The Kenyan shilling’s depreciation against the major world currencies has increased expats’ earnings and made it simpler for them to pay their bills thanks to a decline in inflation, making Nairobi more appealing to them.
Since the year began, the Kenyan shilling has progressively fallen against the major foreign currencies, reaching a record low of 147.36 to the dollar from 123.37 in January, marking a 19.4% depreciation that has benefited expats.
A weak local currency has the effect of driving up the wages of expats, including those working for multinational corporations, the United Nations, and other diplomatic missions, in dollars, pounds, and euros.
Comparatively speaking to natives, many of whom have experienced income cutbacks due to inflation, a falling shilling and declining inflation have provided a perfect mix for the expats.
At the end of June, the Mercer Cost of Living rating 2023, which examined living costs in various locations, revealed that Nairobi had risen 13 spots to take the 173rd spot, up from the previous year’s rating of 160.
The increased ranking of Nairobi is consistent with Mercer’s findings that exchange rate fluctuations and inflation have an impact on a city’s appeal to expatriates.
“Inflation and exchange-rate fluctuations are directly impacting the pay and savings of employees who are internationally mobile,” according to Mercer.
Stears, a data analytics and intelligence company, predicts that the shilling will continue to deteriorate versus the US dollar due to lower foreign exchange inflows and increased global interest rates.
“The Kenyan shilling is expected to trade within the range of Sh146 to Sh152 per US dollar in the coming weeks,” the company predicted in an analysis for its recently released Africa FX Monitor.
The difference between expat income and local income in Kenyan shillings is likely to expand as a result of the weak shilling and declining inflation. Owners of eateries, retail centers, safari lodges, and resorts where expats spend a lot of money stand to gain from the protection of expats against rogue inflation.
According to data from the Kenya National Bureau of Statistics Economic Survey, employees of external organizations and bodies made an average of Sh313,084 per month last year, up from Sh263,611 five years earlier, making them the highest earners in the nation.
These expats are paid nearly twice as much per month as the Sh173,506 average income paid to workers in the financial services sector, the second-best paid sector in the private sector.
However, in recent years, the number of foreigners arriving in Kenya to work has remained mostly consistent. In 2018, the government issued and renewed 19,305 work permits, up from 18,917 in 2017.
Currency exchange rate changes have a significant impact on the purchasing power of international employees, but those who will benefit most from the weakening local currency are those who have local expenses rather than those who send money home to pay for things like mortgages and tuition. A weaker shilling presents an opportunity to negotiate lower dollar salaries for incoming expatriates, who base their pay demands on the standard of living in the country of posting. The exchange rate is also a factor when international organizations are negotiating pay with their employees.
Given the new tax measures, which include a 1.5 percent housing fee on gross income and a twofold increase in the value-added tax on fuel, which is likely to raise living expenses, employees paid in Kenya shillings have had it tough. Since the beginning of the year, the cost of fuel, food, and electricity has skyrocketed, causing household budgets to increase by thousands of shillings. Large-ticket items, like cars, have increased in price by hundreds of thousands of shillings as well, making them more expensive for those paid in the local currency.
