Monday, July 12, 2010

The Most Expensive City in the World...

By Simon Black

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.

Read the rest here.

1 comment:

  1. Interesting article. Jim Rogers has been making the same claim about investing in Sri Lanka now that the war is over. He thinks there is a lot of opportunity in terms of raw materials and cheap labor.

    I don't care for the "They live in poverty on less than $1/day" schtick, though. That's an irrelevant figure. $1 buys different amounts of goods around the world. Just because someone lives on less than $1/day doesn't necessarily mean they are impoverished or even that that is the proximate cause of their poverty if they are impoverished.