The latest KFC Index shows that Southern African currencies remain the continent's most undervalued

The Zimbabwean dollar (ZWD) is currently the most overvalued currency in Africa, according to Sagaci Research’s KFC Index for Q2 2020, which is based on data collected during June. The index utilises the price of KFC chicken buckets in different countries to estimate US dollar (USD) exchange rates for African currencies. These “implied” rates are then compared with actual exchange rates to get a sense of whether a given currency is overvalued or undervalued against the greenback.
KFC now costs more in Harare than Kentucky
According to the index, the ZWD was 12.9% overvalued against the US dollar at the end of Q2. This reflects renewed economic turbulence in a country where the annual rate of consumer price inflation reached an eye-watering 786% in May, leading its central bank to more than double its official USD FX rate from 25 to 57 in June.
Local KFC outlets responded by raising their prices by 43% during the same month. At the official exchange rate, it is currently more expensive to buy a KFC chicken bucket in Harare than in the US. The Central African franc (in Gabon) and the West African franc (in Côte d’Ivoire and Senegal) are currently the only other African currencies overvalued vis-à-vis the USD.
Southern African currencies remain the most undervalued
Out of the 21 countries where we collected data during Q2, 14 saw their level of undervaluation decrease (or their level of overvaluation increase) vis-à-vis the USD, while six saw their level of undervaluation increase. Southern African countries continue to have the most undervalued currencies, with the Zambian kwacha, the South African rand, the Lesothan loti, and the Eswatini lilangeni all undervalued by more than 50% against the USD (the exchanges rate of both the loti and the lilangeni are fixed against the rand).
Kigali joins the KFC party
In March, Rwanda became the 24th African country to host a KFC restaurant, with the opening of an outlet in Kigali (see photo above) by Kuku Foods, which also holds the franchise in Kenya, Tanzania, and Uganda. According to the KFC index, the restaurant’s pricing implies that the Rwandan franc was 14.6% undervalued against the USD at the end of Q2.
Morocco and Nigeria the biggest movers
The Moroccan dirham saw the biggest decrease in its level of undervaluation vis-a-vis the USD, from 22.0% in Q1 to 10.7% during Q2, reflecting a post-lockdown price increase in local KFC restaurants, in addition to the aforementioned FX effect.
The Nigerian naira experienced the biggest increase in its level of undervaluation, from -6.4% to -17.4%. This was due to the fact the heavily oil-dependent naira was one of the few African currencies to lose ground against USD during Q2. In contrast, another oil-dependent currency, the Angolan kwanza, saw its level of undervaluation decline modestly (from 23.4% to 20.5%), as the impact of its depreciation vis-a-vis the USD was outweighed by a local KFC price increase.
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% over/under-valuation of local currency unit vis-à-vis the US dollar (Q2 2020)
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About the KFC Index:
KFC is by far the largest fast-food chain in Africa, with more than 1,250 franchised outlets across 24 countries, with Rwanda its most recent market entry (March 2020). In contrast, McDonald’s restaurants are only to be found in three African countries.
The first KFC on the continent opened its doors in Johannesburg in 1971, and there are now more KFC restaurants in South Africa (914) than in the UK (853). Egypt followed two years later, and that country currently has 154 KFC outlets across 29 cities.
During the past decade, KFC has opened its doors in no less than 16 sub-Saharan African markets, with this region now hosting almost 200 of its restaurants. As a result, KFC’s best-known menu item, the chicken bucket, is the ideal benchmark for evaluating the exchange rates of African currencies.
The KFC Index is based on price data collected by Sagaci Research field agents, who visited KFC restaurants in 21 countries during June 2020. The implied USD FX rate of a given currency is calculated by dividing the price of a bucket of KFC chicken in the local currency unit (LCU) by the price of the same product in the US.
If this “implied” FX rate is greater than the market FX rate, then it can be said that the local currency is undervalued vis-à-vis the USD. Conversely, if the implied FX rate is less than the market FX rate, then the local currency is overvalued in relation to the greenback.
To take the example of South Africa, the implied FX rate (ZAR price of a KFC chicken bucket/USD price) of 7.0 is significantly less than the actual ZAR-USD FX rate of 17.2. This implies that the South African rand is 59.1% undervalued vis-à-vis the US dollar. Conversely, in Gabon the implied FX rate of 646 is greater than the actual FCFA-USD FX rate of 585, implying that the CFA franc is 10.4% overvalued vis-à-vis the greenback in that country.
If a country’s currency is 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 dollar.
It should be noted that there are a host of factors that determine the pricing of KFC chicken in different markets beyond FX rates. These include the purchasing power of local consumers, price elasticity of demand (the responsiveness of demand to changes in price), regulation, taxation, and input costs – most notably wage rates and the price of chicken. As a result, the KFC Index’s estimates of the overvaluation or undervaluation of various currencies are purely notional.
Appendix: KFC Index for Q2 2020

Country Actual USD FX Implied USD FX % Overvalued
Zimbabwe 57.4 64.7 12.9
Gabon 585 646 10.4
Côte d’Ivoire 580 627 8.1
Senegal 580 600 3.4
Kenya 106 99.2 -6.7
Morocco 9.7 8.7 -10.7
Tunisia 2.9 2.7 -11.1
Rwanda 948 809 -14.6
Nigeria 388 320 -17.4
Angola 585 465 -20.5
Uganda 3,740 2,867 -23.3
Mozambique 70.0 50.4 -28.0
Ghana 5.8 3.9 -33.5
Tanzania 2,318 1,526 -34.2
Mauritius 40.3 25.2 -37.4
Botswana 11.8 7.3 -38.1
Egypt 16.2 9.5 -41.5
Eswatini 17.2 7.4 -56.9
South Africa 17.2 7.0 -59.1
Lesotho 17.2 7.0 -59.2
Zambia 18.2 6.9 -62.2

Note: negative figures indicate that a currency is undervalued vis-à-vis the US dollar