Focus Living costs Credit: Reuters / Chico Sanchez The cost of a liter of unleaded petrol in Caracas, Venezuela, the world’s cheapest. US$ 0.02 Most expensive cities Paris US$ 2.76 Oslo US$ 2.62 Istanbul US$ 2.52 Amsterdam US$ 2.40 Rome US$ 2.37 Cheapest cities Bahrain US$ 0.21 Riyadh US$ 0.15 Jeddah US$ 0.13 Al Khobar US$ 0.13 Caracas US$ 0.02 The Economist Intelligence Unit’s Worldwide Cost of Living survey ranks 140 major business cities in 93 countries by their cost of living, based on a wide-ranging basket of goods, such as the price of fuel, and other goods profiled here. 22 T <strong>Magazine</strong> Issue 07 <strong>Ernst</strong> & <strong>Young</strong>
Living costs The relative costs of the world’s business cities are evolving in line with shifts in the global economy. • By Nigel Holloway Globalization is both a product of and a contributing factor of economic integration. As national markets become increasingly connected, the demand among international employers for globally-minded executives has grown. For the jet-setting business traveler, many markets can seem fairly homogeneous, as they travel from hotel to hotel, their feet barely touching the ground. Yet, despite the trend toward globalization, the cost of living varies almost as widely from city to city today as it did 20 years ago. This is a problem not only for expatriate business executives trying to maintain their living standard. It is also a headache for their employers that seek to keep their top talent happy, while deploying them around the world wherever the need is greatest. With the expatriate in mind, the Economist Intelligence Unit (EIU) has collected price data from cities around the world for more than two decades, comparing costs such as home rental, private school tuition and the costs of domestic help. It then ranks the cities on an index, using New York as a constant baseline at 100. Today, the most expensive city in the world, Zurich, is at 170, meaning that costs there are 70% higher than New York’s. Twenty years ago, the most expensive, Tokyo, was at 171. The cheapest city today is Karachi at 46. In 1992, the cheapest was Mumbai at 32, which this year ranked just above Karachi. Generally, cities in the developed markets of Europe and Japan are among the most expensive. Their individual rankings bounce up and down according to exchange rate movements, but they remain in the same richer group. By the same token, cities in the fast-growth regions of Asia and the Middle East are among the cheapest. But there are some notable exceptions. Singapore, for example, is now in the top 10 and 42% pricier than New York, thanks to soaring rents and a strong exchange rate. It is now far more expensive than rival Hong Kong (115 on the index) and neighboring Kuala Lumpur (83). Nor are all cities in other rapidly growing countries cheap. Luanda, the oil-rich capital of Angola, was one of the most expensive cities in the world for expatriates in 2011. Two other African cities were also prominent on a the list, Ndjamena, Chad and Libreville, Gabon. Energy and mining companies have been lured there by the promise of natural resources. But the lack of infrastructure means that these firms must build their own housing and amenities, resulting in high costs for expatriates’ employers. Cheapness, in and of itself, does not necessarily make a city attractive. But as the global economy tilts towards fast-growth markets, an increasing number of professionals are seeing cities in those markets both as a source of jobs and as places that offer a boost to their careers. Inevitably, as demand for fine housing grows, prices go up. Shanghai, on a par with Moscow, is now slightly more pricey than New York. São Paulo in Brazil is 12% more expensive than New York, and pricier than Rome and Berlin. And the variations within countries are often as great as from one nation to another. Thanks to the weak US dollar, American cities are in the middle of the global rankings. But the gap between the top (Los Angeles at 102) and the cheapest (Cleveland at 73) is greater than between Shanghai (102) and Tianjin (79). In the US, high unemployment and falling rents have made the traditional manufacturing heartland a cheap region in which to do business. Overall, though, the cities with the lowest expatriate costs tend to be in non-western countries. Mumbai, New Delhi, even Panama City (42% less expensive than New York) would seem to present enticing bargains to the expatriate. The question arises, though, as to how much longer such disparities will last. The foreign executive living in the lap of luxury on a foreign assignment, with domestic help covering the daily chores, may become a thing of the past, not least as cheap labour finds better-paying jobs in manufacturing or IT. Indeed, a popular complaint for wealthy households in São Paolo today is the soaring cost of domestic labor, as the pool of available nannies, cooks and cleaners dries up. Such changes will continue as the balance of power in the global economy shifts towards key growth markets. <strong>Ernst</strong> & <strong>Young</strong> Issue 07 T <strong>Magazine</strong> 23
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