According to a recent policy paper published by the World Bank, “the price levels of goods and services consumed by households are up to 31 percent higher in Sub-Saharan Africa than in other low-and middle-income countries, relative to their income level” (p:1). Another study published in 2015 had found that this percentage was between 11 to 18%.
If the relation between price levels and GDP per capita is well known for richer countries, very few studies have actually focused on this relation in African countries. Further, little is known about this relationship at the city level.
With the aim of answering these two questions, the World Bank paper attempts to analyse what some other authors have called the “Africa effect” (Gelb and Diofasi, 2015), namely the disproportionately higher price level relatively to the income levels in Africa, in comparison to other lower income countries.
Higher cost of living is a crucial issue as it can affect households welfare but also the “economic functions of African cities” (p:3). Understanding this phenomenon is however constrained by a lack of available data. The authors thus used ICP 2011 data that they readjusted from national to urban levels. “The ICP is a global statistical program designed to collect comparable price data and provide estimates of purchasing power parities (PPPs)” (p:4). The authors then reproduced a similar test using data from the EIU’s World Cost of living survey.
It eventually took them to the same conclusion: the price level of household consumption in Sub-Saharan Africa is up to 31% higher than in comparable countries, especially food and non-alcoholic beverages, which are 35% more expensive.
Then why are African cities are so expensive? The authors only formulate one hypothesis in this regard: urban forms might contribute to the relatively high costs of living in urban Africa.
The omission of the second-hand market, and other types of data from the informal economy, is a clear impediment to the analysis, as it uses prices for new products as a main variable. As Gelb and Diofasi put it in another article on the issue: “this could imply that African economies are more competitive than suggested by the ICP’s price level data” (p:16). And that African cities are perhaps not as expensive as these studies suggest.
Article available in open access.
Image: Map of relative expensiveness of household consumption in Sub-Saharan Africa.
Countries in red have higher residual values (i.e., are relatively expensive); countries in blue have lower residual values (i.e., are relatively less expensive). Source: World bank
|Publication Type||Working Policy paper|
|Author(s)||Shohei Nakamura Rawaa Harati Somik V. Lall Yuri M. Dikhanov Nada Hamadeh William Vigil Oliver Marko Olavi Rissanen Mizuki Yamanaka|