The high cost of living in the wake of slowed economic growth, last year, has pushed Nairobi into the list of the world's most expensive cities for expatriates, according to a new survey.
The continued slide in the Nairobi's ranking, experts warn, could make the East Africa's hub less attractive to international workers.
The cost of living index compiled by Mercer, an international human resource consultancy, has ranked the city at position 88 of the most expensive cities in the world-- the first time it has made it to the list of the top 100. It was ranked at no. 114 last year, meaning it has dropped 26 places to edge closer to the most costly city among the 214 polled.
Among the 57 Middle East and African cities ranked, it is in position 24.
Luanda knocked the Japanese capital Tokyo off the top of this year's Survey to second place followed by Ndjamena.
Expatriate rentals have been increasing in Nairobi over the past year being one of the reason why the city moved up in the ranking, said Mercer officials.
The survey, seen as the most comprehensive one on the cost of living is used to help governments, multinationals and global organisations determine pay for expatriates assigned in various regions.
This is a signal that locally-based international agencies such as UNEP as well as the increasing number of multinationals may soon find it difficult to marshal the human capital they need to effectively perform their mandate.
Human resource executives said high ranking in the list of most expensive cities bears the danger of sending firms--especially those with large numbers of expatriates --back to the drawing board for a fresh look at the compensation packages.
"We base remuneration on considerations that are informed by market salary data, salary competitiveness in each country, inflation and internal job evaluations," said John Musunga, the managing director and general manager, pharmaceutical operations for East Africa at GlaxoSmithKline.
Growing pressure for higher expatriate compensation could adversely affect ongoing efforts to cut operating costs and ultimately erode profitability.
"Corporate assignments have become truly global, with expatriates and 'global assignees' being transferred across all parts of the world. However, global mobility is still an expensive undertaking for companies, so selection of the right candidates and a real understanding of the costs involved in relocating staff to other countries are essential, " said Nathalie Constantin-Métral, a senior researcher at Mercer in a statement.
Analysts said Nairobi's ranking did not come as a surprise citing the dramatic surge in inflationary pressure during the same period that saw the year close with an average inflation rate of 9.2 per cent.
The level of inflation from a 2008 figure of 26 per cent was, however, largely as a result of the Government adopting a new tool.
While opinion is still sharply divided on whether the new figures from February actually represent an improvement in the cost of living.
Data from the Kenya National Bureau of Statistics indicates that inflation has fallen from highs of 14.69 per cent in February, last year, to stand at 3.9 per cent in May, this year.
Over the past few months, expatriates living in Kenya who are paid in foreign currency have been among the biggest winners as the shilling weakened against major world currencies.
"Firms are increasingly being forced to revise the packages to cater for the soaring cost of living in most cities," said Mwangi Ngumo, a management consultant in a previous interview. "This is making expatriate compensation a very tricky affair."
The cost of living also rose sharply in other African cities included in Mercer's survey.
The 2010 survey done across five continents measures the comparative costs of more than 200 items in each location, shows developing cities were actually more expensive for expats to live in than Western cities such as New York or Washington D.C., usually viewed as being costly.
The parameters include housing, transport, food, clothing, household goods and entertainment.
New York is used as the base city for the index and currency movements are measured against the US dollar.
"Many people assume that cities in the developing world are cheap but this isn't necessarily true for expatriates working there," said Ms Constantin-Metral adding firms must provide the same standard of living that these employees and their families would experience at home."
For the first time, the ranking of the world's top 10 most expensive cities includes three African urban centres: Luanda (1) in Angola, Ndjamena (3) in Chad and Libreville (7) in Gabon. The top ten also includes three Asian cities; Tokyo (2), Osaka (6) and Hong Kong (jointly ranked 8). Moscow (4), Geneva (5) and Zurich (joint 8) are the most expensive European cities, followed by Copenhagen (10).
"We've seen demand increase for information on African cities from across the business spectrum - mining, financial services, airlines, manufacturer, utilities and energy companies," said Ms Constantin-Metral.