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martes, 21 de mayo 2024
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Colombia can be expensive... for Colombians

By Andrea Carolina Vargas Malagón

The International Cost of Living ranking places Colombia among the countries with the lowest cost of living in South America. Additionally, by early 2024, the annual report from International Living ranked it as the most affordable country to live in. But how true is this? And if so, does this reality apply universally to everyone? 

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According to data from Expatistan, a collaborative database that calculates the cost of living in cities worldwide, for a single person in Colombia, the cost is approximately $4,253,377 per month. Photo: UdeA Communications Office / Alejandra Uribe

Nearly four years have passed since the pandemic peak, and the world is still recovering from the setbacks left by the health emergency of 2020. The effects on the economy continue to reverberate, inevitably influencing society, lifestyles, and the costs of maintaining it. 

By the end of 2023, according to the ranking Cost-of-Living based on data from the digital platform Numbeo, Colombia was ranked as the fourth country with the lowest cost of living globally. This platform, a global collaborative database, provides different quality-of-life indicators such as the cost of living (without rent), food prices, restaurants, transportation, and services. Although Colombia dropped to 33rd place out of 146 countries evaluated by February 2024, it is still considered a region where the cost of living is comparatively lower. However, the experience of living in Colombia can vary significantly for residents.

In mid-2023, the Consumer Pulse survey conducted by the consulting firm Bain & Company revealed that 63% of Colombians modified and decreased their consumption habits due to the high cost of living.

“Everything has become so expensive: food, rent, and transportation. The 100,000 Colombian pesos that I used to spend on different items at the market now only cover a few toiletries, and that's it,” said Paola Gutiérrez. She has been working as a digital strategist at an advertising agency in Medellín for 6 years. 

However, for those living in the country but earning in foreign currency, the perspective differs. Not far from where Paola works lives David Collins. Having arrived in Medellín from the United States a couple of years ago, he fell in love with the city and decided to stay. Taking advantage of the flexibility of his home office, he continues his job as a programmer for a technology company in Austin, Texas. “This city is simply enchanting; besides, living here is affordable. What I earn allows me to live very comfortably every month and indulge in regular entertainment,” Collins said.

Earning in Colombian pesos, dollars, or euros  

Although they inhabit the same geographical area, the realities of Paola and David differ due to various factors. Edwin Torres, an economist, professor, and researcher at the Faculty of Economic Sciences of the Universidad de Antioquia, indicated that several factors contribute to the divergent cost of living experiences within the national territory. 

“When people say that Colombia is affordable, they compare its cost of living to other countries worldwide. In fact, Colombia remains an inexpensive country to reside in. Foreigners with salaries in dollars or euros find it notably cheaper to live here when they compare the expenses, they incur in their home countries to those they face here,” explained Torres. 

According to the International Living report, in cities like Medellín, one can live comfortably with a budget of 2,000 dollars, a value that is close to what Collins receives every month. However, when this amount is converted, it equals about 7,900,000 pesos. This represents a significant difference in a country where the minimum wage for 2024 is 1,300,000 pesos. Additionally, only about 10% of the employed in Colombia earn the minimum wage, totaling just over 2.2 million people, according to data from the National Administrative Department of Statistics (DANE).

For example, according to an analysis published by Properati, a real estate portal in South America, the rent for a house in a neighborhood like America in Medellín ranges between 510 and 523 dollars. It is about 2,000,000 pesos. Therefore, a person earning income in Colombian pesos should earn at least three times the minimum wage to afford the rent and have some additional funds for other daily expenses. 

Inflation, taxation, and uncertainty  

The Banco de la República defines the generalized and sustained increase in the prices of essential goods and services for household consumption in a country as inflation. It was precisely this phenomenon that underwent significant disruption at a global level due to the pandemic. “During that period, many goods ceased production, yet demand continued. When production fails to pace with demand, prices tend to rise,” explained Torres.  

Although the most recent DANE report indicates a decrease in annual inflation to 8.35%, it remains high compared to other countries in the region. In addition, one potential reason for prices remaining elevated in Colombia or decreasing slowly is the uncertainty generated by government policies that affect the economy.  

“Faced with issues such as tax reform, for example, and the uncertainty it may generate by not knowing what may happen, companies have the option of maintaining higher prices to have a buffer to respond to any eventualities arising from changing conditions,” said Torres.

Colombia ranks among the countries with some of the highest inflation rates in Latin America and the Caribbean, following Venezuela, Argentina, Suriname, and Haiti. This information comes from the Ranking of Latin American and Caribbean countries by inflation rate in 2023 and 2024, published by Satista, an international statistical portal featuring over one million reports covering 170 industries in 50 countries. 

One approach to mitigating the rise in prices is by enhancing the country's productivity. However, according to Torres, this proves challenging in Colombia due to the taxation system, which does not encourage the creation of companies or foreign investment.  

“In developed countries, those bear the brunt of taxation rather than companies. In Colombia, it is somewhat the opposite; here, companies face the highest tax burdens,” explained Torres. He added, “Without investment, the government lacks the means to spend. Hence, it is imperative to create conditions that entice companies to invest in Colombia. Just as it is appealing for workers to reside here, we need to make it enticing for businesses to also come and generate profits and employment opportunities for our population.”

Cheaper does not always mean better  

In conclusion, a lower cost of living does not necessarily indicate competitiveness or productivity in a country, and as a result, living conditions may not be optimal. “By characterizing Colombia as an inexpensive country, it attracts a type of foreigner who, instead of improving competitiveness, encourages other types of activities such as prostitution and illicit substances consumption, creating unsafe environments, even for themselves. These statements have to be made with caution because while Colombia may be cheaper in monetary terms, the quality of living conditions varies significantly,” commented Torres.

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