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City’s management of the power grid ensures that the likelihood of future power
disruptions remain very low.

When comparing South African and Chinese residential electricity pricing as a proxy for
commercial electricity prices, we found that South African residential electricity prices (at
just over R1.50 per kWh) are about 20% higher than Chinese residential prices. However,
given the low weighting of electricity costs in total manufacturing costs, and the import
tariffs applicable to Chinese imports, the case for on-shoring should remain strong. In
addition, as China cleans up air pollution, energy price differentials ought to narrow.

Exchange Rates

Figure 18 RMB/ZAR Exchange Rates

Source: INet PROVINCIAL OUTLOOK NATIONAL OUTLOOK GLOBAL OUTLOOK GAP HOUSING INVESTOR NARRATIVE SPOT THE OPPORTUNITY PORTFOLIO INSIGHTS KHULISA NEWSLETTER ELECTRIC VEHICLES ENERGY SECURITY LOOKING AT GDP

Long-term movements in the Rand have also positively contributed to local competitiveness.
Because the JSE has a significant component of commodity-based firms, and because
foreign equity and bond ownership is high (around 40% of bonds and JSE equity are foreign
owned), foreign portfolio flows are large and volatile and have a significant impact on the
Rand. The Rand is thus regarded as one of the most volatile currencies in the world. Despite
this Rand volatility (Figure 18) the long-term trend of the rand has been downwards,
which increases the price of imports.

Labour Costs
Figure 19 below shows the percentage growth in wages in South Africa and China.
Non-compound per annum growth has been significantly higher in China than in South
Africa. The average annual growth rate in South Africa and China from 2004 to 2014
was 8.54% and 13.55% respectively. Chinese wages have grown nearly 37% faster per
annum than that of South African wages.

QUARTERLY ECONOMIC BULLETIN 2016 51