mobile menu mobile search

How far the rand has fallen: from 2000 to 2016

How far the rand has fallen: from 2000 to 2016

The Economist’s Big Mac Index for 2016 shows how weak the rand has become – and how the currency theoretically remains one of the most ‘undervalued’ in the world.

South Africa’s currency hit a new low against the US dollar late on Sunday night, as Asian markets opened, hitting as low as R17.99 to the US dollar before pulling back to R17.25, and settling around R16.72 in trade on Monday (11 January).

The Big Mac Index is based on the theory of purchasing-power parity (PPP) – the notion that, in the long run, exchange rates should move towards the rate that would equalise the prices of an identical basket of goods and services (in this case, a Big Mac burger) in any two countries.

The Bic Mac is selected for comparison as the popular fast-food meal is widely available across the world, and remains fairly consistent in pricing – however, it is by no means an exact science.

According to The Economist, which publishes its “burgernomics” indicator each year, in terms of purchasing power parity, the rand should be trading at closer to R5.68 to the dollar.

In 2016, a Bic Mac in the USA sells for $4.93 – while the South African Big Mac (at R28.00) sells for an equivalent $1.77 (at R15.81/$ – used at the time of the study).

To reach pricing parity, the rand would have to be R5.68 to the dollar.

This “implied” exchange rate is a far stretch from the R15.81 used at the time of the study.

The difference, in theory at least, means that the rand is undervalued by 64%

At R16.72 to the dollar, the currency is undervalued by 66% in PPP terms – the lowest point in South Africa’s history on the index.

The table below shows the rand’s value from 2000 to 2016 relative to the US dollar in PPP terms using Bic Mac prices.

Year USD Big Mac (USD) SA Big Mac (ZAR) ZAR/USD Exchange Rate SA Big Mac (USD) ZAR/USD PPP ZAR/USD Value
2000 $2.51 R9.00 R6.72 $1.34 R3.59 -46.6%
2001 $2.54 R9.70 R8.13 $1.19 R3.82 -53.0%
2002 $2.49 R9.70 R10.90 $0.87 R3.90 -64.3%
2003 $2.71 R13.95 R7.56 $1.74 R5.15 -31.9%
2004 $2.90 R12.40 R6.66 $1.86 R4.28 -35.8%
2005 $3.06 R13.95 R6.65 $2.10 R4.56 -31.4%
2006 $3.10 R13.95 R6.08 $2.29 R4.43 -27.2%
2007 $3.41 R15.50 R7.11 $2.18 R4.81 -32.3%
2008 $3.57 R16.95 R7.56 $2.24 R4.75 -37.2%
2009 $3.57 R17.95 R8.28 $2.17 R5.03 -39.3%
2010 $3.73 R18.45 R7.54 $2.45 R4.94 -34.4%
2011 $3.73 R19.45 R6.77 $2.87 R4.78 -29.3%
2012 $4.20 R19.95 R8.13 $2.45 R4.75 -41.5%
2013 $4.37 R20.90 R9.05 $2.31 R4.79 -47.1%
2014 $4.62 R23.50 R10.88 $2.16 R5.08 -53.3%
2015 $4.79 R25.50 R11.48 $2.22 R5.32 -53.6%
2016 $4.93 R28.00 R15.81 $1.77 R5.68 -64.1%

This graph shows how the value of the rand has changed versus the US dollar since 2000, and how it has significantly diverged in its purchasing power value over that time.

ZAR vs dollar: Actual and PPP rates 2000 - 2016

ZAR vs dollar: Actual and PPP rates 2000 – 2016

The Bic Mac index is widely used to gauge the health of an economy. Its figures align closely with those of the World Bank and the International Monetary Fund.

A currency is considered undervalued when its value in foreign exchange is less than it “should be” based on economic conditions.

Currency value isn’t determined objectively, and may be undervalued due to a lack of demand, even if a country’s economy is strong. South Africa’s economy is not strong, however, described globally as one of the most fragile in the world.

According to The Economist, a fairer measure of a currency’s fair value would be to look at the relationship between prices and GDP per person, where South Africa has a GDP per capita of $13,046 (PPP dollars, World Bank, 2014) versus the USA’s $54,629.

More on the rand

R20 to the US dollar is on the cards

Rand touches R16 vs dollar

Weak rand not Zuma’s fault – ANCYL

Rand crashes to lowest level ever as Zuma sacks finance minister


Quinton is a business and technology journalist who dabbles in media and graphic design. He holds a degree in Journalism from the University of Johannesburg....

Shutterstock is the image partner of BusinessTech – technology images

Join the Conversation (32 comments)
  • The.Punisher

    The goons holding the reigns now don’t have the smarts to turn it around and generate a little investor confidence, so it’ll be getting worse at a faster pace – proudly brought to you by AIDS Shower Boy Zuma and his band of ANC miscreants.

    Each day they dig the hole deeper…….. Zim 2.0 all the way

  • Veldmeisie

    “It is a good thing to follow the first law of holes; if you are in one, stop digging. –Denis Healey
    Zooms, are you listening?

  • Broscientist

    The huge difference is an overly simplistic illustration of investor sentiment. The Rand is just like a share and nobody wants to invest in a company with bad leadership, bad policies and a bad sense of direction.

    • Jack Smith

      Whites must take ALL their money and run. Leave SA to corrupt ANC potentates, Nigerian drug lords, EFF infantile tenderpreneurs and hordes of criminals originating from Zimbabwe.

      • Oh grow up. Really!

        • Jack Smith

          I am all grown up. But YOU must stop being an ostrich and pull your head out of the sand.

      • Jacobus Pienaars

        Why don’t YOU leave?

        • Jack Smith

          In the process. ANC didn’t make it exactly easy by destroying the value of the Rand. Now all my accumulated wealth will barely buy me Big Mac overseas.

    • Bruce Mills

      Sure it is simplistic – but look at the last time we gave McDonalds a good return on their investment – 2011 ! Right now with the direction things are going I can’t see how McDonalds [ or pretty much any investor needing a good ROI out of the Republic] will justify to their shareholders staying in this market.
      Our travel industry should be massive right now, but they trashed that one well and good [ shot in own foot, placed foot in mouth now changing feet it seems !].
      I reckon that Barclays will divest of ABSA and quickly but who would buy an inefficient bank ?
      Yes – the Rand is like a share and your analogy is spot on. The CEO has to shape up or ship out with his advisory team. I am a shareholder in SA Inc and I am not happy with the Management Team.
      Time to have a Board Meeting and make some resolutions.

  • Dreigorian

    Take it back another 10 years and see the difference…

  • BV

    It will soon turn around for the good. Watch and you’ll see.

    • It’s-a-fact

      Please tell me why you think this? I desperately need some good news…

      • Dreigorian

        He’s got a lot of USD like zoomer maybe.

      • Nextlevel

        No he’s been smoking tik and has severe brain damage

    • Jack Smith

      With the illiterate and imbecilic voters in SA the only thing turning around is the merry-go-round.

  • dv8ed1

    if only the rest of the country/voters/leader can understand this concept…but nou ja

  • It’s-a-fact

    Funny how the 2 years following Mbeki (with Zuma at the helm) the Rand strengthened, and then is started a free fall from which still hasn’t recovered.

    • Gerber

      yip what people on the outside do not realise is that if the rand loses value there are still people making money. There are also people making even more money because their exports are now more competitive. This happened a few years ago where some Dutch a-holes were manipulating the rand so that they could buy property and other commodities for cheap. Someone would fart in new Zealand and the rand would lose value. as soon as the gov said they would investigate it stopped.

  • Recent visitor to the US

    Just a question on the ZAR Big Mac- is it Incl or Excl VAT? As the US market will show the Big Mac in each state ex GST, due to each state having its own GST rates.

    Surely for comparative reasons, the VAT in the ZAR market must be excluded so that pre-VAT and pre-GST prices can be compared?

    Note: even if the above approach is taken, it paints an even worse picture for the SA economy…

  • Jack Smith

    We are screwed. We work all our lives and ANC proudly devalues our wealth?

    The sand mixed with FECAL matter on the Durban beach, after Christmas holidays, is worth more than the RAND.

    It would have been even more interesting if the graph showed the value of Rand before ANC misrule.

    • Wurnman

      You not allowed to show that part of SA’s history…

    • Richard Nieckau

      have you ever pondered that maybe the devaluation of the rand is all deliberate? Maybe the only way the anc can achieve its goal of wealth and land redistribution is by starting from scratch…hopefully not because it will mean most of their members will be the first to starve to death???

  • Frank

    Whatever measure you use, the biggest slide in the rand coincides with the loss of confidence in the leadership of the country, their corruption, and their intentions. Zuma and his gang have presided over the collapse of confidence in SA as a reasonable place to invest. 60% of the earnings of companies on the JSE come from outside SA (ie they have divested). With junk status approaching, due to the mismanagement of the economy under Zuma, inbound investment will dry up. Anyone wanting real growth would be advised to invest elsewhere, at least till the ANC comes to its senses, stops its rhetoric, and gets rid of one of the worst presidents we have had.

    • Mamparra

      You’re quite right – just look at the slope of the graph from when Little Jake and the Zuptas took over. The Rand’s value against the dollar has halved. What other evidence do the muppet Praise Singers in the ANC need to realise that they and they alone are the ones that have screwed this country. Not apartheid, (white) racism or anything else. THEY are to blame, and if a substantial number of them don’t defect to the DA in the municipal elections the value of the rand will fall through the floor. Simple.

      Oh and BTW the Big Mac Index has always been a stupid way of measuring a currency’s value.

      • The degree of stupidity depends on whether you are visiting the USA. If you do that, your Rands get converted into dollars at the bankers’ rates (always less favourable than the newspaper-published rates) With what you get, you then buy your Big Mac: so you are still effectively buying it with your SA Rands, and the comparison is then highly valid.

        • Mamparra

          Maybe, but it’s always seemed a very coarse method – I mean, how do you compare countries that have a strong meat producing industry (like SA) to smaller ones (like UK) that don’t produce very much? And where labour rates are very different. I might be OK with the ‘Western, First World’ economies but certainly not the Third like we’re becoming….

  • Wyzak

    This article is outdated, rand USD is now R16.86. Just like in Zimbabwe where the currency devalues within a day.

  • chacma

    1975 back in “The BAD old days I got R1.15 for every Dollar that mean a $ cost me about 85 South African cents

  • Wurnman

    I like Mac D’s chips and some burgers…. thought i’d share with y’all.

    • Mamparra

      The only reason I’d go to McD’s would be to have a Double Bacon Egg McMuffin meal, like I do in most other countries. But as they refuse to sell them in this country – because bacon isn’t halaal – I don’t go there at all. It’s my protest against having other people’s weird religious beliefs rammed down my throat (if you know what I mean).

      • Wurnman

        Ek voel jou, playah…..The Eggness of McMuffiness is also a winner in my circle.

  • Peter the Observer

    The Rand is merely reflecting what state the ANC has run SA inc into the ground. Bad leadership, bad policy, no direction, rampant corruption, bastardized legal system, bankrupt education system are some of the prize ingredients proudly brought to you by the ANC. !!!

Join our newest FREE BusinessTech newsletter today!
×