Colombo Among The Cheapest Cities In The World?

By Gazala Anver

Colombo has been ranked as one of the top 20 cheapest cities in the world, coming in at number 114, in the Worldwide Cost of Living (2011) survey conducted by the Economic Intelligence Unit (EIU), a leading resource for economic and business research, forecasting and analysis.
According to this survey, Colombo is, however, comparatively expensive to some of its Asian counterparts such as Karachi, which is the cheapest, Dhaka, and both Delhi and Mumbai. While Colombo is in the top 20, these Asian cities are among the top ten cheapest cities in the world. The most expensive city is Tokyo, with Singapore ranking at number ten.

The method

The biannual survey compares over 400 individual prices across 160 products and services in 140 cities in 93 countries. According to EIU, “more than 50,000 individual prices are collected in each survey round, which are carried out twice a year in March and September, and the results published in June and December.” The EIU researchers survey a range of stores such as supermarkets, mid-priced stores and higher-priced specialty outlets, and the prices reflect costs for more than 160 items, from food, toiletries and clothing to domestic help, transport and utility bills in each city. The prices are not recommended retail prices or manufacturers’ costs, but the prices at the point of sale.
The prices are then converted into a central currency, in this case the US dollar, using a prevailing exchange rate and weighed in order to achieve comparative indices. “The cost-of-living index uses an identical set of weights which is internationally based and not geared towards the spending pattern of any specific nationality,” the EIU said, adding that, “items are individually weighted across a range of categories and a comparative index is produced using the relative difference by a weighted item.”

The point of the survey?

According to EIU, the survey is for ‘human resources line managers and expatriate executives to compare the cost of living in 140 cities in 93 countries and calculate fair compensation policies for relocating employees.’ Companies can then apply this index to an executive’s spendable income to reach a fair cost of living allowance. The purpose of a cost of living allowance is to reimburse employees for excess living costs resulting from a foreign assignment.
In other words, according to Chairman and CEO of LIRNEasia, Rohan Samarajiva, the purpose is for mobile professionals and companies operating in multiple locations to base an anchor and figure out what to pay its employees.

So what does this really mean?

According to Samarajiva, this has an influence on companies placing in Sri Lanka. He also said this means that the Government should take this number seriously as Mumbai, Delhi and Dhaka are cheaper than Colombo.
“While we are cheaper than Singapore, we are expensive compared to India and Dhaka,” he said, adding that even though Singapore is more expensive, the value for money in Singapore is higher, as well as the facilities such as reliable transport and electricity.
“This suggests that we don’t even have a cost advantage,” he said. Samarajiva added that if Colombo had a cost advantage, companies would invest despite the facilities, if the living cost is low. But in this case, Dhaka has the advantage as potential competitor despite the transport issues, as it has a lower cost of living. India being cheaper that Colombo, he says, is surprising and a matter of concern.

Ease of doing business

On a related matter, according to the World Bank’s Ease of Doing Business report, Sri Lanka ranks 102 out of 183 economies. A high ranking on the ease of doing business index means the regulatory environment is more conducive to the starting and operation of a local firm. This index averages the country’s percentile rankings on nine topics, made up of a variety of indicators, giving equal weight to each topic.
For instance, Sri Lanka ranks at number 34 when it comes to starting a business, 169 in dealing with construction permits, 155 in registering property, 72 in getting credit, 74 in protecting investors, 166 in paying taxes, 72 in trading across borders, 137 in enforcing contracts, and 43 in closing a business.
Meanwhile, Pakistan ranks at 83 and Maldives at 85, meaning that it is easier to do business in Pakistan and Maldives than in Sri Lanka. Bangladesh, however, ranks at 107, a little below Sri Lanka and India comes in at 134. Singapore is number one, while Chad is 183.
When South Asia is taken into account, however, Sri Lanka comes in at number three, beaten again by Pakistan and Maldives. Sri Lanka is followed by Bangladesh, Nepal and then India, Bhutan and Afghanistan falling into numbers seven and eight respectively.
This still means bad news for Sri Lanka, Samarajiva explains. “It is a peculiar result if you are behind Pakistan and Maldives,” he said. “This shows we are in serious trouble.”
He explains that conducting business in Pakistan or Maldives is no easy feat: conducting business in Pakistan or Maldives is hard, and neither countries are particularly transparent: what does that say about Sri Lanka then? “India is getting better. At some point Sri Lanka will be beaten by India and that is the end of the story. Our advantage is that we are a flexible island nation. Things should be easier. It is not good enough to be second or third, it is only acceptable to be number one,” he said.