Monetary union in Africa : using trade patterns to create interim country groupings

ENGLISH ABSTRACT: The ultimate goal of the African Union is full political and economic integration, whichincludes a monetary union with a common currency for all member states of the AfricanUnion. This monetary integration is proposed to take place in two stages: firstly, through fiveregions, and secondly, through complete integration.This report examines current trade data for member states of the African Union using kmeans duster analysis to group countries according to trade patterns. Analysis wasperformed for the actual US dollar value of trade, as well as considering only the presence orabsence of trade.There are limitations to the data collected: firstly, they are annual data, which masksfluctuations in trade due to economic conditions or political developments. Secondly, theyare subject to missing or under-reported values. The focus of this research report was toconsider trade figures for the first time, and the limitations were considered acceptable inview of the aim of achieving a first approximation of results.When considering all solutions, there are overlaps between clusters, but no definite patternsemerge that are common to all analyses. Considering the F and Euclidean distances of allsolutions, the best appears to be that for clusters derived from analysing trade figuresbetween Africa and its trading partners outside Africa. Further analysis of this solution failedto demonstrate viable clusters.The final conclusion to be made from this analysis is that k means clustering of trade figuresfor member states of the African Union does not generate viable clusters that could be usedas steps towards full monetary integration in Africa.Given this conclusion it is recommended that the stepwise progression towards full monetaryintegration be considered by utilising existing economic arrangements, i.e. by using the fiveRegional Economic Communities proposed by the African Union.