Sunday, December 16, 2012

Tallying Up the Real Cost of Expatriate Life in Jakarta

When Bernd Waltermann, a senior partner and managing director at Boston Consulting Group, set up the company’s Indonesia office in 1995, the organization had already moved away from offering “hardship pay” to its foreign staff recruited to live and work overseas in cities such as Jakarta.

“The same is true for efforts to keep a transfer’s compensation level, for example, through tax equalization and cost of living adjustments. It was not worth paying external parties to calculate all these numbers and the results often caused more frustration than a drop in base compensation,” Waltermann said.

The managing director, who is originally from Germany and now based in Singapore, explained that factors other than money often influenced those choosing to relocate.

“Many colleagues who transfer to places like Indonesia do this for the exposure to a vibrant and dynamic client environment, to challenge themselves and to experience a unique opportunity for personal growth,” he said. “To me that has been worth much more than a negative compensation differential I might have experienced compared to the option of staying in Europe.”

But with a study released by consulting firm ECA International this week naming Jakarta the second most expensive city in Southeast Asia for expatriates, remuneration packages may become more of a priority for expats wanting to ensure their budgets can deliver the lifestyle they wish to lead in Jakarta.

The list was topped by Tokyo, which ECA described as the most expensive city for foreign assignees in the world, while Singapore was ranked first in Southeast Asia and 26th globally. Jakarta ranked 123rd globally and 15th in the Asian region, making the capital more expensive than almost two-thirds of the 425 cities ECA surveyed worldwide.

In establishing these rankings, many major costs were excluded from the study, according to Lee Quane, the regional director of ECA’s Asia division.

“Certain living costs such as accommodation rental, utilities charges, car purchases and school fees are not included in this survey. Although such items can have a significant effect on overall cost of living, they are usually compensated for separately in expatriate packages so this data is researched and published separately,” Quane explained in a press release.

But as BCG’s practice shows, companies do not always pick up the costs for these items.

Daniel Quinn, a Jakarta-based teacher who is originally from the United Kingdom, agreed, saying not all expats’ compensation packages are as generous as ECA assumes.

“I am considered a local hire so I don’t get any benefits such as airfares. The medical allowance I receive is paltry and would not be sufficient in anything but the most minor of cases,” he said.

Nevertheless, living in Jakarta remained a cheaper option than facing the costs incurred in his home country, Quinn said.

“Compared to the UK I find Jakarta a cheap city to live in. I would have to spend half of my salary on rent in the UK as opposed to less than 20 percent here,” he said. “I think certain expats who employ maids and a driver spend more than 20 percent but sometimes these costs are paid for on top of the initial salary. It does depend on which area of the city you live in. Apartments are still cheap in certain areas such as Kelapa Gading.”

In comparing prices around the world, the Economist has developed an imaginative way of exposing how far a country’s currency can be stretched, based on a popular food chain’s most famous offering. The magazine’s “Big Mac Index” aims to test out the effects of purchasing price parity, a theory which predicts that exchange rates will eventually adjust to make the price of goods the same in each country. Based on the magazine’s latest survey in July, the burger was selling for $2.55 in Indonesia, higher than China’s price of $2.45 but lower than the $4.09 cost in Japan., an online calculator that advises prospective expatriates on the cost of living as a foreign worker in locations around the world, ranks Jakarta as having the 45th highest living costs out of 75 locations in the Asia-Pacific. Unlike ECA’s study, Xpatulator includes the cost of accommodation, transportation and education in its figures. It cites health care as high compared to other places, while accommodation costs such as apartment rental, purchase and utilities are considered to be average. Education costs were also classed as average on a worldwide scale, with benchmark annual private international school fees cited as $15,494 for primary school, and $18,751 for high school.

According to the website, the cost of transport, communication and eating out was considered relatively low, however Daniel Quinn points out that even these can come with hidden expenses.

“If you want Western goods then inevitably you have to pay more for them as imports. If you really need to cut back on your spending, of course you can survive on very cheap local food. Taxi prices haven’t risen but the traffic jams have got worse and this means higher fares at the end of the journey and ‘lost’ time,” he said.

Inconveniences such as traffic pose another hurdle to attracting foreign workers to move to Jakarta, according to Waltermann.

“There are other Asian cities with a higher cost of living. But you have to look at the overall equation, including taxes, access to good quality health care, schools and other aspects that determine your quality of life. Jakarta’s traffic situation and pollution, for example, are clear negative aspects in this context,” he said.

“I know lots of people who are considering leaving due to rising costs and the increasingly awful traffic jams. It took me three hours to get to the airport last month. That would be incomprehensible to most people back in the UK,” Quinn said, adding that Jakarta did not have a very positive reputation overseas.

“If you read Wikipedia or Wikitravel it gives a very poor overview of the city. Most people who have never been here are rather worried by talk of total gridlock, Muslim militants, poor infrastructure and corruption. Most tourists pass through quickly without getting to know the charms of the place. I think that, after having read an overview of the place, you really need to be ‘up for a challenge’ in order to move here,” he said.

These problems, which may be deal-breakers to foreign workers, surprisingly do not seem a pose such a barrier to investors and developers, with Jakarta this week topping a list of major Asian cities with the best prospects in these areas for 2013.

The report, titled “The Emerging Trends in Real Estate 2013 Asia Pacific,” was compiled by the Washington-based Urban Land Institute and PricewaterhouseCoopers. It quotes one anonymous development executive who said, “It’s boom times in Indonesia now, and everyone is looking at it very aggressively. The demographics look good, it’s a country as big as America in terms of head count, and corruption seems to have been at least partly reined in.”

For overseas companies looking to take advantage of this boom, it might be time to ensure that local employees do not miss out on the lucrative salaries offered to some expats. Waltermann explained BCG’s decision to ensure there was pay parity between Indonesian and foreign employees.

“We try to avoid paying expats more than their local colleagues. We don’t want to create different classes of employees working on the same problems and contributing in a similar fashion. More importantly, our Indonesian colleagues have the same world-class education and skill sets as their overseas peers. Last but not least, it is our objective to create lasting change at our clients here, and our Indonesian consultants are best equipped to do that.” Jakarta Globe

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