Burger Economics: Why the Big Mac Index Thinks the Rand Is Undervalued
If you ever needed proof that economics loves a plot twist, it’s this: a burger is trending as a currency indicator.
The latest Big Mac Index suggests South Africa’s rand is undervalued; so undervalued, in fact, that a simple purchasing power parity comparison implies the exchange rate “should” be around R9 to the US dollar. That’s a wild sentence in a country where many people have built their entire adult personalities around checking the rand-dollar rate like it’s weather.
But before anyone starts planning an overseas shopping spree, it helps to understand what the Big Mac Index is; and what it absolutely isn’t.
The Big Mac Index in plain language
The index, created by The Economist, compares the price of a Big Mac across countries as a playful way of testing purchasing power parity (PPP). PPP is the idea that, over the long run, exchange rates tend to move toward a level that equalises the prices of the same basket of goods across borders.
The Big Mac works as a stand-in for that “basket” because it’s widely available and relatively standardised; the same basic product, sold in a lot of places, with a price you can compare.
In this case, the numbers do the talking: a Big Mac price in South Africa versus the United States produces an implied exchange rate near R9/$ on a direct PPP basis.
Why the R9 headline isn’t a forecast
Here’s the catch: the Big Mac Index is a comparison tool, not a currency oracle.
One of its biggest limitations is that the cost of making a burger isn’t the same everywhere. Labour, rent, transport, and local input costs are typically lower in poorer countries. That means a cheaper burger doesn’t automatically signal a “mispriced” currency; it can simply reflect a cheaper cost base.
That’s why the index also runs an adjusted comparison that accounts for GDP per capita. When you adjust for income differences, the implied undervaluation becomes less dramatic; still meaningful, but closer to an implied rate around R12.5/$ rather than R9/$.
In other words: the burger is telling you something, but not everything.
So what is the rand “really” worth?
Even outside burger maths, analysts often place the rand’s fair value somewhere in a broad range. Some anylists notes estimates clustering between roughly R13/$ and R16/$, with wider views extending beyond that depending on global conditions.
And that gap between “PPP value” and “market value” is where the real story lives; because exchange rates don’t just reflect prices. They reflect confidence.
Currencies move on growth prospects, political stability, reform momentum, and global risk appetite; the collective mood of investors deciding where they do (and don’t) want to park money. That mood can change faster than fundamentals, and it can stick around longer than logic.
Why the rand has looked stronger lately
There are two big drivers behind the rand’s firmer stretch: a softer US dollar globally and improved sentiment toward South Africa’s economy.
The “sentiment” piece matters. A currency with a risk premium can start to lift when markets believe the story is getting better; even if the hard problems aren’t solved overnight.
It is also worth noting the political angle: if the Government of National Unity holds together and reforms keep traction, the rand could shed some of that risk discount over time.
Meanwhile, US political and policy noise can shape the dollar’s direction too; and yes, that includes the ongoing impact and expectations around Donald Trump-era dynamics and how markets price US policy risk.
The takeaway: a benchmark, not a promise
The Big Mac Index is best used the way it was designed: as a “sense check” that sparks curiosity. It reminds us that the rand’s weakness isn’t destiny, and that under the right conditions, it could trade meaningfully stronger than people have come to expect.
But it’s not a promise that the rand will march back to R9/$ like it has a gym plan and a life coach. Exchange rates are a tug-of-war between pricing, productivity, politics, and perception; and perception is the most chaotic character in the cast.
So yes: the burger maths is fascinating. And yes: it’s a useful lens. Just don’t confuse a lens with a map.
Listen to Number of the Day to hear Francis Herd and Aakash Bramdeo break down what the R9 claim gets right, what it misses, and what it tells us about the rand right now.
Catch up on all Number of the Day episodes here: https://www.enca.com/number-day-podcast