Well, there you are; I have asked the question about the cost of living in Colombia, but it does not necessarily mean I have the answer. But I can tell you one thing; the cost is going up very quickly.
I arrived in Medellin in November 2002 and I have remained here ever since. I also happen to be something of a control freak who keeps all kinds of useless information the likes of which allow me to explain how things used to be and how they have changed. Here are some of my findings from which I conclude it may be time for me to leave:
The Cost of living in Colombia
The cost of living expressed actual peso expenditures is very much a personal matter and depends on such things as whether you drive a 2013 model BMW or use the public transport system, so I will not venture down this road. Instead one can get a good approximation of how the cost of living is evolving by looking at the indices. The “Indice de Precios al Consumidor (IPC)” produced by the Banco de la Republica tells us the index (Base 100 in Dec 2008) has changed as follows:
- Nov 2002 (when I arrived): 71.20
- Oct 2012 (latest figure): 111.87
- Increase over 10 years + 57.1%, or an average of 5.7% p.a.
Now this is all very interesting but as I have little confidence in government statistics I decided to look at some of my own figures:
- Sewerage: $1065.7/m3 in March 2006 and $1657.4/m3 in Nov 2012 = + 55.5% in 81 months (1)
- Water: $784.77/m3 in April 2009 and $1096.6/m3 in Nov 2012 = + 39.7% in 44 months (1)
- Electricity: $204.9/kwh in March 2006 and $368.6/kwh in Nov 2012 = + 79.9% in 45 months (1)
- Gas: $566.6/m3 in Nov 2009 and $796.1/m3 in Nov 2012 = + 40.5% in 37 months (1)
- Food & Household Consumables = + 73.3% in 10 year period to Nov 2012 (2)
- Source: EPM Medellin
- Source: My own financial records based on rolling 12 month averages.
As you can see my figures are significantly higher than the official figures and although the IPC indices cover many other sectors of consumer expenditure I doubt whether this is the sole explanation for the variance. Without going into further detail I would imagine the average expat coming to live in Colombia would retain at least some spending habits from “home” (say eating fish, lamb, or drinking wine occasionally which are not generalized Colombian habits) and could expect his expenditure progression to exceed that of the national IPC.
Another factor to take into account are the “contribuciones” that are added to the cost of the basic municipal services. These “contribuciones” are the equivalent to an indirect tax payable by the more wealthy (Estrato 5 & 6) and applied by the municipal authorities to subvention the cost of services of the poorer public (Estrato 1 & 2). The level of these “contribuciones” is quite high:
- Sewerage = 60% of basic cost for Estrato 6 customers
- Water = 60% of basic cost for Estrato 6 customers
- Electricity = 20% of basic cost for Estrato 6 customers
- Gas = 20% of basic cost for Estrato 6 customers
This is but one example of a number of little known indirect taxes that bump up the overall tax burden that otherwise looks very modest and enticing to prospective expats. In fact I would argue the Colombian tax liability for any expat earning European/USA types of income that honestly declares his revenues and patrimony will be surprisingly higher than popular expectations and not necessarily the incentive hoped for.
Exchange Rate risk on foreign revenues
I am retired and depend upon my foreign currency pensions (Euros & GBP) to fund my Colombian peso living costs. This was fine when I arrived in 2002 but the picture is very different now. During the period (10 years) the exchange rates have moved very significantly in favour of a strengthening Colombian peso:
- Euro/Peso from high 3,536 to Nov 2012 of 2,346 = Euro devaluation of 33.6%
- GBP/Peso from high 5,180 to Nov 2012 of 2,872 = GBP devaluation of 44.6%
- US$/Peso from high 3,080 to Nov 2012 of 1,778 = US$ devaluation of 42.3%
These are monstrous devaluation of the income currencies typical of most expatriates and which have seriously jeopardized the purchasing power of their incomes.
Rates of inflation in expat home countries
Another key factor that will determine an expat’s capacity to cope with the Colombian cost of living will be how his foreign source income is uprated over time. In my case this means can my foreign currency pensions be increased at a similar rate to inflation in Colombia. The simple answer is “No”:
- My Euro pension = + 14.6% whereas Colombian inflation = + 57.1%
- My GBP pension = + 26.4% whereas Colombia inflation = + 57.1%
Clearly inflation in Europe over the period Nov 2002 to Nov 2012 has been much less than in Colombia and there has been a constant deterioration in the ability of my pensions to cope with local costs even before taking into account the impact of foreign currency rate changes.
I find my ability to cope with local costs has been severely impaired since my arrival in Colombia to the extent that Colombia is no longer “cheap” in my eyes, quite to the contrary.
The peso equivalent of my Euro & GBP pensions has declined (at constant exchange rates) by 33.6% and 44.6% respectively and my peso costs have increased by 57.1% over the same period and only offset by increases in my pensions of 14.6% (Euros) and 26.4% (GBP). The net effect of all this is that the purchasing power of my pensions over the 10 years I have been in Colombia has:
- Declined by 76.1% in the case of my Euro incomes, and
- Declined by 75.3% in the case of my GBP incomes.
Why have I provided all this information? Well, it is not because I think I am an exceptional victim; I suspect most Western expats in Colombia are experiencing the same phenomenon and are asking themselves the same question….”How much longer can I afford to live here?”
But I also wonder if the Colombian public really appreciates how rapidly the world around them is changing? To my mind Colombia no longer merits a 3rd World label as in most aspects it has nothing to be jealous about in the “civilized” world (perhaps human rights?).