Nairobi emerges as Africa’s most expensive city

Kenya’s inflation rate stood at 6.68 per cent in February 2014. The report cites sharp rise in consumer prices attributed to the recent introduction value added tax. [GRAPH SOURCE: KNBS]

By Jevans Nyabiage

Kenya risks losing out to other cities as an investment hub with a new report naming Nairobi as Africa’s most expensive city. The Economist Intelligence Unit (EIU) survey that sampled eight African cities places Nairobi ahead of Côte d’Ivoire’s Abidjan. The report cites sharp rise in consumer prices attributed to the introduction of value added tax (VAT) in Kenya that has seen the cost of living increase sharply compared to the surveyed cities.

The Worldwide Cost of Living 2014 survey released on Monday put Morocco’s Casablanca as Africa’s third most expensive city followed by Lusaka (Zambia), Cairo (Egypt), Lagos (Nigeria), Johannesburg (South Africa), Pretoria (South Africa) and Algiers (Algeria).

In the 2012 edition of the report, Nairobi was ranked as the second least expensive city in Africa after Egypt. 

In Kenya, the surge in prices of the items was largely due to the enactment of the VAT Act 2013, that imposed 16 per cent VAT on essential commodities that included processed milk. This means that Kenyans are digging deeper into their pockets to pay for basic needs like food, rent, fuel and utilities. The sharp increase has a direct impact on the cost of doing business with many industries citing power tariffs as one of the areas that make Kenya uncompetitive in the continent.

The EIU survey, however, didn’t include Luanda, Angola’s capital, which has been ranked by several reports as the continent’s most expensive city.

Economy destroyed

Angola is recovering from a 27-year civil war that saw most sectors of the economy destroyed, and its reconstruction has seen its capital emerge as one of the most expensive in Africa. This could explain why EIU has not included in its surveys. The EIU survey comes hot on the heels of the World Bank Doing Business 2014 report that showed Kenya had slipped in the ‘ease of doing business’ list. Kenya dropped seven positions, falling to position 129 from 122 last year.

A total of 189 countries were sampled with Singapore being the best country to do business while Chad emerged the worst. Kenya, however, ranked second in East Africa after Rwanda in terms of the ease of doing business within the East African Community (EAC). It is followed by Uganda and Burundi in third and fourth positions while Tanzania is the worst performer in the region.

The report shows Kenya dropped six positions from 134 to 128 in the ease of starting a business. To register a firm in Kenya, according to the report, it takes on average 32 days, while its Sub Saharan Africa average is 29.7 days and the Organisation for Economic Co-operation and Development (OECD) countries about 11.1 days.

The East African economic giant also ranks poorly in the ease of dealing with construction permits, getting electricity, registering property, accessing credit and protecting investors. However, Kenya has improved in ease of paying taxes, where it jumped five places from 166 to 171. 

In the last few years, Nairobi has attracted multinationals that have established regional offices. However, a number of manufacturing firms have quit Kenya citing high cost of production, only to establish marketing and distribution centres.