21 October 2011

Namibia: Eurozone Debt Crisis Impacting Local Economy

Namibia is feeling the impact of the Eurozone debt crisis and the financial and mining sectors, are already being affected, says local economist, Klaus Schade.

According to Schade, a research associate at the Institute for Public Policy Research (IPPR), financial investors are now much more cautious about investing their funds in emerging markets which has already led to the depreciation of the Namibian dollar against the Euro, British pound, and American dollar.

Since the beginning of September 2011, the value of the Namibian dollar dropped by more than 20% against major currencies. "Markets are very nervous at the moment and investors are looking for safe havens," he said.

Schade further added that at the beginning of the year, there were quite significant speculations that there will be increases in demand for copper. But now, the market for copper is not performing up to expectations and investors are moving out of copper. This has led to a significant decrease in the price of copper. Copper was almost U$10 000 per ton in January 2011, but it is now below U$7000 per ton.

On the tourism sector, Schade believes that "because Namibia is not a cheap tourist destination, tourists who visit Namibia are in the middle income segment, and are affected less by economic events thus the tourism sector will not be affected at least not this year."

However, Schade cautioned that there should not be too much optimism about the tourism sector. This is because Eurozone countries may take measures to cut on budget deficits in the near future, which will have an impact on the labour markets. "This might increase unemployment, which will in turn affect the tourism sector in the long run as people cut on luxurious expenditures and put their money into savings accounts," he said.

Schade does not expect any major impact on Namibia's major exports to the European markets.

"I do not foresee any change in fish and meat exports because they are basic food. However, demand for grapes may be affected."

He concluded that should Greece default on its debt, there will be severe consequences.

"These consequences are likely to result in a financial crisis, taking us back to 2009. Prices of commodities will be severely affected and these uncertainties will lead to a decline in economic growth. But for now, let us hope things get better," Schade said.

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