Angola’s currency is the most overvalued in Africa, based on the “KFC Index”

0
48

Angola, Africa’s second largest oil producer, is home to the most overvalued currency on the continent. Angola’s kwanza is 72% overvalued against the dollar, according to a comparison of the cost of a bucket of fried chicken from the fast food retailer KFC in 16 African countries in February.

It is another sign of how falling oil revenues and failing government policies are hurting what was once one of Africa’s most promising economic stories.
The index, compiled by a Nairobi-based consultancy Sagaci Research and modeled on the Economist’s “Big Mac index,” tries to capture whether currencies are at their correct level, based on the relative purchasing power of consumers. It found that a 12-piece bucket of fried chicken from KFC costs $35.20 in Angola, compared to $10.70 in South Africa, or $20 in Kenya.
KFC is the leading fast food chain in Africa, with over 1,000 outlets on the continent, although most of them are in South Africa.
“The fact that the kwanza is so overvalued makes it difficult because it doesn’t represent reality of the economy. The problem is that all the trading happens in US dollars and getting access to USD becomes very difficult.
Almost all foreign currency comes from the southern African country’s oil exports, which are expected to fall by 20,000 barrels a day over the next six years, according to the International Energy Agency. In January, South Africa’s Rand Merchant Bank as well as Bank of America announced they would stop providing US dollars to Angolan banks, putting more strain on dollar supplies.
For Angolans, a foreign currency shortage is making imports of food and other consumer goods, which are paid for in dollars, more expensive. Supermarkets in some parts of the country have started limiting sales to just one bag of rice, a bottle of oil, and one pack of sugar per customer, according to Deutsche Welle.
But Angolan purchasing power may not be doing as badly as the KFC index suggests. A lack of US dollars has given rise to a thriving black market for US dollars in Angola, with buyers paying well above the official rate for foreign currency. When the index was used to analyze the value of the kwanza on the black market in February, the kwanza was 38% undervalued.
“A healthy black market suggests that purchasing power is higher…

Leave a Reply