Posted at 08:09 AM ET, 06/20/2012

Why are cities in Angola and Chad so expensive?

The newest ranking of the world’s most expensive cities for expats from the HR consultancy Mercer features some unusual destinations.

Alongside notoriously pricey places such as Geneva and Tokyo, there is Luanda, Angola — a country where 41 percent of the population lives in poverty — holding down second place on the list. And N’Djamena, Chad — capital of a country where 55 percent of the people live below the poverty line — is ranked eighth.

In Luanda, day laborers make roughly $50 per month, but a hamburger meal costs $12.62, and a two-bedroom apartment is $4,114, according to Mercer’s numbers. So how did these African outposts get so costly?

Angola is sub-Saharan Africa’s second-largest oil producer, but the country’s civil war in the early 2000s both drove up oil prices and demolished its infrastructure.

The Guardian’s Baobab columnist explains what happened after the war ended:

“Insiders had come to like the wildly above-average profits they were making and so made sure the trade barriers stayed in place. ... To get fruit to town, lorry drivers and merchants have to negotiate a mesmerising obstacle course of bribe-seeking officials, guards, thugs, policemen and soldiers.”

 Transparency International gives Angola a “2” in its most recent rankings, meaning it considers corruption is rampant there. The country also has an “ease of doing business” score of 172 out of 183 economies in a 2012 World Bank ranking.

Chad has also gotten rich from oil, even though many of its people haven’t fared quite as well.

“Chad has had a remarkably strong growth rate since 2000, when it became a leading oil exporter after allowing in a three-company foreign oil consortium,” explains Time magazine.

Jennifer Cooke, director of the Africa program at the Center for Strategic and International Studies, said high prices in N’Djamena likely stem from transportation costs, a small expat market and the absence of a Chadian middle class.

“Outside of oil companies, aid workers and a few French troops, there isn’t a big market for expatriate goods that might drive economies of scale, a major housing boom, or competitive pricing among hotels, restaurants and the like,” Cooke wrote in an e-mail. “And there is no domestic consumer base for higher-end goods since the vast majority of Chadians are extremely poor.”

As a result, a fast-food meal in N’Djamena costs more than $25, according to Mercer.

And because the survey pegs results to the expat lifestyle, part of the reason these cities seem so expensive is because foreigners tend to live differently than locals do.

“The main driver behind this is the difficulty finding good, secure accommodation for expatriates,” said Nathalie Constantin-Métral a principal at Mercer, in a news release. “So the limited supply of acceptable accommodation is very expensive. The cost of imported international goods is also high, contributing to many regional cities moving up the ranking.”

In fact, making workers feel at home in a foreign land can be quite costly for companies. Ed Hannibal, leader of the global mobility practice for North America at Mercer, said an expat can cost a company three to five times a typical worker salary.

It doesn’t necessarily cost so much to live in a developing nation, though: Islamabad and Karachi in Pakistan and Managua in Nicaragua were ranked the three least expensive cities.

Hannibal said that some, but not all, of the least expensive areas are both in developing nations and don’t carry some of the safety risks that Luanda or N’Djamena might.

“So you don’t have the same issue with scarce goods and services,” he said.

For the survey, Mercer measured the comparative cost of more than 200 items in 214 cities, including housing, transport, food, clothing, household goods and entertainment.

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By  |  08:09 AM ET, 06/20/2012

 
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