Karachi, Pakistan, ranks as the most cost-effective place for relocated expats to live. // © Bloomberg Businessweek
On the shores of the Arabian Sea lies Karachi, Pakistan's largest and most cosmopolitan city. Historically, it has been "a city of immigrants," founded by "sailor businessmen," according to author Pamela Constable's recently published book "Playing With Fire: Pakistan at War With Itself."
With a large seaport, a stock exchange and financial institutions, Karachi is home to many foreign workers and expatriates who, despite ongoing security concerns, have taken advantage of the city's culture, business opportunities — and low cost of living.
In Mercer's "2011 Worldwide Cost of Living Survey," released July 12, the city has kept its position as the world's cheapest city for expats for the second year in a row. Some costs in Karachi have even gotten cheaper in U.S. dollars in past year: For example, the average monthly rent for an unfurnished two-bedroom luxury apartment fell to about $293 in this year's survey from $353 in 2010, according to data from Mercer, a New York-based consultancy firm.
After Karachi, the next cheapest cities are Managua, Nicaragua; La Paz, Bolivia; Addis Ababa, Ethiopia; and Bishkek, Kyrgyzstan. Many of the low-cost locations in the ranking are in Africa, South America, South Asia and former Soviet republics. One U.S. city placed among the 25 cheapest: Winston-Salem, N.C., ranking 18th, about the same as in 2010.
Slide show: World's cheapest cities for expensive living
The five most expensive cities are also unchanged from 2010. Luanda, Angola, was No. 1, followed by Tokyo; N'Djamena, Chad; Moscow; and Geneva. New York fell to 32nd from 27th, placing below Australian cities Sydney and Melbourne, as well as Chinese cities Beijing and Shanghai.
- MSN Money: 10 cities handling the housing bust best
About the report
Mercer collected price data in March from 214 cities on more than 200 items, including housing, transportation, food, clothing, household goods and entertainment; health-care and education costs were not included. New York was used as the base-line city, and currency movements were measured against the U.S. dollar. Certain items, such as housing, were given more weight, says Ed Hannibal, partner and leader of Mercer's global mobility business for North America.
The survey reflects the cost to maintain a relatively high international living standard — including luxury housing and meals at comfortable restaurants — rather than the local lifestyle.
- On our blog, 'Listed': Who overprices their homes? You'd be surprised
"Multinational companies have long understood the competitive advantage of a globally mobile workforce, though the enduring challenge is to balance the cost of their expatriate programs," Nathalie Constantin-Métral, senior researcher at Mercer, said in a release.
Even in the downturn, companies sent more workers on international assignments. Tax filings show a 6.4% increase in the number of international returns filed from tax year 2006 to tax year 2009, according to a June report from the Internal Revenue Service. In 2009, the IRS reported that more than 7 million Americans, not including military personnel, lived outside the U.S.
Article continues below
More employers also have re-evaluated how assignments are structured in the downturn. Hannibal says many companies are now sending employees on shorter assignments, ranging from three to 12 months, to manage costs. A standard assignment is three to five years.
Expensive assignments
While expatriate assignments can bring new value to companies, they are also expensive. Employers often pay executives enough to maintain the same standard of living in the new location as in their home country, and they add other benefits to attract and retain talent. HSBC Bank International's "2010 Expat Explorer" survey, which covered 100 countries, showed that about two-thirds of expats have more disposable income in their new countries.
- MSN Lifestyle: 'What it costs to be me'
An expat package typically includes the following, according to The Times of London:
- A cost-of-living allowance, which equalizes buying power to levels in the person's home country.
- A mobility premium of 5% to 15% of gross salary.
- A hardship allowance of up to 30% for employees moving to difficult areas.
- Moving costs.
- Schooling costs for children.
- Support for family members, including language and culture classes.
- A one-time payment to cover miscellaneous expenses.
The average cost of an expatriate assignment is three to five times the employee's base salary, Hannibal says.
Lifestyle trade-offs
Even in low-cost areas, relocation can be costly. In Tripoli, Libya, for example, one of the lowest-cost cities in Mercer's survey, monthly rent for an unfurnished, two-bedroom luxury apartment is about $1,615. Lunch for one at a nice restaurant is about $34, according to Mercer data.
"Security is an important factor, so based on quality-of-living issues it can be expensive to find reasonable accommodation for executives that are moving to these locations," Hannibal says.
Assignees may choose to live in secured, gated communities in areas with ongoing threats, including Libya and Pakistan.
Slide show: 10 superexclusive gated communities
Security concerns aside, the main reason employees want to work abroad is "broadening their horizons and gaining life experience," followed by "better quality of life," according to HSBC's survey. Career development and financial wealth, while still important, were less crucial than life-experience opportunities, the survey says.
"An expat assignment is an investment in the employee and in the company," Hannibal says. While the cost of living in Karachi and other inexpensive cities may be low, hidden costs are involved in keeping employees productive and safe.
