The Common Market for Eastern and Southern Africa (COMESA) was formed in 1994 and consists of 21 African member states. It replaced the Preferential Trade Area for Eastern and Southern Africa, which was formed in 1981. COMESA is the largest regional economic community in Africa with a population of over half a billion people and a global trade of goods worth US$235 billion.
Due to COMESA’s economic history and background, its main focus is on the formation of a large economic and trading unit that is capable of overcoming some of the barriers faced by individual states. Its vision is “to have a fully integrated, internationally competitive regional economic community with high standards of living for its entire people, ready to merge into the African Economic Community”.
Chapter 10 of its treaty covers monetary and financial cooperation. Article 72(a) addresses strengthening the clearing and payment system in order to promote the use of national currencies in the settlement of payments for all transactions among the member states, thereby economising on the use of foreign currency.
COMESA Treaty: Chapter 10
"MONETARY AND FINANCIAL CO-OPERATION
ARTICLE 72
Scope of Co-operation
The Member States undertake to co-operate in monetary and financial matters in accordance with the approved PTA monetary harmonisation programme in order to establish monetary stability within the Common Market aimed at facilitating economic integration efforts and the attainment of sustainable economic development of the Common Market by:
(a) strengthening the clearing and payments system in order to promote the use of national currencies in the settlement of payments for all transactions among the Member States thereby economising on the use of foreign currency;
(b) taking measures that would facilitate trade and capital movement within the Common Market;
(c) the realisation of greater harmony in economic policies, particularly in fiscal and monetary policies, the management of the foreign sector and in the development policies of the Member States;
(d) the integration of the financial structures of the Member States; and
(e) the mobilisation of financial resources for the expansion of trade and development projects and programmes.
ARTICLE 73
Settlement of Payments
For the purposes of sub-paragraph (a) of Article 72 of this Treaty, the Member States undertake, until a common central bank is established, to settle all payments in respect of all transactions in goods and services conducted within the Common Market through the Clearing House.
ARTICLE 74
Unit of Account
- There shall be a unit of account of the Common Market to be known as the Eastern and Southern Africa Currency Unit (ESACU) whose value shall be equal to one Special Drawing Right (SDR) of the International Monetary Fund or any other unit of account that may be determined by the Council from time to time on the recommendation of the Committee of Governors of Central Banks.
- Each monetary authority shall communicate to the Clearing House the official exchange rate of its currency against its intervention currency or reference currency as the case may be.
- Any change in the official exchange rate of the currency of a Member State shall be notified immediately by the monetary authority to the Clearing House.
- All books of account of the Common Market and all monetary instruments issued by the Common Market shall be denominated in the unit of account of the Common Market.
ARTICLE 75
Establishment of a Payments Union
- There shall be established a Payments Union among the Member States.
- The Council shall adopt measures which would be required to be implemented in order to establish the Payments Union. For this purpose, the Member States agree to set up a reserve fund for the provision of assistance to the Member States which may experience difficulties regarding the settlement of their net debit balances in the Clearing House and general balance of payments.
ARTICLE 76
Monetary and Fiscal Policy Harmonisation
- The Member States undertake to adopt collective policy measures in accordance with the monetary harmonisation programme which is designed to achieve a harmonised monetary and fiscal system in the Common Market.
- For the purposes of paragraph 1 of this Article, the Member States agree to:
(a) remove all exchange restrictions on imports and exports within the Common Market;
(b) make necessary adjustments in their exchange rates towards free market rates in order to improve their balance of payments positions and enhance the level of their international reserves;
(c) adjust their fiscal policies and domestic credit to the government and private sector designed to ensure monetary stability and the achievement of sustained economic growth;
(d) liberalise their financial sectors by freeing and deregulating interest rates or their equivalent with a view to achieving positive real interest rates or their equivalent in order to promote savings for investment and to enhance competition and efficiency in the financial system; and
(e) harmonise their tax policies with a view to removing tax distortions affecting commodity and factor movements in order to bring about a more efficient allocation of resources within the Common Market.
ARTICLE 77
Establishment of Currency Convertibility
- The Member States undertake to establish, at a time to be determined by the Council, currency convertibility which shall make their currencies convertible into one another.
- For the purposes of paragraph 1 of this Article, the Member States shall abolish all restrictions on current transactions.
ARTICLE 78
Formation of an Exchange Rate Union
- The Member States undertake to establish, at a time to be determined by the Council, an Exchange Rate Union.
- The Member States agree to the immutable fixing of the exchange rates of their currencies within a band to be prescribed by the Council.
ARTICLE 79
Regional Macro-economic Co-ordination
- The Member States undertake to co-ordinate their macro-economic policies and economic reform programmes with a view to promoting the economic and social balance of the Common Market and to develop a framework for macro-economic planning and programming.
- The Member States undertake to evolve policies designed to improve the resource and production base of the economically weaker Member States in order to achieve balanced development within the Common Market.
ARTICLE 80
Banking and Capital Market Development
The Member States undertake to implement a region-wide capital market development programme to be determined by the Council and shall create a conducive environment for the movement of capital. To this end Member States shall:
(a) take steps to achieve wider monetarization of the region's economies under a liberalised market economy;
(b) establish national stock exchanges and an association of national stock exchanges to enable objectives to be pursued in a concerted and coordinated manner including promotional activities, training, standardisation and harmonisation of operational rules and regulations;
(c) establish a Common Market rating system of listed companies and an index of trading performance to facilitate the negotiation and sale of shares within the Common Market and also external to the Common Market;
(d) develop a region-wide network of national capital markets, with the purpose of facilitating the flow of information on national stock exchanges and their functioning, listed companies, availability of stocks, bonds, securities, treasury bills, notes, and other monetary instruments for the cross-border marketing of such instruments; and
(e) ensure adherence by their appropriate national authorities to harmonised stock trading systems, promotion of monetary instruments, and permission for residents of the Member States to acquire and negotiate monetary instruments.
ARTICLE 81
Capital Movement
The Member States shall, permit the free movement of capital within the Common Market and integrate their financial structures. In this regard, the Member States shall:
(a) ensure the unimpeded flow of capital within the Common Market through the removal of controls on the transfer of capital among the Member States in accordance with a timetable to be determined by the Council;
(b) ensure that the citizens of and persons resident in the Member States are allowed to acquire stocks, shares and other securities or to invest in enterprises in the territories of the other Member States; and
(c) encourage cross border trade in government securities such as treasury bills, development and loan stocks within the Common Market.
ARTICLE 82
Joint Project Financing
- The Member States undertake to co-operate in financing projects jointly in each other's territory, especially those that facilitate regional integration.
- The Member States undertake to co-operate in the mobilisation of foreign capital for the financing of national and regional projects.
ARTICLE 83
Safeguard Measures
The Council may approve measures designed to remedy any adverse effects a Member State may experience by reason of the implementation of the provisions of this Chapter, provided that such a Member State shall furnish to the Council, proof that it has taken all reasonable steps to overcome the difficulties, and that such measures are applied on a non-discriminatory basis."
Article 73 states that, until a common central bank is established, member states undertake to settle all payments for transactions in goods and services conducted within the Common Market through the COMESA Clearing House. The Clearing House enables member states to use local currencies in their intra-COMESA trade.
A Regional Payment and Settlement System (REPSS) has been introduced, to enable central banks to transfer funds across borders within COMESA. Settlement is done on a net basis with a single currency. Central banks may use the United States dollar or the euro. The REPSS is built on open standards and is accessible to non-member states. The vision is to make REPSS the single gateway for central banks within the region to effect payments.