Yesterday’s post has been attracting a lot of attention – so I want to start with a big thank you to everyone that’s been sharing it – I do appreciate a viral day!

Today, I just want to clarify some things about South Africa’s “Cost of Living”. From what I can tell, many people seem to think that the low cost of living in SA is either due to the weak Rand, or due to the exploitation of the poor. So let’s talk about it.

Firstly, some information from Mercer’s “Cost of Living” survey in 2015:

  1. Mercer annually surveys 207 cities.
  2. In 2015, Johannesburg ranked 191st on the list.
  3. Cape Town ranked 200th.

A graph (from Mercer’s website):

Screen Shot 2015-09-09 at 8.55.19 AM
There’s Cape Town, featuring at the bottom of the list. And standing out as the serious bang-for-your-buck winner when you look at the competition.

Other graphs:

Screen Shot 2015-09-09 at 8.56.15 AM Screen Shot 2015-09-09 at 8.55.56 AM Screen Shot 2015-09-09 at 8.59.50 AM

Now that’s in 2015. And agreed – the ZAR:USD exchange rate of R13.5 to one does make the conversion look cheap.

But let’s go back to the same survey in March 2012, when the ZAR:USD exchange rate was floating at around R7.50 to one:

global cost of living 2012

Johannesburg is third from the bottom on that chart. And at that point in time, Johannesburg was sitting 154th on the list, and Cape Town was 179th.

Which is to say: yes, the weakening of the Rand makes a difference. But even before the Rand lost half its value, Johannesburg and Cape Town were still low down on the cost-list of places to live.

So the big question: why is it cheap to live in Johannesburg and Cape Town, even ignoring the fluctuations of the Rand?

The answer probably has something to do with the cost of accommodation. Here is a graph from 2011 (from this report on the state of the Construction Industry in South Africa):

Here's a link to the report
Here’s a link to the report

During the first decade of this millenium, South Africa downsized its living space. We went from living in standalone houses to living in flats and townhouses – and that higher-density living was a construction boom. There was a time when it felt like you couldn’t move without running into a new complex. Not only that – we also expanded outward from the traditional city centres (just think of Fourways and beyond in Johannesburg, or Tableview and its surrounds in Cape Town).

Smaller living spaces being built on both old and new land… while cities like London, New York and Paris could do little but push people further out.

That supply of new residential space has depressed the rental market – both by increasing the amount of property available for rent, and by decreasing the demand for rentals as potential tenants opted to buy.

Which has meant that a sizeable chunk of the average cost-of-living is substantially lower than what might be considered “normal”. And this has even more of an impact (potentially) if you consider that accommodation costs, due to their significance in the monthly expenditure breakdown, tend to act as an anchor in wage negotiations (“How much do I need to live?”): and thereby, an anchor on disposable income.

How This Impacts The Professional Working Class

So the assumption that some readers seem to be making is that the relative low-cost-of-living for the Professional Working Class is coming at the expense of the low wages for the unskilled and semi-skilled working population – that evil Professional Working Class, tsk.

But to be honest, I think you’re looking at the wrong people.

At the risk of sounding like I’m repeating myself, the most likely culprit for this disparity is…[dah dah dah]…immigration control.

Here is a map that is possibly more horrifying that all the Huckabee/Cruz support for Kim Davis:

Thanks this website
Thanks this website

The reality is this:

  1. If you are unskilled, or even semi-skilled, then you are stuck in the country of your birth.
  2. If you are skilled, then you’re allowed to live on the other side.

And because of this:

  1. The unskilled and the semi-skilled have wage rates that are determined by the domestic demand and supply of labour, while…
  2. The skilled have wage rates that are also influenced by the international demand and supply – because if an industry does not pay internationally-competitive packages, then the skilled can/will emigrate.

This is not a case of exploitation by South African professionals – the disparity is a function of a world in which the skilled have freedom of passage while the unskilled do not.

Or, to put it differently – the professional working class does not earn the extra money that would otherwise have gone to the rest of the labour force. Instead, the professional working class gets to earn extra money that would otherwise have gone to the bottom line.

And in case that sounds awful – it’s worth pointing out that South Africa is equally as guilty of walling off its borders from the unskilled. There is no real option in South Africa’s current immigration regulations that allows for the non-South-Africa unskilled to work here.

It’s just a thought.

Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at