A few years ago I read an article that gave a vivid description of African currency fluctuations: “African currencies are like tiny boats directed by the swells from bigger passing ships”.

So, if you were walking down the street and a poor looking man walked up to you and said – “hey buddy, let me pay for your bills?” – What would you think?

Africa receives its growth rate in the following ways;

– Through investment – that has been slowing down and increasing, depending on the sector and level of investment – infrastructure investment at the moment

– Via grants and aid for various heart-wrenching needs across the continent

– Private investments at corporate levels or market introductory consumerism

Fact is, the US has recently heard a few calls from the corridors to scale back on funding to the World Bank. This increases doubts about the influence of the US within these institutions. Already Republicans have put the ObamaCare on the target list ahead of the January deadline for the next showdown. The U.S. is a top shareholder in these institutions, but with direct limitation on aid—automatically indicates a significant channel for influencing international policy

The big dog is back in business

After $24 billion loss, the US government is back in business. Warren Buffet muffled that the US economy can be regarded as “one huge Hedge-Fund”. Put simply, the US economy is backed by about $120 trillion worth of debt, traded each day.

Aptly stated by Max Keiser, the banking system is like a bunch of financial jihadist –willing to blow themselves up for their cause. To resolve this issue, the US Federal Reserve goes downstairs and prints some more “Franklin bills”. The result of this falls on the market manipulation which is illegal to bring the price of gold down, where in reality gold should be at a premium. This manipulation however cannot continue for long and will return to a safe haven, with a devalued dollar.

The US economy still has major challenges despite averting a default. Of these are;

• A possible downgrading of their credit rating – this has implications even for stable US treasury bonds and anyone who holds them. This is also set in devaluing by US Federal over supply (printing).
• The US has a severe debt crisis. It cannot balance its deficit and reduce its debt fast enough.
• The US System has structural challenges – this has been uncovered or perhaps, it just sticks out more. Funny though many remain a few steps back from mentioning it – stabilizing market sentiments. A democratic system needs to ensure that governance occurs and cannot be hijacked.
• Economic recovery – US recovery can be jacked. Job creation is slow and continuing inequality divide in the US. 90 percent of the benefits of the current recovery are accruing to the top 10 percent of our society – punting social breakdown.
• Dollar de-perched by the US itself – the US dollar is still quivering from its reality check. Already currency swaps – bringing internationalization of the Chinese Yuan (RMB) has been signed with the ECB.
• Timing of US Prioritization or shall we call it Austerity Measures – in January, unless two parties who cannot negotiate find a quick solution, global economies will again move into standby mode. The US cannot avoid their debt and a shutdown may seem likely – given that Republicans have already issued a warning shot – post today’s averted default.
• No Plan to reduce Its Debt – here we go. What is the US government going to do now that they should or have not done to reduce their debt? What possibly was there to learn from this?

Heritage of shutdowns

The US has enjoyed 17 government shutdowns since  and it is much closer to a default than avoiding it in the near future. During the last shutdown in 2011, a default was averted at the 11th hour, costing the US economy its AAA rating.

So much so and according to World Bank whistle-blower Karen Hudes, “Africa has already started manoeuvring with BRICS countries to pay for their trade among themselves with offsets and the difference in gold”.

The reality for Africa, despite great resources and consumer market potential,  is that the continent may just have to get sick before it gets better.

Africa’s much touted annual growth rate shouldn’t be over celebrated. Until we are influencing per capita, we still have a long way to go. Economic challenges still rest in trouble spots around the world, including Europe’s fiscal crisis and the famine in the Horn of Africa. As indicated by the Ibrahim Index for Governance in Africa (IIAG), Africa is relatively off par.

The prognosis for Africa really is to deal with its shortcomings. According to Mo Ibrahim: “Africans need to move away from Afro-pessimism and Afro-Idealist to Afro-realism”.

Realities in Africa’s largest economy, South Africa has a low unsustainable demand-driven growth. So does many African countries. Investment in particular, albeit consistence is still categorised by a funding gap.

African economies are still vulnerable to capital flows, especially commitments hedged on a devaluing dollar. The US economy due to another possible shutdown in January is likely to see easing consumerism over the December to February periods, with investors backs to the wall until a favourable outcome is achieved.

For South Africa (as with many African countries), income surplus is relatively a thing of the past. The tax revenues and surplus are no more. South Africa now has a budget deficit. Many African countries suffer a similar fate and worse off in terms of rates of economic development and survival rates of success in the SME sectors.

Recently the IMF – what can be considered Africa’s most structured economy, was warned against budget deficit and fiscal instability. Compounding this is South Africa as one of the lowest labour participation rates in the world – from a perspective of being more highly structured.

Unfortunately, the US needs Chinese cash and China need US debt – although China and the ECB traded a currency swap paving the first steps to de-Americanizing the global economy.

African economies should divest in the dollar, backing their diversification into other currencies with gold despite market manipulation to reduce the price of gold and attempt to achieve revenue surplus.