Expats Concerned at Inflation, Costlier Remittances

JEDDAH, 21 October 2007 — Expatriates across Saudi Arabia say they are faced with economic difficulties due to costlier remittances, and increased house rents and prices of day-to-day needs.

“Things have become difficult for the average expatriate, as there is a general price rise,” Abdul Karim Ismail, an Indian restaurant executive, said yesterday. “The Indian rupee’s steady performance over the last few months may have been welcomed by businessmen but not by salary earners as they have to pay more for their remittances,” he said.

“I have been paying SR16,000 as the annual rent for my apartment in the Mushrifa district for 20 years. Now, the owner wants to raise it by SR4,000. How can I afford when my salary has remained stagnant,” a Pakistani doctor said requesting anonymity.

Appreciating by upward of 10 percent since 2006 and floating around 40 rupees to a dollar, Indian expatriates said, their remittances are affected. “I used to send home 1,000 rupees against SR75 a couple of years ago. Now, I need to spend almost SR100 to send the same amount, thanks to the appreciation of the rupee,” Muhammad Abbas, a cleaning worker, said yesterday. He earns SR300 a month.

He said he has been remitting money to his family every month since he arrived here four years ago. “My salary has not gone up, but my local expenses have.”

Every household has been affected by higher food prices. “In fact, higher global commodity prices are the main reason for the price rise,” Sulaiman Bazubair, a trader, said.

Inquiries show that there has been a marginal increase in prices of cereal and cereal products, meat, poultry, fish, fresh vegetables and fruit, and nuts and seeds.

Rise in food prices were noticeable during Ramadan. Food prices rose up to four times as fast during Ramadan than they did in the other months of the year, according to a survey of various stores.

A recent report issued by the Saudi General Statistics Department showed that the Saudi consumer price index hit 4.4 percent in August. The report attributed the seven-year record in inflation to the steep rise in rents and the costs of food and beverages. While the rents registered a 12.1 percent rise, prices of food and beverages surged 6.6 percent.

The Shoura Council, which advises the government on draft laws, urged the authorities last month to tackle inflation.

Western expatriates are equally concerned about the strengthening of the euro and the pound against the riyal. Many have contracts in riyals and are finding it impossible to save by sending money back home and are actively reconsidering their position. Many, however, have unique skills that cannot be easily replaced.

The effect of the rising pound and euro has serious implications for M. Di Lernia, who has lived with her family in Jeddah for nine years. Committing to the purchase of a family home in Italy in 2002, her family now has to dig deep into earned income to subsidize the purchase.

“When we began the repayments, rental income covered the repayments and taxes,” she said. “Since the rise of the euro, we have to set aside two months’ salary or more to cover the purchase and tax.”

On a day-to-day basis, it has meant the virtual elimination of imported food from the family’s diet. “Imported pasta and oil is off the menu now, as are cheeses and other normal constituents of Italian diet,” she said.

British teacher Philip Michaels has noticed serious inflation in the cost of living in Jeddah over the last two years. “It is not just European goods that are rising in price, locally produced items and local imports seem to be rising as well,” he said, adding that over the last four years, local and European inflation coupled with the exchange rate working against him had made saving almost impossible.

“To be honest, most expatriates come to contribute to the Kingdom, maximize their savings and then move on after a few years. In my case, it is only the flexibility of my hours and the ready availability of opportunity in my field that keep me here,” he said, adding that he foresaw a time when he would have to leave, if the exchange rates did not drop in his favor.

Local Italian businessman Paulo Leoffredi identified two areas where he was being affected by the strong euro; business and personal.

“Prices of European sourced goods are rising, but that is only part of the problem,” he said. “As some of the goods might take three months to arrive and be cleared through customs, the letters of credit made at the time of the contract are for less than the actual costs. The difference has to be paid and it makes final costing of jobs difficult,” he said, adding that invoicing work was also affected.

“We have shortened validity of our quotation for a contract to 15 days,” he said. “Leaving it longer than that can mean that due to the ever rising exchange rates, the price can change that quickly!”

Leoffredi added that over the last four years, the money he sends to his family in Europe from the Kingdom has risen by 50 percent to maintain parity in Europe. Moreover, when I travel and use a credit card for payment, when I return I find the exchange rate has changed for the worse and I end up with increased bills. It makes budgeting a nightmare.”

The perspective of long-term residents of the Kingdom was slightly different. A senior official at a Saudi bank confirmed that when financing family expenses in Europe “it stung.” Resident in the Kingdom for over three decades, the official — who requested not to be named for professional reasons — said that over his tenure, he had seen huge swings in exchange rates and their effects. “Being essentially Saudi-based, the fluctuations have less effect on my personal life than on many other people,” he said, adding that the fluctuations were having considerable effect on most European expatriates who come here to work and save.

“I cannot see the pound or euro staying this strong for ever. The cycle will continue,” he said, adding that an essential part of the attractiveness of working in the Kingdom was the lack of local income tax. “This has to be taken into the equation when looking at the overall benefits.”

Brian Hawley, deputy chairman of the British Business Group in Jeddah, said, “Although there are some who would like to see the riyal pegged to a basket of currencies as Kuwait has done, it is not a universal sentiment. While it is certainly true that UK-produced goods are now a little more expensive for Saudi importers, there are two elements that help counteract this: Firstly, some British exporters and Saudi importers have been able to absorb much or even all of the differential, keeping end-user prices largely unchanged. Secondly, the UK has always competed mainly on quality and reliability. A quality product obviously costs more than an inferior one, but the fact that it lasts longer and performs better generally reduces TCO (total cost of ownership).”