The ‘Big Mac’ Index: SA vs wor

Image: Per-Anders Pettersson/ Getty Images

The ‘Big Mac’ Index: SA vs world’s richest countries burger by burger

The United States is considered to be the richest country in the world. Here’s where South Africa fits in when looking at the world’s best economies.

The ‘Big Mac’ Index: SA vs wor

Image: Per-Anders Pettersson/ Getty Images

After Statistics South Africa (Stats SA) published updated estimates of gross domestic product (GDP) in South Africa, following a comprehensive rebasing of the data, we now have a better understanding of where South Africa fits in when it comes to the world’s richest countries.

The richest countries in the world

Business Tech writes that the revised estimate of GDP in 2020 is now R5 521 billion, an increase of 11% compared with the previous estimate of R4 973 billion – an addition of R548 billion in estimated output. The annual growth rate for 2020 was revised from -7.0% to -6.4%.

Rebasing the GDP figure in USD (using like for like conversion) is $335.2 billion, making South Africa the 36th largest economy in the world, up from 37th ($301 billion). While South Africa sits in 36th place between Malaysia (35) and Bangladesh (37), the top 10 looks like this:

  1. United States
  2. China
  3. Germany
  4. United Kingodm
  5. India
  6. France
  7. Italy
  8. Canada
  9. Korea, Rep.
  10. Russian Federation

Purchasing Power Parity

The GDP alone does not necessarily give us a full picture of economic value. It is reported that currencies like the rand have more buying power compared to major currencies like the dollar or euro due to the concept of purchasing power parity (PPP).

That’s what the Big Mac Index tries to calculate. As of July 2021, The Economist updated its Big Mac Index, showing how the rand continues to be one of the most undervalued currencies globally, relative to the US dollar.

The Big Mac index

In a previous article, Business Tech writes that the Big Mac is selected for comparison as the popular fast-food meal is widely available, and remains fairly consistent in pricing; however, it is by no means an exact measure even though it has become a global standard.

What they found was that a Big Mac costs R33.50 in South Africa and $5.65 in the United States. The implied exchange rate is R5.93 to the dollar. The difference between this and the actual exchange rate – R14.66 to the dollar at the time of the report – suggests that the rand is undervalued by 59.6%, which is the third most undervalued currency measured by the index in July.

The raw index does not tell the full story of currency valuation, though. Therefore, due to PPP, the cost to produce a Big Mac is cheaper in poorer countries, and that’s why The Economist factors in GDP per capita – to draw a more accurate conclusion.

A simple comparison of prices

“It is worth pointing out that it is common for poor countries to seem cheap relative to rich ones in any simple comparison of prices,” The Economist said, noting that in most countries, “the price of a burger is about what you would expect given the country’s GDP per person”.

In the group’s adjusted index, South Africa’s currency still remains heavily undervalued (7th), but less so than when dealing with straight conversion data.

In PPP terms, a Big Mac costs 59.2% less in South Africa ($2.28) than in the United States ($5.65) at market exchange rates.

Based on differences in GDP per person, the index suggests the rand is 29.6% undervalued and should be at around R10.32 to the dollar.

It is said that the Hong Kong dollar is the most undervalued currency relative to the US dollar, by as much as 45.7%.