A Dummies Guide To The Credit Crunch

What happened and why?

It is believed that the financial crisis has been building since early August of this year when the USA market suffered a loss of confidence in investors causing a substantial amount of credit to be injected into the economy causing the market to become volatile. However it could also be argued that the crisis has been in the making for much longer than this; today’s global society has the most expendable income in history and, as mass production becomes more widespread, prices are forced downwards to accommodate the consumerdriven lifestyle which in turn makes the global market very vulnerable. In other words the pressure for cheaper goods has put a strain on the world economy which has now resulted in a complete breakdown.

What are the global impacts?

As the main reasons for the credit crunch are founded in developing countries, particularly the UK and the USA, these are the countries that have been the most badly damaged, which seems only fair. However, because of the developing world’s dependency on richer western countries, there are inevitably going to be impacts in less economically developed countries as well. The crisis has: triggered the bankruptcy of several huge financial players, resulted in several less wealthy countries, including the Ukraine and Hungry, becoming dependant on loans from the IMF, caused the entire country of Iceland to declare itself bankrupt, left over 1 million people unemployed in North America and instigated huge losses in the financial market. The Bank of England has reported that nearly $1 trillion, 12% of the entire global economy, has been spent bailing out the financial industry.

What are the African impacts?

In Africa experts have predicted that the credit crunch may do more good than bad; the IMF (International Monetary Fund) has predicted that the Sub Saharan African economy will grow by 6.5% which is far higher than expected due to the credit crunch. Furthermore the World Bank says that whilst the crunch will ‘hurt developing countries’ (‘Herald Tribune’) as it will curb rapid growth, particularly in countries like India and China, Sub Saharan Africa’s economy is likely to pick up to the highest growth rate in 38 years. And why? Because countries like Botswana and Namibia are sitting on a wealth of natural resources!

And the implications of this in Namibia?

Thankfully damage to Namibia’s economy is likely to be kept to a minimum, particularly because of the strong links the country has with South Africa. However there may be subtle changes to be aware of; firstly, whilst Namibia itself is largely predicted to remain unscathed, many of the countries that feed the tourist industry, for example Germany and England, have suffered vast financial losses making people less likely to spend large sums of money on holidays. The result could be a drop in the Namibian tourist industry. In addition De Beers diamond company, which is a 50% shareholder in Namdeb, has said that they expect a slump in the diamond industry, again due to the reduction of disposable income in the western world. This may pose a problem as diamond and other mineral mining makes up approximately 20% of Namibia’s total Gross Domestic Product, although for the time being it is unlikely that this will create any major financial problems.

What about Lüderitzbucht?

Because Lüderitz is one of the fastest growing areas in Namibia, with a healthy shipping port and open mine, the negative impacts of the credit crunch will be fairly minimal. However the falling price of diamonds may have some negative impact and it is reasonable to expect small increases in food prices as import values may go up but other than that it’s business as usual for the Buchters.