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Friday, 23 November, 2001, 17:31 GMT
The cheapest Big Mac in the world
McDonalds Big Mac
Big Mac fans should head to South Africa
South Africa has become the cheapest country in the world to buy a McDonalds Big Mac.

The South African rand fell to a record low on Thursday, with one dollar buying nearly ten rand for the first time, a 25% drop since the start of the year.

The currency's weakness effectively means that a Big Mac costs less than one dollar, compared with $2.55 in the US.

By some analysis, this means that the currency is the most undervalued in the world.

Predicting exchange rates

The Economist newspaper runs a Big Mac Index, which compares prices of the burger in countries around the world, using the index as a rough guide to currency valuations.

"South Africa has the cheapest Big Mac in the world and that in turn means that its currency is the most undervalued in the world, according to our rough and ready index of course," The Economist's economics editor Pam Woodall told the BBC's World Business Report.

Research has shown that in developed economies the Big Mac index is "not a bad predictor of exchange rates".

Developing economies present a slightly different situation in that most emerging currencies are undervalued against the dollar at the moment.

"The index shows the rand is about 61% undervalued when compared to the dollar," economist Mike Schussler said.

Jittery currency

Troubles in neighbouring Zimbabwe have made the currency jittery, as has Argentina's debt crisis.

Widespread strikes in South Africa over the summer, as wage agreements were being renegotiated.

There is some support in South Africa for the Big Mac theory, that the currency is undervalued.

"If you look at the economic fundamentals of the South African economy there is simply no logical explanation for the weak rand. This is an excessive under-valuation of the rand," Pieter Laubscher, senior economist at Stellenbosch University, said.

The Economists' Pam Woodall
"South Africa has the cheapest Big Mac in the world and that in turn means that its currency is the most undervalued"
See also:

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