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Economist warns of tough 2012

Economist Klaus Schade has warned of ‘economic uncertainties’ in the year ahead due to the lingering  Euro zone debt crisis.
In an interview with the Economist recently, Schade said he was pessimistic about a quick solution to the debt problem in the Euro area, adding that local business should brace themselves for a tough period ahead.
He also warned that the Euro zone debt crisis and the subsequent austerity measures will most likely result in European countries cutting back on development assistance that will affect in particular the health sector in Namibia that is dependent on foreign funding and might affect NGOs that are receiving financial support from Europe.
He said: “I do not think that the crisis will be resolved this year since it will take quite a while before debt levels reach acceptable levels again. We will most likely have to live with some economic uncertainties for the next couple of months or even year.
“We will also continue to experience some degree of price volatility and exchange rate volatility, since investors are still a bit nervous.
“Investors will be more cautious about new projects which will have an impact on Foreign Direct Investment in Namibia – with the exception of the minerals sector. And there will most likely be fewer tourists coming from Europe.
Schade advised that local exporters should diverse their markets in order to mitigate effects caused by  weakening demand in the Euro zone area.
“Namibian exports should try and diversify their export destinations, which most of them are most likely doing. However, this is a medium to long term strategy and will not ease the situation in the short term.  
“Export industries could also diversify their product ranges in order to distinguish their products from competitors and create a brand that consumers will prefer,” he said.
The local economy has already suffered from the effects of the Euro Zone debt crisis which began early 2010. according to Schade mineral prices have already dropped, since the markets anticipate a slower economic recovery.
“Zinc and copper prices declined by 26 per cent and 23 per cent respectively during 2011. Copper and zinc mines in Namibia might not have felt the impact immediately since they usually engage in longer term contracts.  But the price decreases will eventually filter through to local producers.  
“The uncertainties in the Euro zone will affect the tourism sector in 2012, since European consumers might cut back on non-essential expenditures, such as tourism and luxuries such as diamonds.
“Reportedly, the Euro zone crisis has affected fish prices negatively, which will have a negative impact on the ailing fishing industry as well since almost 90% of the most lucrative species, hake, is exported to Spain and from there across Europe.
“Finally, the debt crisis affected the financial markets and share prices dropped, implying that institutions and private persons that have invested in shares have lost money.  The NSX Overall Index closed the year 4.2% lower.”

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