People collect water from an open pipe above the Guaire River during rolling blackouts, which affects the water pumps in people’s homes, offices and stores, in Caracas, Venezuela, Monday, March 11, 2019. The blackout has intensified the toxic political climate, with opposition leader Juan Guaido blaming alleged government corruption and mismanagement and President Nicolas Maduro accusing his U.S.-backed adversary of sabotaging the national grid. (AP Photo/Fernando Llano) photo credit: ASSOCIATED PRESS
Hyperinflation, a three-year depression, rampant violence and the worst political crisis in a generation has made Caracas the cheapest of the 133 cities surveyed in the Worldwide Cost of Living 2019 index, conducted by The Economist Intelligence Unit (EIU). Only war-torn Damascus is worse than Venezuela’s capital.
Caracas actually replaced Damascus this year thanks to the country’s economic ruin. Last week, the country was racing to repair a four-day long blackout that impacted 22 out of 23 states, including the capital. The ruling Socialists United party said the grid went dark due to U.S. hacking. Washington denied it. Caracas is in such rotten shape, that based on the index it is is nearly two times worse than Damascus.
The baseline index is 100, meaning a high cost of living. Anything over that represents the highest costs of living in the world. Cities in this category include Hong Kong, Singapore, and Paris. Caracas, meanwhile, is 85 points the baseline at an embarrassing 15. By comparison, Damascus is 25!
Caracas is also light years apart from other cities that ranked low on this year’s Cost of Living Index. Bangalore, India is ranked 39; followed by Karachi, Pakistan and Lagos, Nigeria tied at 40. This does not mean the city is bad, by the way. It just means that the city’s cost of living is cheap, far below the baseline city modeled after the costs of living in New York City.
Venezuela’s costs are mainly due to the destruction of its currency and high rates of government subsidies. For instance, a loaf of bread averages just $0.77 in Caracas, down from $2.25 last year. All of this is due to subsidies and mispricing in the market. Hyperinflation reached 1,000,000% last year. Moreover, public services like government-funded medical care and public transportation have deteriorated again in 2018 into 2019.
Venezuela’s currency value has also varied so much since its creation last year that people have taken to bartering in exchange for services and personal items like clothing, auto parts, and food.
As Damascus and Caracas show, a growing number of locations are becoming cheaper because of the impact of political or economic disruption, EIU report authors wrote. On balance, South Asian cities have a lower cost of living, but the prominent factor in lowering the relative cost of living is massive political uncertainty leading to civil unrest. Karachi, Tashkent in Uzbekistan, Almaty in Kazakhstan and Lagos all have faced well-documented economic, political, security and infrastructural challenges that lend credence to the market term “cheap for a reason”. As the EIU white paper, published on Monday, states: cheaper cities also tend to be less liveable cities.
The Worldwide Cost of Living is a biannual survey that compares more than 400 individual prices across 160 products and services. These include food, drink, clothing, household supplies and personal care items, home rents, transport, utility bills, private schools, domestic help, and recreational costs. More than 50,000 individual prices are collected in each survey, conducted each March and September and published in June and December. EIU researchers survey supermarkets, mid-priced stores and higher-priced specialty shops. Prices reflect costs for more than 160 items in each city.
Caracas isn’t the only South American city in trouble. Sao Paulo and Rio de Janeiro, Brazil fell 30 and 26 points on the ranking scale to numbers 107 and 108 out of 133 cities. Buenos Aires was worse, falling 48 points to 125 on this year’s list.
Violent crime is the greatest threat in Caracas, affecting local Venezuelans and expats working in the city. The U.S. State Department recommended all Americans living in the city leave, or at the very least avoid large public gatherings out of fear of kidnappings. Venezuela-based NGO, the Observatory of Violence (OVV), listed Venezuela as the second most murderous Latin American nation after El Salvador. In its annual report from last year, OVV put Venezuela’s murder rate at 89 per 100,000 inhabitants.