The Africa Fried Chicken Index: Angolan kwanza most overvalued, while S. African rand should be stronger

The index found that Kenya’s shilling is 1% overvalued, while neighbouring Uganda and Tanzania's are 17% and 13% undervalued respectively

THE Angolan kwanza is Africa’s most overvalued currency, based on the cost of a bucket of fried chicken at KFC retail outlets in the country.

The currency’s official rate is 72% overvalued against the dollar, according to the KFC Index published on the website of Sagaci Research. The gauge, whose compilers say it is inspired by The Economist Big Mac Index, measures a currency’s value on a purchasing power parity basis, using the cost of a 12-piece meal at KFC outlets. The Yum Brands Inc. fast-food franchise has restaurants in 18 African countries.

The kwanza has weakened 17% against the dollar this year, adding to last year’s 24% decline, after the government in January allowed the currency to devalue because of the collapse in oil prices. 

Angola is Africa’s second largest crude producer after Nigeria and relies on the fuel to generate about 70% of taxes and 95% of export income. Standard & Poor’s this month downgraded the country’s credit rating to B from B+, placing it five levels below investment grade.

The Sagaci data also showed that black-market exchange rates indicated that the Angolan kwanza should be trading closer to 440 a dollar, against a KFC Index implied rate of 270.9. It traded at 162.13 per dollar at 10:09 a.m. in Luanda, the southwest African country’s capital, on March 1.

“The economy is doing pretty poorly and struggling, but the government and the central bank are artificially supporting the currency at current levels,” Julien Garcier, managing director of Sagaci Research, said Tuesday by phone from Kenya’s capital, Nairobi.

The rand slide

The KFC Index also shows South Africa’s rand is 48% undervalued against the dollar, the most under-priced currency on the continent. The Big Mac Index estimates the undervaluation even higher at 57%. The currency weakened 26% over the past 12 months.

“Overall the South African economy is not exporting much and not developing as much value as it should,” Garcier said. “The government let the value of the rand go down to the current level and they’re not supporting it.”

Sagaci collected data for the survey in 16 African countries in the third and fourth weeks of January. It found that a 12-piece bucket of chicken costs the equivalent of $35.20 in Angola and $10.70 in South Africa.

The index also found that Kenya’s shilling is 1% overvalued, while the exchange rates of neighboring Uganda and Tanzania are 17% and 13% undervalued respectively.

-Bloomberg

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