- 27/07/2016
- Posted by: Julien Garcier
- Categories: Angola, Botswana, Consumer Goods / FMCG, Countries, Egypt, Financial Services, Ghana, Kenya, Morocco, Mozambique, Namibia, Nigeria, Retail, South Africa, Tanzania, Uganda, Zambia, Zimbabwe
Background
The KFC Index was created by Sagaci Research as an informal way to gauge whether currencies in African countries are “correctly valued”. It is based on the theory of purchasing power parity (PPP), which states that exchange rates should move towards the rate that would equalize the prices of an identical basket of goods and services between two countries. In this case, the concerned goods are KFC´s™ Original 15 pc. Bucket and geographically specific to African countries.
Inspiration
The index takes its name from the international fast food chain, Kentucky Fried Chicken™ (KFC™) and modeled on the Economist´s “Big Mac Index”, which covers countries with McDonald’s™ presence (about 60 countries). In Africa, the McDonald´s™ chain is only present in Morocco, Egypt and South Africa. KFC™, on the other hand, has operations in almost 20 countries; the highest of any international fast food chain and therefore a more applicable benchmark to use. The index was not intended as a precise gauge of currency misalignment, but merely a tool to make exchange-rate theory more digestible.
Impact
By analyzing the prices of the Original Chicken Bucket from KFC™ and covering countries in all major regions of Africa, Sagaci Research has effectively become the only company providing a high-level insight on African currency valuation and consumer purchasing ability relative to the US and selected European countries. The KFC Index is also a strong fact-based indicator of the financial turmoil affecting African countries, whether driven by rapidly decreasing global oil prices or other factors.
