The most expensive city in the world…

July 12, 2010
Bath, England

The most expensive city in the world is not in the North America, or Europe, or even the Middle East… it’s in Africa.

According to an annual cost of living survey that is sponsored by international HR consulting firm Mercer, the most expensive city in the world is Luanda, Angola.

In case you’re scrambling for an atlas right now, Angola is an oil rich country on southern Africa’s Atlantic coast. It was a Portuguese territory from the 1500s until independence in 1975, at which point it plunged into a decades-long civil war between communist and anti-communist factions.

Needless to say, Angola was one of those unfortunate countries where the United States and Soviet Union duked it out, supplying their respective sides with money and munitions despite a UN prohibition against arms deals in the country.

When the war finally ended in 2002, the Angolan economy went bananas. Large multinationals had already been drilling and producing in Angola’s rich offshore blocks… but once peace was finally brokered, the economy really blossomed.

Today, Angola is a nation of significant economic contrast– though the government is growing rich from oil revenue, the majority of locals live in poverty on less than $1/day. For expats, though, costs are astronomical:

Three-star hotel rooms start at $750/night, apartments run $7,000/month, a silly cheeseburger can cost $30 or more, a haircut will set you back $150. This is why Luanda tops the Mercer ratings.

Also making an appearance in the Mercer survey’s top 10 are fellow African cities of N’Djamena, Chad and Libreville, Gabon, each of which is a costlier place for expats to live than London, Zurich, Vancouver, or New York.

This sort of price disparity is not unusual in Africa. Key cities are often severely limited in supply of expat-quality products and services… there might be only one hotel in the city with four walls and a ceiling, running water, and a mattress devoid of insects.

When the economy starts booming, demand outstrips the limited supply and prices soar. Meanwhile, expats stay focused on whatever big project they’re working on instead of developing more services, and the locals generally lack capital to start a business… so it takes years for more supply to enter the market and for prices to adjust lower.

I think these sorts of places can spell extraordinary opportunity for hungry entrepreneurs who don’t mind relocating and overseeing the development of new expat-quality products and services, particularly food and lodging. This is the equivalent of selling shovels to gold miners.

I also think that even greater fortunes can be made in places that haven’t quite boomed yet, but are likely primed for a boom based on a key event.

Burma, for example, will experience an enormous investment boom once the junta finally disintegrates. North Korea will be an entrepreneur’s paradise once Kim Jong-Il passes and his sons kill each other fighting for control of the government.

Incidentally, the other cities in the Mercer top-10 survey are Tokyo (2), Moscow (4), Geneva (5), Osaka (6), Zurich and Hong Kong (tied for 8), and Copenhagen (10).

Other notable cities include Singapore (11), London and Paris (17), Shanghai (25), New York (27), Rio de Janeiro (29), Havana (45), Madrid (52), Dubai and Los Angeles (55), Vancouver (75), Bangkok (121), and Auckland (149). The least expensive places in the world included La Paz, Bolivia; Managua, Nicaragua; and Asuncion, Paraguay.

The survey covers 214 cities based on US dollar costs in housing, food, transportation, household goods, and entertainment. Multinationals use the survey to determine compensation and benefits for expat employees. I find it to be reasonably accurate with some slight discrepancies that I will address in future letters.