Monetary Integration Initiatives in Eastern and Southern Africa (ESA): Sorting the Overlapping Membership*

Abstract

AbstractOverlaps in membership of monetary integration initiatives in the Eastern and Southern Africa (ESA) region is a major stumbling block to deeper integration. For example, a strict implementation of the East African Community (EAC) customs union concluded in 2004 would violate existing Common Market for Eastern and Southern Africa (COMESA) and Southern Africa Development Community (SADC) free trade agreements. To resolve this problem the paper applies cluster analysis to assign countries to the most suitable monetary union initiative based on real and nominal convergence criteria. The results indicate that the ESA region is not converged enough for an ESA‐wide monetary union. Instead two fairly distinct clusters, one in the southern cone around South Africa and the other around the EAC, are identified. This implies that a two‐track monetary integration route is more appropriate for the region. The EAC is identified as a subgroup within COMESA, suggesting Tanzania should cede SADC membership for COMESA.