Last week I had the opportunity to present at the French network group Cercle Magellan’s 7th Africa Day on International Mobility and Compensation & Benefits. It was great to highlight some of the trends in the region to a large group of companies with operations on the continent.
Africa is such a dynamic and varied continent and AIRINC has an unrivalled depth of data for the region. With so much to share and so little time, I opted for a tour of some of the key policy and data trends.
Packages for assignments to Africa typically follow a home balance sheet approach. Host-based packages, permanent transfers, and local plus arrangements are far less prevalent for assignments inbound to Africa than they are in other regions. Most companies use one approach for the region, following the standard home-based company policy. However, we do sometimes see differentiation in the policy based on the region of Africa involved, particularly among French companies. Irrespective of policy, higher levels of volatility is a notable issue that companies have to deal with. Adjustments to cost of living, housing, and living conditions might be more drastic than in other locations, so regular reviews and updates are critical.
Cost Of Living
The cost of living is affected by two key factors: the exchange rate and the relative inflation between the home and host locations. Generally, if the exchange rate of the host country weakens, then the home currency will go further, buying more of the host currency. Conversely, if inflation in the host country is running at a higher rate than the home country, then more money will be needed to maintain the same spending power. There is often a relationship between exchange rate and inflation; as exchange rates decrease, imports become more expensive, which in turn drives up inflation.
So, what’s been happening in Africa on these two fronts recently?
• Rates changes can be very large and rapid.
• In the last six months Sudan (-86.5%), Libya (-70.3%), and Ethiopia (-13.2%) topped the league in terms of currency weaking.
• For those currencies strengthening, the Seychelles is top of the table, gaining 27.8%. Mozambique (22.2%) and South Africa (7.4%) round out the podium places.
• Interestingly, the Seychelles was one of last year’s biggest fallers, further highlighting the volatility of local currencies.
• Despite volatility, many African countries’ currencies remained stable over the last 6 months, mostly due to the XAF/XOF and other currencies being pegged to the EUR.
• Although there are some very high inflation rates, these are often offset or partially offset by the exchange rate depreciations; as prices increase in host currency terms, they remain somewhat stable in EUR or in USD.
• Inflation is picking up in many locations mainly because currencies are weakening, which makes imports more expensive.
• The top three locations for inflation in the last year were Zimbabwe at 401.3%, followed by Sudan with prices increasing 330.7%, and Libya at 112.5%. One country actually had negative inflation: prices decreased over the last year in Cape Verde.
• COVID-19 reduced demand for housing across the region leading to a general weakness in house rents.
• Political instability in some countries caused expatriate departures and an increase in vacancy rates.
• Landlords are trying to hold rent prices by offering additional subsidiary services such as cable TV or internet.
• The rebound in oil prices has seen increases in some oil-producing locations.
• Economic disruption is a major trigger point for instability in Africa.
• The economic effects of the global pandemic have the potential to cause long-term impacts to security, connectivity, outlets availability, and other quality of life factors.
• Hardship is increasing in Mozambique, Chad, Ethiopia, South Africa, Tanzania, Cameroon, and Mauritius.