Intuitively, one would think that living in Africa as an expat would be cheaper than living in Europe or America. Not necessarily so! Calculation of expat pay has many nuances and considerations, part of which is the cost of living differences, as well as the hardship relativities between countries.
Much of Africa has relatively low prices for local goods and services. Just go to the markets in the cities and towns. Local traders offer great bargains, especially for locally grown and produced items. The majority of people live in modest homes, that are relatively cheap in the global housing market. Schools and healthcare is mostly government provided. The cost of living, for local people in Africa, is relatively cheap.
Africa also has some of the poorest and least developed countries in the world. Infrastructure tends to be sparse and poorly maintained. Western luxury goods and services are mostly imported, and only the elite can afford to buy them. For most local people in Africa, the cost of living tends to be relatively low.
Expatriates (expat) are people who voluntarily live outside their own country to take up a job opportunity that requires skills and experience that cannot be resourced locally. They therefore tend to be highly skilled and experienced professionals who are often highly paid in their home country. An expatriate is different to an immigrant in that they intend returning to their home country when the assignment has been completed and do not therefore consider themselves to be local in their host country.
To persuade an expat to take up an international assignment in a country that may be regarded as less attractive than their home country, they need to be offered a better or at the very least a similar, quality of lifestyle, safety and security. This applies to the house they live in, the car they drive, the shops they frequent, the restaurants they dine at and the schools that their children attend. In Africa expatriates pay a premium for “international” brands ideally from their home country, and they tend to make use of premium service providers such as up-market medical practices, international schools, and most prefer to live in exclusive, secure accommodation in order to maintain the quality of life to which they are accustomed back home.
Many of the goods and services required by expatriates must be imported as they are not available locally. The cost of importing and transporting the international standard of goods that expatriates expect to purchase in the cities in this region makes it extremely expensive to maintain the lifestyle that they are used to. For most expatriates in Africa, the cost of living tends to be relatively high.
The cost of living in Africa is both low for local people and high for expatriates. It depends what is measured – local goods and services or imported goods and services – this determines the Cost of Living Index (COLI).
A cost of living comparison involves using a Cost of Living Index (COLI) as a numerical way of comparing the cost of living at an identified standard of living, either over time, or by comparing the cost of living in different geographical locations. When comparing the cost of living between different locations the difference in the cost of living is expressed as an index by dividing the cost of living in Location A by the cost of living in Location B.
The cost of living index indicates the difference in the cost of living between the two locations. In the below graphic, the COLI for the most expensive cities in Africa is the result of dividing each location’s cost of living by the cost of living in New York NY (USA) using 13 basket groups. New York therefore has a COLI of 100 for global comparison purposes.
The graphic illustrates that all African cities’ locals have a lower cost of living than New York locals but that expats in African cities would probably have a higher cost of living as they would import the goods and services they are accustomed to from a first world country. This is why expatriate pay is such a complex subject. Add to that the consideration of hardship differentials and the uniqueness of every home and host location – certainly not a simple calculation if you are trying to retain these expatriate skills.”
Chris Blair, CEO and Morag Phillips, executive director at 21st Century.