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Sun 9 Sep 2007 04:00 AM

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Relocation, relocation, relocation

"US$10 for a lettuce, you have to be kidding?" It's funny how people measure the cost of living.

"US$10 for a lettuce, you have to be kidding?" It's funny how people measure the cost of living. It's not, however, when businesses begin to think about leaving the Gulf. Inflation across the region is rising at unprecedented levels, additional charges are appearing left, right and centre on numerous services and the talk of income tax securing a permanent GCC passport is starting to become a reality. A recent report by Mercer Human Resource Consulting found that the rising cost of expatriate workers is placing a growing burden on employers in Dubai. It discovered that average salaries for expats rose by over 6% in 2006, that daily allowances rose by over 20%, and that multinationals now pay an average rate of US$475 a day for executive expats on short-term assignments in the emirate.

Dr Markus Wiesner, head of Mercer's UAE operations told me that much of the increase is due to the enormous hike in accommodation costs - both in hotels and rented property. Hotel charges at the top end of the market have risen from US$273 to US$393 in Dubai in the last two years alone. A more concrete indication than the price of a lettuce perhaps.

He told me that it was very difficult to pin down an exact inflationary figure within Dubai and the Gulf as a whole but added that I wasn't wrong in calculating 10%. That's huge by any standards and for any business setting up shop here, a very big turn-off. Naturally expanding and emerging nations become costlier as they increase in population and success, but thanks to the region's achievements, companies are now seriously reconsidering their Middle East strategies.

And not just any companies. IBM, HSBC and Vodafone are all rumoured to have emailed their senior management to gather in their respective boardrooms to reflect on whether the Gulf is a market worth persisting in. Even leading local giants are ready to jump ship and relocate to more cost effective areas. Telecoms player MTC, for instance, is said to be on the verge of leaving Kuwait for either Bahrain or Amsterdam. Funny that. A large Kuwaiti company on the first plane out of the country in the same week as senior government figures start muttering to the press that income tax could soon make an appearance. Coincidence? I don't think so. I know where I'd rather be if I was MTC's finance director. I can hear him chatting to his superior across the watercooler now:

"I've heard the Kingdom is particularly pleasant this time of year?"... "Really, Phillip, why do you say that?"... "Well, Derek, the leasing rates are ten times lower than anywhere else."

In the months and years to come, as inflation rises even further and salaries fail to keep up I'm expecting a steady flow of companies to jump ship from regular Gulf hubs to less fashionable locations in order to find cheaper and most cost effective ports in which to dock. Perhaps that's the true cost of a US$10 lettuce.