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The KFC Index is an informal guide to measure
purchasing power parity Purchasing power parity (PPP) is the measurement of prices in different countries that uses the prices of specific goods to compare the absolute purchasing power of the countries' currency, currencies. PPP is effectively the ratio of the price of ...
comparing exchange rates in
African countries This is a list of sovereign states and dependent territories in Africa. It includes both fully recognised states, states with limited or zero recognition, and dependent territories of both African and non-African states. It lists 56 sovereign state ...
. Inspired by the Big Mac Index, the key difference between the two indices is that the KFC Index focuses solely on
Africa Africa is the world's second-largest and second-most populous continent, after Asia in both cases. At about 30.3 million km2 (11.7 million square miles) including adjacent islands, it covers 6% of Earth's total surface area ...
; the Big Mac Index coverage is worldwide but not as applicable to Africa since McDonald's has little presence there, whereas
KFC KFC (Kentucky Fried Chicken) is an American fast food restaurant chain headquartered in Louisville, Kentucky, that specializes in fried chicken. It is the world's second-largest restaurant chain (as measured by sales) after McDonald's, with 2 ...
chains operate in almost 20 countries across the continent.


Overview

The KFC index was created by Sagaci Research (a Pan-African primary
market research Market research is an organized effort to gather information about target markets and customers: know about them, starting with who they are. It is an important component of business strategy and a major factor in maintaining competitiveness. Mark ...
firm) as an informal way to gauge whether currencies in
African countries This is a list of sovereign states and dependent territories in Africa. It includes both fully recognised states, states with limited or zero recognition, and dependent territories of both African and non-African states. It lists 56 sovereign state ...
are “correctly valued”. It is based on the theory of
purchasing power parity Purchasing power parity (PPP) is the measurement of prices in different countries that uses the prices of specific goods to compare the absolute purchasing power of the countries' currency, currencies. PPP is effectively the ratio of the price of ...
, which states
exchange rates In finance, an exchange rate is the rate at which one currency will be exchanged for another currency. Currencies are most commonly national currencies, but may be sub-national as in the case of Hong Kong or supra-national as in the case of t ...
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 KFC (Kentucky Fried Chicken) is an American fast food restaurant chain headquartered in Louisville, Kentucky, that specializes in fried chicken. It is the world's second-largest restaurant chain (as measured by sales) after McDonald's, with 2 ...
´s Original 12/15 piece Bucket and geographically specific to
African countries This is a list of sovereign states and dependent territories in Africa. It includes both fully recognised states, states with limited or zero recognition, and dependent territories of both African and non-African states. It lists 56 sovereign state ...
. The KFC Index also covers the United States, France, Spain and the United Kingdom. For example, the average price of
KFC KFC (Kentucky Fried Chicken) is an American fast food restaurant chain headquartered in Louisville, Kentucky, that specializes in fried chicken. It is the world's second-largest restaurant chain (as measured by sales) after McDonald's, with 2 ...
´s Original 12 pc. Bucket in United States in January 2016 was $20.50; in
Namibia Namibia (, ), officially the Republic of Namibia, is a country in Southern Africa. Its western border is the Atlantic Ocean. It shares land borders with Zambia and Angola to the north, Botswana to the east and South Africa to the south and ea ...
it was only $13.40 at market exchange rates. Therefore, the index suggests that the
Namibian dollar The Namibian dollar (symbol: N $; code: NAD) has been the currency of Namibia since 1993. It is normally abbreviated with the dollar sign $, or alternatively N$ to distinguish it from other dollar-denominated currencies. It is divided into 100 ...
was undervalued by 33% at that time.


Inspiration

The
index Index (or its plural form indices) may refer to: Arts, entertainment, and media Fictional entities * Index (''A Certain Magical Index''), a character in the light novel series ''A Certain Magical Index'' * The Index, an item on a Halo megastru ...
takes its name from the international fast food chain
Kentucky Fried Chicken KFC (Kentucky Fried Chicken) is an American fast food restaurant chain headquartered in Louisville, Kentucky, that specializes in fried chicken. It is the world's second-largest restaurant chain (as measured by sales) after McDonald's, with 2 ...
(KFC) and is modeled on
The Economist ''The Economist'' is a British weekly newspaper printed in demitab format and published digitally. It focuses on current affairs, international business, politics, technology, and culture. Based in London, the newspaper is owned by The Econo ...
´s “ Big Mac Index”, which covers countries with
McDonald's McDonald's Corporation is an American Multinational corporation, multinational fast food chain store, chain, founded in 1940 as a restaurant operated by Richard and Maurice McDonald, in San Bernardino, California, United States. They rechri ...
presence (about 60 countries). In
Africa Africa is the world's second-largest and second-most populous continent, after Asia in both cases. At about 30.3 million km2 (11.7 million square miles) including adjacent islands, it covers 6% of Earth's total surface area ...
, the
McDonald's McDonald's Corporation is an American Multinational corporation, multinational fast food chain store, chain, founded in 1940 as a restaurant operated by Richard and Maurice McDonald, in San Bernardino, California, United States. They rechri ...
chain is only present in
Morocco Morocco (),, ) officially the Kingdom of Morocco, is the westernmost country in the Maghreb region of North Africa. It overlooks the Mediterranean Sea to the north and the Atlantic Ocean to the west, and has land borders with Algeria to ...
,
South Africa South Africa, officially the Republic of South Africa (RSA), is the southernmost country in Africa. It is bounded to the south by of coastline that stretch along the South Atlantic and Indian Oceans; to the north by the neighbouring countri ...
and
Egypt Egypt ( ar, مصر , ), officially the Arab Republic of Egypt, is a transcontinental country spanning the northeast corner of Africa and southwest corner of Asia via a land bridge formed by the Sinai Peninsula. It is bordered by the Mediter ...
.
KFC KFC (Kentucky Fried Chicken) is an American fast food restaurant chain headquartered in Louisville, Kentucky, that specializes in fried chicken. It is the world's second-largest restaurant chain (as measured by sales) after McDonald's, with 2 ...
, on the other hand, has operations in almost 20 African countries, which is 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.


Limitations

As in the case of the Big Mac Index, the KFC Index was not created to be a highly accurate and precise tool for measuring purchasing power parity and its limitations include factors such as inflation, dietary preferences, socio-economic classifications, levels of competition and local costs (e.g. advertising, production and taxes). Currency volatility – due to the nature of developing economies (in this case all countries in
Africa Africa is the world's second-largest and second-most populous continent, after Asia in both cases. At about 30.3 million km2 (11.7 million square miles) including adjacent islands, it covers 6% of Earth's total surface area ...
), there is more likely to be high volatility in currencies, therefore undertaking this analysis over a one to three month basis could produce large changes and different conclusions.
Black market A black market, underground economy, or shadow economy is a clandestine market or series of transactions that has some aspect of illegality or is characterized by noncompliance with an institutional set of rules. If the rule defines the se ...
– as there is a thriving market for US Dollars in some countries, it may produce conflicting results compared to the official exchange rate.
Angola , national_anthem = " Angola Avante"() , image_map = , map_caption = , capital = Luanda , religion = , religion_year = 2020 , religion_ref = , coordina ...
and
Nigeria Nigeria ( ), , ig, Naìjíríyà, yo, Nàìjíríà, pcm, Naijá , ff, Naajeeriya, kcg, Naijeriya officially the Federal Republic of Nigeria, is a country in West Africa. It is situated between the Sahel to the north and the Gulf o ...
are examples of these types of markets. The report produced by Sagaci Research takes into account
black market A black market, underground economy, or shadow economy is a clandestine market or series of transactions that has some aspect of illegality or is characterized by noncompliance with an institutional set of rules. If the rule defines the se ...
exchange rates.


Figures

The February 2016 publication states: Most overvalued currencies 72% 30% Most undervalued currencies -48% -34% -32% The June 2016 publication states:


References

{{Reflist KFC Purchasing power McDonald's