Welcome on Board

This blog is for students, managers and those lay people who are interested to contribute to, comment on or simply share their workplace problems and are keen to learn about issues relating to public finance, corporate finance and macro-economic management affecting their lives.

Tuesday, July 6, 2010

Karachi, the cheapest city of the world....but not for Pakistanis...

The other day, ECC of the Federal cabinet was concerned about the fact that Pakistan is the most expensive country in the region as far as prices of essential food items are concerned. It is a fact that rising inflation has broken the back of low and middle income groups who find it hard to make both ends meet. But there is a breath of fresh air also. In this sea of difficulties, there still is an island which has been adjudged as the cheapest city if the world. But hold on…it is not the cheapest city for us locals…Business Recorder has reported that the only caveat is that this peculiar quality of the city is reserved only for the expatriates. Covering 214 cities across five continents and measuring the comparative costs of more than 200 items in each location, the Mercer World-wide Cost of Living Survey has revealed this reality which may be interesting but largely incomprehensible to the people actually living in the city because of sky-rocketing prices.

At the other end of the scale was
Luanda, the capital of oil-rich but poverty-stricken Angola which was rated as the most expensive city for corporate expatriates. Tokyo, regularly rated as one of the most expensive cities, was in the second slot while Ndjamena, the capital of impoverished violence-ridden Chad, came in third. Asia's cities were also among the world's most expensive for expat postings: apart from Tokyo which was ranked second, Osaka came in at 6 and Hong Kong tied with Zurich at 8.

Europe, Oslo at 11, Milan at 15, and London and Paris, both at 17, were the most expensive while the least expensive city was Tirana in Albania. Living in the Middle East wasn't cheap either: Tel Aviv (19) was the most expensive city in the Middle East, followed by Abu Dhabi (50) and Dubai (55). Tripoli (186) in Libya was the least expensive Middle Eastern location. Brazil's commercial capital Sao Paulo (21) was the most expensive city in all of the Americas due to strengthening of the currency against dollar.

In the
US, New York (27) was the most expensive city, followed by Los Angeles (55). Washington D.C. was ranked 111 and the least expensive US city was Winston-Salem in North Carolina (197). It may be mentioned that New York was used as the base city for the index and currency movements were measured against the US dollar.

The Mercer Survey has obviously demolished certain myths about the cost of living in various cities of the world for the expatriates. It was generally assumed that cities in the developing world were cheap while Western cities such as
New York and Washington were pricey but this is not necessarily true for expatriates working in different locations.

The change in perception as a result of the survey may affect the preference of the expatriates for their postings to a certain extent and induce the multinational companies to readjust their remunerations at various locations. However, the case of
Karachi seems to be very peculiar and underlines the limitations of such surveys. It is true that this is perhaps the only survey after a long time which has showcased the country in a positive light but the reason for this high sounding and worthy ranking is not that glorious and its consequences may not be at all rewarding.

Most prominent factor for the city to be ranked as the cheapest in the world was a massive depreciation of the rupee against the US dollar in the recent past which could enable the expatriates to purchase more goods and services with the same amount of foreign exchange. Cheaper services in the city due to large unemployment could also be a reason contributing to this ranking. In other words, the city has earned a better slot not due to some healthy improvement in its parameters but because of a weaker economy which has led to deterioration in certain key macroeconomic indicators including the exchange rate. Such a conclusion could be confirmed by the deteriorating standards of living of the local population.

Purchasing power of the rupee has been eroded by about 35 percent in the last two years while unemployment has certainly increased and the level of real incomes has been generally stagnant. It is also obvious that expatriates are not likely to fall over each other to get an attractive posting in
Karachi in order to save more for their families and, in the process, reinvigorate the economy of the city and create more employment.

They would already be well aware of the hazards of living in
Karachi and would not like to risk their limbs and life for pecuniary gains. Intolerance and the absence of leisurely pursuits also make life difficult for foreigners in the city. Therefore, while such a ranking may be useful for other cities, it will not be possible for Karachi to reap any benefit from such a distinction. At best, Tourism Department of the government could have a positive point on its side when advertising the country as an attractive resort for the foreigners to develop hospitality industry and earn some foreign exchange.

Besides, people of
Pakistan could feel somewhat elevated that their country which is generally ranked near the bottom of a global index has also some positive features to be listed at the top.

No comments:

Post a Comment