World’s most expensive cities: Which 2 Mideast cities are dearer than Dubai? – Emirates 24|7

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The cost of living in Dubai, Abu Dhabi and the rest of the GCC cities has gone up this year – and the strong dollar is to be blamed.

Those are among the findings of the 2016 edition of the bi-annual Cost of Living index by Economist Intelligence Unit (EIU) and aimed at expats and business travelers. The index ranks 133 global cities, comparing more than 400 individual prices across 160 products and services.

These include food, drink, clothing, household supplies and personal care items, home rents, transport, utility bills, private schools, domestic help and recreational costs.

What might come as a bit of surprise – and offer some consolation – to Dubai residents, the emirate isn’t the most expensive city in the region. In fact, it isn’t even the second most expensive city in the Middle East and Africa (MEA) region.

Jordan’s Amman (global rank: #23) and the UAE’s Abu Dhabi (global rank: #56) are relatively more expensive to live on than Dubai, which is globally ranked at #68 – roughly half-way through the 133 global cities ranked by the EIU’s annual Cost of Living Report 2016.

However, as mentioned before, the comparative cost of living for UAE residents has gone up quite a bit from the previous edition.

Dubai has, relatively speaking, become a more expensive to live in over the past 12 months – the city has moved up the cost of living rankings, with the emirate climbing 15 slots from a rank of #83 last year.

Read: Revealed: Most expensive cities to live in (Dubai not in Top 3 in MEA)

Abu Dhabi’s cost of living rankings have surged even further, with the city climbing 21 slots from the #77 that it was ranked at in 2015.

The UAE capital, in fact, is among the Top 3 biggest movers up the index in this year’s rankings, behind the US cities of Minneapolis and San Francisco, which move up 24 and 25 slots, respectively.

Asked what was the primary factor behind the rising cost of living in UAE and GCC cities, EIU’s Jon Copestake, Senior Editor of the Cost of Living report, told Emirates 24|7 that it was indeed a strengthening US dollar.

He added that a falling petrol price did not have much of an impact in many GCC cities due to the price being already subsidized.

“The fact that many GCC countries have fixed oil prices at a low rate means that there has been no cost saving associated with falling oil prices compared with other locations such as American cities,” says Copestake, who is also EIU’s Chief Retail & Consumer Goods Analyst.

VAT won’t impact UAE cities’ rankings as much as US dollar will

We asked Copestake how the proposed 5 per cent VAT will impact Dubai and Abu Dhabi rankings in 2018 and beyond.

“VAT and sales taxes do have an inflationary impact – although stores usually mitigate their impact by absorbing some of the initial cost themselves and offering ‘pre’ tax rates on some items to soften the blow,” he explained to this website.

“The next effect is that local cost of living does rise, but not by exactly 5 per cent, usually by 1 or 2 per cent above headline inflation. In relative terms, this has an impact but less so than other factors like relative headline inflation itself and currency headwinds,” said Copestake.

“At this stage it is the pegging to the USD that is making GCC/UAE less attractive to international shoppers rather than VAT, for example,” said the EIU editor.

When asked why the rise in Abu Dhabi’s cost of living rankings was steeper than Dubai’s even as the pricing of most commodities – including petrol – is decided at a national level, this is what he had to say: “The main reason driving the ranking appreciation has been pegging to a strong dollar and also by not seeing prices ‘fall’ for goods where already cheap items are either fixed in price or subsidized, such as oil.”

He added: “Price levels within UAE are not significantly changed – it is the appreciation of dollar pegged currencies that has had an impact making the rest of the world comparatively much cheaper.”

The million-dollar question: with the recent announced rise in parking charges, as well as the rentals remaining stubbornly high, does he see Dubai becoming more expensive than Abu Dhabi in coming years?

“I’m afraid household rents and car parking charges aren’t included in our survey weights although there will no doubt be a knock-on effect if these do remain stubbornly high. The two cities are only separated by 3 percentage points; so I’d suggest they were pretty close anyway,” he says.

Wait a minute… but isn’t strong dollar a good thing for us?

“In cost of living terms, the Middle East and Africa can be divided along lines of whether currencies have been pegged to the US dollar or not,” says Copestake.

“In the case of the former [dollar-pegged currencies], the relative cost of living is rising quickly. Cities in the UAE, Saudi Arabia, Jordan, Qatar, Kuwait and Oman have all seen significant jumps in the last 12 months, moving up the ranking by an average of 16 places,” he maintains.

This volatility in rankings, in fact, is witnessed throughout the global cities, says Copestake, who terms 2015 as one of the most volatile years in terms of cost of living.

“In nearly 17 years of working on this survey I can’t recall a year as volatile as 2015,” says Copestake.

A rising dollar and falling commodity prices – in particular oil – are responsible for this dynamic, he says. “Falling commodity prices have created deflationary pressures in some countries, but in others currency weakness caused by these falls has led to spiraling inflation,” he explains.  

The result? Only a handful of global cities – just 8 out of the 133 surveyed – have managed to retain their 2015 rankings. The rest 125 cities have either moved up or down, depending on their currencies and whether they are net importers or exporters of commodities.

“Overall, the Middle East and Africa are home to some of the cheapest cities in the world,” says Copestake.

Algiers and Damascus both feature among the world’s ten cheapest, while Tehran in Iran, Lagos in Nigeria and Pretoria in South Africa feature in the cheapest 20 cities surveyed.

In particular, Lagos, Nairobi in Kenya and Dakar in Senegal have all become relatively cheaper and experienced falls in the ranking.

More developed South African cities have also become much cheaper. The last year has also seen Lusaka in Zambia fall 22 places in the ranking to become the world’s cheapest city, thanks to the impact of falling commodity prices around the world.

Top 10 Most Expensive Cities to Live In (MEA)

Source: EIU Cost of Living Report 2016

Global sweepstakes

Globally, Singapore remains the world’s most expensive city for third year in a row, but its lead has greatly diminished.

Zurich and Geneva follow very closely in second and fourth place respectively. Paris, in fifth place, moves down from second place last year.

London has climbed six places to join four other European cities in the top ten.

Zambia’s capital, Lusaka, ranks as the world’s cheapest city with a cost of living two-thirds cheaper than Singapore.

“Falling commodity prices, currency devaluations and geopolitical uncertainty all contributed to a relative decrease in the cost of living for a number of cities,” The EIU said in a statement.

“But a strong dollar saw all 16 of the survey’s US cities move up the ranking by at least 15 places, and New York now features among the world’s 10 most expensive cities for the first time in 14 years,” it notes.

At the other end of the ranking – notwithstanding the prevalence of South Asian cities (India and Pakistan account for 5 of the 10 cheapest cities) – it is Zambia’s capital Lusaka that now offers the best value for money in the world.

Despite rampant inflation, a devaluation of the Kwacha caused by falling copper prices has pushed the city’s cost of living down to just 41 per cent of New York’s.

World’s most expensive cities: Which 2 Mideast cities are dearer than Dubai? – Emirates 24|7}