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Big Mac Index suggests the rand should be closer to R9 to the dollar
When a burger tells a bigger economic story
If you ever needed proof that economics can turn up in unexpected places, look no further than a fast food counter. According to the latest Big Mac Index, South Africa’s rand should be far stronger than it is right now, with some measures suggesting it could even sit close to R9 to the dollar.
That headline figure has sparked plenty of debate, especially as the rand has quietly been enjoying one of its better runs in years. After briefly slipping below R16 to the dollar earlier this week, the currency remains near levels many economists consider fair, or at least far healthier than the gloomier days locals have grown used to.
A currency enjoying a rare moment of confidence
The rand’s recent strength has not come out of nowhere. Over the past few months, it has reached its strongest levels against the dollar in more than three years. A softer dollar globally has helped, but sentiment towards South Africa has also shifted.
Economists point to growing optimism around economic reforms, improved confidence in the policy direction, and steadier commodity markets. While South Africa cannot control what the dollar does, local progress has played a role in narrowing the gap between where the rand trades and where analysts believe it should be.
Most estimates place the rand’s fair value somewhere between R13 and R16 to the dollar, with broader views stretching from R12 to R18 depending on global conditions. Many economists currently lean towards a level around R15.60 as a realistic reflection of fundamentals.
What the Big Mac Index actually says
The Big Mac Index, compiled by The Economist, takes a different approach. It compares the price of a Big Mac in countries around the world to assess purchasing power parity. The idea is simple. In the long run, exchange rates should move towards levels that equalise the cost of the same basket of goods across borders.
In South Africa, a Big Mac costs R54.90. In the United States, the same burger sells for $6.12. On a direct comparison, that implies an exchange rate of about R8.97 to the dollar. Against the actual rate used in the study, this suggests the rand is more than 45 percent undervalued.
That places South Africa among the most undervalued currencies in the world, although not as extreme as in previous years. In 2025, the rand ranked even higher on the undervaluation list, suggesting it has moved closer to its perceived fair value since then.
Adjusting for reality beyond burgers
Critics of the Big Mac Index often point out its limitations. Producing a burger is cheaper in poorer countries due to lower wages and operating costs, which can distort comparisons. To address this, the index also adjusts for GDP per person.
Once this adjustment is made, the picture becomes more conservative but still telling. Based on income differences, a Big Mac should cost about 23 percent less in South Africa than in the US. Instead, it is roughly 45 percent cheaper at current exchange rates. This implies the rand is undervalued by about 28 percent, pointing to an exchange rate closer to R12.50 to the dollar.
Even on this adjusted basis, the rand remains among the most undervalued currencies globally.
Image 1: Business Tech
Why ‘undervalued’ does not mean underpriced forever
A weaker currency is not always a mistake. Exchange rates are shaped by far more than purchasing power. Growth prospects, political stability, reform momentum, and global risk appetite all matter.
South Africa still faces stubborn challenges. Economic growth has been largely stagnant for over a decade, and unemployment remains painfully high. These realities keep a risk premium baked into the rand, regardless of what a burger costs.
That said, the recent improvement in sentiment suggests the gap between perception and potential is narrowing. If the Government of National Unity can hold together through a politically sensitive year and reforms continue to gain traction, the rand could gradually shed some of that risk discount.
Image 2: Business Tech
A burger, a benchmark, and a bit of perspective
The Big Mac Index is not a crystal ball. Even its creators describe it as a blunt tool. But it does offer a useful sense check. It reminds South Africans that the rand’s weakness is not purely structural and that, under the right conditions, it could trade meaningfully stronger than many have come to expect.
For now, the idea of a R9 rand remains more theory than forecast. Still, in a country where the cost of living and the exchange rate shape everyday life, even a fast food price tag can tell a story worth paying attention to.
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Source: Business Tech
Featured Image: YouTube/Yahoo Finance
