Baku’s Cost of Living| July 30, 2009
The cost of living in this region of the world, including most of rural Azerbaijan, is much lower than in the States. Baku, however, is an exception. Baku’s location as a port on the Caspian Sea has made it a major oil gateway for transporting oil from the Caspian oil fields. Baku helped the infamous Nobel brothers, of the Nobel Peace Prize, amass a staggering fortune by exploiting Azerbaijan’s oil wealth over a century ago. For the past two decades high global demand for oil and rising prices have caused the cost of living in Baku to skyrocket.
In terms of the cost of living, Baku is now competing with some of the largest metropolitan cities in the world, without, however, a corresponding increase in the standard of living. A one bedroom, downtown Baku, apartment rental has soared to around $1,000 USD. However, these high rents do not also come with the same amenities one would expect. Most of the apartments are still remnants of the Soviet system and as such are poorly constructed and falling apart. Add to that the fact that most people only have running water during certain times in the evening and early morning. Power outages are also all too common, not only in residential buildings but also commercial areas as well. Sometimes entire sections of the old city are without power for extended periods of time.
In the past, the large amount of foreign oil workers, who were earning in Baku a salary many times greater than that which they would at home in Europe, helped to sustain such a high cost of living. However, the recent decline in oil prices as well as agreements between the government and foreign oil companies have seen many of the foreign oil workers leave Baku. This would lead one to think that the artificially high cost of living in Baku would subside, specifically the inflated housing costs. However, that assumes that basic economics and rational decision-making are the norm in Azerbaijan. It seems instead that landlords would rather keep their units empty rather than accept an amount of rent that is less than what they believe is warranted. Therefore, the economic principal of decreasing demand is not met with a subsequent decrease in rents.
The cost of living situation has been exacerbated by a revaluing of the currency a few years ago along with the government’s heavy spending used to keep the Azerbaijani Manat valued higher than the dollar. The official exchange rate for the Manat is currently set by the government at $ 1.20 USD. There is little doubt that if the currency were allowed to trade freely in the market, the manat would lose much of its strength vis-a-vis the Dollar.
According to a report by Mercer, Baku is now ranked the 75th most expensive city in the world. Which means Baku has now surpassed most US cities including, the District of Columbia, Philadelphia, San Diego, Baltimore and Miami.
Table below from Numbeo.com*
|Meal, Inexpensive Restaurant||$11.00|
|Meal, Nice Restaurant, 2 persons)||$100.00|
|Domestic Beer (.5L)||$2.40|
|Imported Beer (.33L)||$4.80|
|Taxi, in town||$6.00|
|Utilities (per mo)||$30.00|
|Apartment (per mo)||$1,000.00|
*(some adjustments based on my personal observations)