One of the fundamental causes of the current financial crisis and the recession consequent has been a change in banking business model of mixing credit with equity culture, which ‘fortunately’ financial institutions in developing countries in Africa had not adopted.

This model moved towards an equity culture which focused more on the banks’ bottom line and thus growth in the share price as opposed to the old banking model that focused on the balance sheet and the traditional spreads on loans.

This new banking model (which regulators had not prepared for, and where development of financial instruments out-paced regulation) was more about risk taking in a bid to realize revenues that would then impact on the share prices, thereby increasing shareholders’ value, saw most western banks mix their traditional credit culture with the new model equity culture.

The success of this model also changed the remuneration culture of bank executives from pay to bonus based on up-front revenue generation, a scheme that was said to be in the shareholders’ interest.

This again was premised on the philosophy that, "if you pay peanuts, you get monkeys” When this model was combined with complex interactions and incentives from macro economic policies, regulation, taxation, and corporate governance in western economies and especially in the US, the financial bubble burst.

Unfortunately, this model had explicit blessings of political elite in the west who saw it as innovative and a second level booster to the development of their economies.

One reason why African financial systems weathered the current financial crisis to some extent is that, they had not embraced this model except for a few multinational financial institutions.

And although recession is cyclic, the current one could have been avoided as the usual causality were not exogenous factors in motion. Most of the previous recessions answered the model of exogeneity where independent factors changed causing endogenous factors to change as well pushing underlying economies to recession.

Rather, it originated from non-independent variables such as the distortions and incentives created by past policy actions especially in the US in 2004, and which were to trigger the current crisis.

The Bush administration’s ‘American Dream’ of zero mortgage proposal that was aimed at helping low income families acquire mortgages, saw many banks move in to cash on, in the securitization of these products, which were then re-sold, or discounted in various forms (mostly derivatives) in western financial markets, triggering the crisis as under-valued risks became a reality in a short period.

This was as a result of mismatch between banks liabilities and duration of their assets held in form of mortgages. At the height of this problem, some banks had accumulated up to 75% of their assets in form of mortgages, which exerted pressure on banks as these assets could not be funded by deposits.

Whereas the current recession will be contained in due course as signs start to trickle in through the so called ‘green shoots’ one thing is certain. In so far it is said to originate from USA’s sub-prime mortgage markets, recovery will also have to originate from USA and spread to other economies through existing convergence structures.

This is based on the fact that, USA remains the world’s larges economy (boosting the world’s largest financial systems) and any positive growth in such a world’s largest economy is supposed to have a contagion effect to the rest of the world economy.

The second reason (under debate) is the use of dollar as unit of account of international transactions. The dollarization of world economy has meant that, USA economy becomes a defacto anchor of other world economies.

Policies intended to reform any financial system has to take in account the unit of account (currency) of such a system with regard to its demands and supply and forces attendant to such currency markets mechanism.

In so far as most international assets/liabilities of financial are quoted in dollar as a unit of account, turning round of these systems will depend on how such a unit of account of international transactions is managed to balances liquidity in international financial markets.

Although USA has put in place the biggest stimulus package in financial historical records, nevertheless coordinated actions through other stimulus packages in EU, Japan and China will certainly make an impact.

Nevertheless, the current debate that, another unit of international account to replace the dollar be found, is bound to intensify depending upon how USA manages the current financial crisis.

With emergence of China and India as potentially huge economies of tomorrow, one can not write off this debate.

A currency is as economic as it is political, and these potentially huge economies will need to be in control of their economies through control of a currency through which their economic might can be reflected.

As pointed out earlier, the so called green shoots will translate into recovery of the world economies in such a slow pace that, we will not see a V shaped recovery by any means.

Until the 18 trillion dollars pumped in world financial markets start to restore world liquidity, and consumer confidence restored, recovery will be slow and painful.

In case of Africa, we can only keep our ‘by stander’ posture, and hope that, we get the spills from the tables of rich economies coming out of recession.

If this financial crisis does not serve as critical lesson to African policy makers to reform their financial systems, nothing will. As pointed in earlier articles, our political economy has no choice, but to plan their financial systems and reform these to drive their underlying economies.

This is not rocket science, for it took only three decades for Asian economies to reform theirs. Tools to do this are there, and so is the expertise.

What is needed is the political will (rare in a number of African political economies excluding Rwanda) and the knowledge that, this is a serious issue worth their attention, otherwise these political economies will be ‘bystanders’ much as their economies are in the current crisis.

A western researcher friend of mine asked me recently whether I have hope in African political economy’s ability to manage a viable modern economy going by what is happening on the continent, and more recently in Kenya.

I requested him to re-read their own history in 17th century and thereafter, which was no better than what is attendant in Africa, and that, no matter how long this political economy will take to be a problem to the development of Africa, time is not on its side.

As long as we keep good pace with human capital development, the dynamics and demands of a developed force of human capital holds keys to most of our development problems, including our political economy.

Ends