Dubai and Abu Dhabi are once again the most expensive cities to live in the Arab world, according to Mercer’s 2017 Cost of Living Survey. Luanda in Angola is the most expensive city for expats in the world, followed by Hong Kong, Tokyo, Zurich and Singapore. Continuing a trend seen in recent years, both Dubai and Abu Dhabi rose in the rankings in the 2017 list, with Dubai entering the top 20 in Mercer’s ranking of approximately 200 global cities for the first time. Here, Nuno Gomes, principal at Mercer Middle East based in Dubai, reveals what is driving the increase in the cost of living here, and explains why it is only going to keep on rising.
How does this year’s ranking compare to last for the cities in the UAE?
This year Dubai came up one position higher than last year, so not a big change. But it also means that they have entered the top 20 this year. It is the 20th most expensive city in the world. Abu Dhabi, which went up two spots, is coming right behind it at number 23. They are quite high. The next one is Riyadh in 57th place. So there is a big gap between Dubai and Abu Dhabi and all of the others.
What contributed to the rise in the cost of living in Dubai and Abu Dhabi?
Because there were no big movements from a currency fluctuation perspective, which obviously creates an impact in these rankings, this really represents a high cost of living in Dubai and Abu Dhabi. There has been a more rapid cost increase in the UAE than in some of the other cities. This is really in line with a lot of data, including inflation, going up towards the end of last year. The survey covers all elements of spending, not only on daily life in terms of food, transportation etc, but also other elements such as housing and other goods and services that are consumed on a regular basis. If you look at all those factors, we have seen a slowdown, or at least not an increase on the housing front, which really has contributed in the past to accelerate the position in the rankings. But generally speaking, food at home, food outside of home, other goods and services have become more expensive. It is not a tremendous increase, we are talking about a climb in one [and two] positions in the rankings.
Do you expect Abu Dhabi and Dubai to become more expensive in the coming years?
When you look at these rankings, it is always a combination of two key factors. One is the cost increases within the countries or cities, the inflation they go through. And if you look at macroeconomic data, with the Expo 2020 coming and other expectations, inflation figures are rising. For example, there will be the introduction of VAT. There is some expectation that some of that will get reflected in consumer spending as well and prices at supermarkets and other goods and services. So there is an expectation that inflation will [continue to] increase over the next two to three years. That is only going to propel Dubai and Abu Dhabi further up in the rankings. We don’t know what sort of currency issues we will face in the near future, but if everything remains as it is, then we could expect that Dubai and Abu Dhabi continue to rise slightly in the rankings due to higher inflation, especially compared to European cities, which are at inflation rates of one to two per cent.
As a talent consultant, are UAE companies increasing their packages to compensate this rising cost of living?
We have not really seen packages becoming more attractive. I think there is still an element of business concern in terms of the situation in the region. I think there is still a lot of concern over the capacity of these economies to operate at an oil price that is not $140 a barrel, but at $50 a barrel. That drives a lot of refrain in public investment. We see most organisations are very concerned about that. Over the last two years, for example, we have actually seen annual salary increases reduce slightly. We really have not seen packages getting more attractive, and if anything companies are looking to become more lean, more effective and more efficient and that also is looking from a compensation benefits perspective.
Would you still say the UAE is still attractive for expats?
Yes, I think so. We are seeing the cost of living here rise but when we also look at the quality of living, which is another survey we run on an annual basis, Dubai and Abu Dhabi also keep rising in those rankings as well. When you look at a safety and security perspective, there are a lot of concerns in other parts of the world, so the UAE feels like a good place to be. We still see a lot of attractiveness in Dubai as an increasingly regional hub for the Middle East and Africa and still a lot of businesses are moving their regional headquarters to Dubai.
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