Japanese cities still most expensive – survey
Hong Kong has fallen in the cost of living stakes but high prices in the SAR are still detracting from its competitiveness as a business location, according to the latest Cost of Living Survey conducted by ECA International, the world’s leader in the development and provision of solutions for the management and assignment of employees around the world.
The survey also found that global currency movements are having a significant impact on living costs for many assignees in Asia with the exception of locations in China where the peg to the weakened US dollar has kept costs down.
The appreciation of the Korean won sees Seoul leapfrog Hong Kong whilst Singapore has risen up the ranks to close in on Hong Kong at ninth position. Tokyo has regained the top spot globally for the first time since 2005, due partly to the strength of the Yen.
“These movements demonstrate the impact of exchange rates on cost of living and salaries for international assignees,” says Lee Quane, Regional Director – Asia, ECA International. “Three years ago, the weakness of the yen pushed Tokyo out of our global top ten, but as the currency has strengthened, the cost of living for international assignees has risen. This, coupled with Luanda’s fall from the number one spot due to the depreciation of the kwanza as its unofficial peg against the US dollar was loosened, means Tokyo now sits at the top of the ranking.”
Globally, Hong Kong has fallen slightly in the ranking, from 30th position last year to 34 this year. This is the result of the relatively weaker currency, counteracting the fact that inflation for assignees has increased at a faster rate in Hong Kong than in many other developed cities surveyed.
“Hong Kong remains the most expensive location in greater China,” notes Quane. “Prices of goods and services commonly purchased by assignees there have increased more quickly than in other cities within the greater China area and this has contributed to the city rising slightly in the Asian ranking. However, the peg to the USD has offset the extent of this increase so that globally the city has fallen in the ranking.”
Rest of Asia
Joining Japanese locations in the region’s top ten are the Korean cities of Seoul and Busan as well as Hong Kong, Beijing, Shanghai and Singapore.
Singapore continues to close in on Hong Kong and the top-ranked Chinese locations, maintaining its position within the region’s top ten most expensive locations for assignees. The Lion City’s currency has been strong relative to other major currencies in the region. Furthermore, prices of goods and services commonly purchased by international assignees has risen at much faster rates than in other developed locations in the region. Singapore has gained six places in ECA’s global rankings and is now in 67th position, overtaking locations such as Guangzhou and Shenzhen.
Currency fluctuations continue to be the main factor impacting the ranking of Asian locations.
The strengthening of the won against major currencies over the past year, on the back of strong economic performance, has contributed to Korean locations becoming dramatically more costly for assignees and Seoul’s return to the top ten. Similarly the appreciation of the Thai baht and the Indonesian rupiah over the same period has contributed to making locations in these countries more expensive places to go to. Jakarta has risen 71 places in ECA’s global ranking to 121st position.
Conversely, locations in mainland China have become cheaper, with Shanghai falling 18 places and Beijing dropping 29 places in our ranking. This is greatly due to the pegging of the Chinese yuan to the weakened US dollar. Shanghai is the country’s most expensive city followed by Beijing and Guangzhou.
Living costs for assignees are affected by inflation, availability of goods and exchange rates, all of which can have a significant impact on assignee remuneration packages. To help multinational companies calculate assignment salaries, ECA carries out a Cost of Living Survey twice a year comparing a basket of consumer goods and services commonly purchased by assignees in over 390 locations worldwide.
“Companies sending employees on international assignments pay them cost of living allowances in order to enable them to maintain their purchasing power on assignment,” explains Quane. “The changes in the cost of living seen in locations such as Jakarta, Seoul, Shanghai and Tokyo underline the need for companies to monitor and review allowances in order to ensure that these keep pace with changes in exchange rates as well as prices.”
Although exchange rates have been the driving factor behind movements, several locations in Asia have experienced considerable inflation in between cost of living surveys, including Thailand, India, Philippines and Vietnam.
“Inflation has re-emerged as a major challenge as Asia recovers from the economic recession,” observes Quane. “The prices paid by international assignees have increased even in developed economies, such as Hong Kong and Singapore. Elsewhere, political situations are having an impact: the unrest in Bangkok has seen prices rise there since we began undertaking this year’s survey.”
Karachi, Islamabad and Kolkata are the cheapest locations in the region for international assignees.
Oslo is the most expensive location surveyed for visitors to the European region. The strengthening of the krone against major currencies has pushed the Norwegian capital above Copenhagen – the region’s most costly city a year ago. An upward trend in oil prices, a short-lived recession and a reputation for being a safe haven for investors has contributed to the rise in the value of Norway’s currency.
Russian locations, which had fallen in the ranking a year ago as the rouble weakened, are now climbing back up as the currency has strengthened against major currencies. Again this can be explained by the increase in oil prices – Russia is the largest producer of oil in the world. Moscow has regained its place within the region’s top ten. Swiss locations, as well as Finland’s Helsinki and the French capital, Paris, can also be found at the top of the European ranking.
Swedish locations have witnessed some of the highest rises in costs for visitors as the currency there has appreciated against the US dollar and other major currencies. Like Norway, Sweden is seen as a safe haven for investors in comparison to Eurozone countries. Demand for currency has risen over the year, increasing its value.
The weakness of sterling means that many of the Western European capitals remain more expensive than central London including Brussels, Berlin and Amsterdam. UK locations remain among the cheapest within the region alongside Prague, Warsaw and Budapest.
Continuing economic uncertainty in the Eurozone, particularly in recent weeks, means that the value of the euro remains particularly fragile.
“The movement of the euro will be one of the key factors to monitor over the coming months for companies sending assignees out of the euro region into Asia, and vice versa” explains Quane. “If the euro continues to depreciate in value against Asian currencies, as it has in recent weeks, companies will need to actively monitor the extent of the fall in the value of the currency or review the way that they deliver salary to their assignees in order to ensure that they are not adversely affected by the fall in the value of the euro.”
Rio do Janeiro is now the most expensive location surveyed for visitors to the Americas. This is in sharp contrast to a year ago when a drop in demand for commodities weakened the currency. With the recession easing in many parts of the world commodity demands have risen thereby strengthening the value of the real. This, coupled with rising prices has pushed Brazilian locations back to being South America’s most expensive location.
Within North America, Manhattan is the most costly location followed by Honolulu. In general, US locations have fallen down the rankings slightly, reflecting the weakened dollar.
In contrast, the Canadian dollar has strengthened against major currencies resulting in a rise in the ranking of the Canadian locations studied. Vancouver is the most expensive location for international assignees followed by Ottawa and Toronto.
The situation in Venezuela is very changeable due to exchange rates: the official rate was devalued in January and the parallel rate was suspended. In order to provide the most appropriate cost of living allowance, companies sending assignees in or out of Venezuela need to keep a careful eye on the situation.
Australia has become significantly more expensive for international assignees since ECA’s March 2009 Cost of Living survey. Stable growth in the Australian economy has seen the currency there strengthen against many major currencies over the year. Canberra is the most expensive location surveyed there followed by Sydney, Melbourne. Perth, Brisbane and Adelaide.
Middle East and Africa
Luanda is the most expensive location surveyed in Africa although it has slipped to third place worldwide for the first time since 2006. Despite increased price levels in Luanda during the survey period, the loosening of the Angolan currency’s unofficial peg against the US dollar has led to the depreciation of the Kwanza. This has more than offset any price inflation.
“While some may find it surprising that this African location is even in the top three,” says Quane “items frequently purchased by assignees can be very expensive in Angola due, particularly, to decades of war resulting in a much damaged infrastructure, making supplies difficult to get through.”
Despite the rand strengthening against major currencies between surveys, South African locations remain among the cheapest – good news for anyone going to the World Cup!
Israel’s capital, Tel Aviv, remains the most expensive place for visitors to the Middle East. Jeddah in Saudi Arabia is the cheapest. Both Dubai and Abu Dhabi in the UAE where the currency is pegged to the US dollar, have fallen in the ranking.
Maseru in Lesotho is the cheapest location within Africa for visitors with items costing 65% less there than when purchased in Luanda.