Sagaci Research, an African market intelligence firm, has released its KFC Index for Q1 2020. This quarterly index utilises the price of KFC chicken buckets in different countries to estimate US dollar foreign-exchange (FX) rates for 21 African currencies. These “implied” rates are then compared to actual market FX rates in order to assess whether a given currency is overvalued or undervalued against the greenback.

The index is based on price data collected by Sagaci Research field agents, who visited KFC restaurants in 20 countries during March 2020. Like The Economist’s Big Mac Index, the KFC Index is based on the theory of purchasing-power parity – the idea that, in the long run, FX rates will move towards an equilibrium that equalises the prices of goods in different countries.

KFC is by far the largest fast-food chain in Africa, with more than 1,250 franchised outlets across 23 countries. In contrast, McDonald’s restaurants are only to be found in three African countries, making KFC a much more useful point of comparison than McDonald’s in the African context.

If a country’s currency is found to be overvalued, this implies that it is cheaper to buy KFC chicken in the US than domestically. In this context, it is unsurprising that most African currencies are undervalued vis-à-vis the greenback.

The impact of Covid-19 can clearly be seen in the fact that 14 of the 21 countries covered by KFC Index saw their level of currency overvaluation vis-à-vis the US dollar decrease (or their level of undervaluation increase) between Q4 2019 and Q1 2020. Three countries (Morocco, South Africa, and Lesotho) saw their level of undervaluation rise by more than ten percentage points.

Alongside the currencies of Eswatini, Lesotho, and Zambia (the lilangeni, loti, and kwacha, respectively), the South African rand is currently the most undervalued currency in Africa, according to the index. Its level of undervaluation increased from 51% to 63% between Q4 2019 and Q1 2020, reflecting a sharp deterioration in the USD-dominated value of the rand due to worries about the spread of Covid-19 in South Africa (it currently has more diagnosed cases of Covid-19 than any other African country and is under lockdown).

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Further reading

[February 2020] KFC Index: Which African currencies are overvalued or undervalued?
[January 2013] How fast-food chain KFC addresses local cultures and tastes in Africa
[February 2012] KFC’s African expansion an opportunity for farmers