The Process of Monetary Integration in the SADC Region*

Abstract

The African Union has agreed, in principle, to implement monetary union and a single currency in Africa by 2021. This would be based upon the prior formation of regional monetary unions, including one in the SADC region. This article considers the economic prerequisites and implications for a monetary union and, in the light of this, whether a SADC monetary union is feasible. After reviewing the existing monetary union within SADC (the rand-based Common Monetary Area) and current SADC macroeconomic convergence initiatives, the article examines the extent to which key economic and monetary variables – inflation, interest rates and exchange rates – are converging within SADC. It concludes that there is a core ‘convergence’ group comprising the CMA countries – South Africa, Lesotho, Namibia and Swaziland – plus Botswana, Mauritius, Mozambique and Tanzania whose macroeconomic performance satisfies some of the criteria for monetary union. The remaining SADC countries – Angola, DRC, Malawi, Zambia and Zimbabwe – make up a ‘non-converging’ group that cannot yet be considered potential candidates for monetary union. However, even within the convergence group, countries remain far from satisfying the other prerequisites for monetary union, including significant intra-regional trade, and full capital and labour mobility. There are also major political constraints, making the AU monetary union proposals and timetable highly ambitious.

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