Nairobi has now become among the cheapest cities in the world this year for expatriates whose purchasing power has increased amid a weaker shilling, according to the latest ranking by consultancy Mercer.
The Kenyan capital is ranked 201st in the 2024 Cost of Living City Ranking, down 28 places from 173rd last year.
That’s one of the more favorable rankings for Nairobi in Mercer’s survey, which assessed comparative costs for more than 200 items, including housing, food, transportation and entertainment in 226 cities, with data collected in March.
Nairobi is among African cities, including Lagos, where living has become significantly cheaper as the depreciation of their local currencies offsets high inflation.
“Currency depreciation was one of the main reasons for these declines,” Mercer said.
“The declines in the cost of living resulting from the depreciation of the currency for international traders occurred despite high inflation rates in many of these countries,” he added.
The Kenyan shilling remained almost unchanged at 131.13 against the dollar at the end of March compared to the same month last year, but has seen a significant decline and then a recovery in the meantime.
The local currency fell steadily to record lows of 163 units to the dollar in early January before seeing a sharp recovery in mid-February.
The depreciation of the pound has boosted the incomes of employees of foreign governments, UN agencies and expatriates working for multinational companies who are paid in hard currencies, primarily the US dollar.
It also makes it easier for employers to retain and motivate them in a competitive global talent market where cost of living is a major factor in determining compensation.
Nairobi’s drop in the cost of living ranking came despite rising prices of everyday goods over the past year, highlighting the impact of currency gains.
For example, the price of a litre of olive oil rose by 28.9%, the price of men’s jeans rose by 25.8%, and the cost of a litre of petrol rose by 16.7%.
The price of 12 large eggs rose by 12.6 percent, and the cost of women’s shampoo, haircuts and styling rose by 4.1 percent.
The price of espresso in the city’s popular cafes fell by 4.7%, representing the few items whose prices fell. These items are part of the international basket of goods and services used by Mercer in the survey.
“On average, the costs of all of these products have increased, with the most notable increase being in the price of olive oil,” Mercer said.
“Some cities saw higher price increases for this commodity than others. For example, Buenos Aires saw a 694% increase, while Istanbul saw a 145% increase.”
Nairobi is now cheaper than all regional cities, which either fell or rose in the cost of living ranking. Rwanda fell to 199th from 191st, while Kampala fell to 177th from 166th.
Dar es Salaam fell to 181 from 162, while Addis Ababa became more expensive, rising from 194 to 138.
Nigerian cities are now the cheapest in the world, recording some of the biggest drops in cost of living rankings as the naira collapses against major global currencies.
Abuja is at the bottom of the list at 226th, down from 140th, while Lagos is next to last at 225th, down from 47th, with the two Nigerian cities replacing Karachi and Islamabad in Pakistan as the cheapest locations.
The world’s most expensive cities remained unchanged, led by Hong Kong, followed by Singapore, Zurich, Geneva and Basel in that order.
The weakening of local currencies has helped make many African cities more affordable for expatriates, with inflation levels relatively low compared to sharp movements in foreign exchange markets.
In Kenya, for example, inflation peaked at 9.23% in February last year and has since fallen to a new low of 4.31% last month.
Meanwhile, the shilling had fallen by 23.2 percent by early January this year before recovering in subsequent months to levels it was trading at in March 2023.
In Nigeria, inflation rose by 20 percent in the year to March 2024, a period in which the naira lost two-thirds of its value against the dollar.
Exchange rate gains, which rise faster than inflation, increase expatriates’ purchasing power and make it cheaper to pay for food, transportation and entertainment in local currency.
Mercer says cost of living is just one factor that makes a location attractive to top talent, noting that none of the cities at the top or bottom of the ranking offered quality of living at an affordable cost.
According to Mercer’s latest data, only eight cities in the ranking achieve this (Ljubljana, Montreal, Warsaw, Zagreb, Budapest, Panama City, Santiago, and Kuala Lumpur).