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The Russian capital is no longer the most expensive city in the world for foreigners working in it. It topped the list of the most expensive cities since 2006 and has now been edged to third place by Tokyo and Osaka, according to a survey conducted by the international company Mercer Human Resource Consulting from March 2008 to March 2009.

The company calculates the Quality of Living index in 143 cities around the world on the basis of prices for 200 goods and services (from rent to entertainment) that are needed by a foreign company employee with a base salary of 80,000 U.S. dollars year (before taxes).

The purpose of the survey is to provide corporation senior officials with information allowing them to estimate the cost of keeping representative offices in different countries. Cities are ranked against New York as the base city with an index score of 100.

Life in Moscow will be only 15 percent more expensive for a foreign specialist now than in New York (the Quality of Living index in Moscow in 2007-2008 was 42 percent higher).

Russia's second largest city, St. Petersburg, has also lost its position, moving down from 12th place in 2006 to 46th.

Currency fluctuations seem to be the main cause of the changes. The "victory" of the Japanese cities is connected not with the growing cost of services or goods, but with the rising yen against the U.S. dollar, the survey says. The strengthening of the dollar has pushed New York up from 22nd place to 8th.

Nathalie Constantin-Metral, a senior researcher at Mercer, said the main reason for the relocation of the Russian capital on the list is the falling rouble against the dollar. "This is why prices have also dropped for the foreigners living in Moscow," she said.

The rent of the most expensive flats in U.S. dollars dropped by 6.8 percent from March 2008 to March 2009 against the maximum of 7,200 U.S. dollars a month (for a well renovated flat of 80 to 150 square metres in downtown Moscow), Vedomosti quoted Yekaterina Tein, Knight Frank upscale real estate department director, as saying.

However it seems that foreigners themselves have not yet noticed that life in Moscow has become cheaper. "Frankly speaking, I haven't noticed any significant decrease in the cost of living in Moscow over the past year," Kommersant quoted Head of Raiffeisenbank Public Relations Department Marc de Mauny as saying, adding, "Prices are much lower in European cities with the same quality of living."

The Internet business news service Slon.ru came up with its own explanations for the high cost of living for foreigners in the Russian capital. "The main Russian disproportion created by the 'fat' 2000s can be described as 'expensive and bad'. Business and consumers have to pay for goods and services whose quality does not match the price."

There are lots of reasons for that, including the tradition of Soviet shortages -- there are simply not enough good products to meet everyone's needs; the echo of the Dutch disease - years of constantly growing oil prices flooded the country with quick money; a chronicle shortage of all infrastructure services from roads to hotels to kindergartens; unbridled ambitions of bureaucrats, the so-called "administrative tax"; and feeble competition.

Russian mass media have noted that while the rouble has lost its value and foreigners can buy more goods with the same amount of money, it is not so at all for the indigenous population in cities. It is true, though, that most of them don' t live in fancy hotels and flats.

Alinga Consulting Group

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