (140) and Calgary (146) fell 17 and 21 spots, respectively. “The Canadian dollar continues to weaken against the US dollar, triggering major slips in this year’s ranking,” explains Constantin-Métral.

Five of the top 10 cities in this year’s ranking are in Asia. Hong Kong (2) is the most expensive city as a result of its currency pegged to the US dollar and driving up the cost of living locally. This global financial centre is followed by Singapore (4), Shanghai (6), Beijing (7), and Seoul (8) – all climbing in the ranking with the exception of Singapore which remained steady. Tokyo (11) dropped four places.

“Japanese cities have continued to drop in the ranking this year as a result of the Japanese yen weakening against the US dollar,” says Constantin-Métral. “However, Chinese cities jumped in the ranking due to the strengthening of the Chinese yuan along with the high costs of expatriate consumer goods.”

Australian cities have continued to fall in the ranking due to the depreciation of the local currency against the US dollar. Sydney (31), Australia’s most expensive city for expatriates dropped 5 places in the ranking along with Melbourne (47) and Perth (48) which fell 14 and 11 spots, respectively.

India’s most expensive city, Mumbai (74), climbed 66 places in the ranking due to its rapid economic growth,  inflation on the goods and services basket, and a stable currency against the US dollar. This most populous city in India is followed by New Delhi (132) and Chennai (157) which rose in the ranking by 25 and 28 spots, respectively. Bangalore (183) and Kolkata (193), the least expensive Indian cities, climbed in the ranking, as well.

Elsewhere in Asia, Bangkok (45) jumped 43 places from last year. Hanoi (86) and Jakarta (99) also rose in the ranking, up 45 and 20 places, respectively. Karachi (205) and Bishkek (207) remain the region’s least expensive cities for expatriates.

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