The headquarters of Glencore is seen behind in Baar, Switzerland. The commodity rout has affected the trading and mining company, whose market value has shrunk in the past year.
Reuters
Tarkwa, Ghana
In the boom times when the price of gold was soaring, Ebenezer Sam-Onuawonto had a dream job and a dollar salary many times the national average in this mining town in southwestern Ghana.
When the price fell, he lost his job as human resources chief at a mining company that closed its local operations and could only find work in a construction firm in another city, far from the house he built in Tarkwa for his wife and six children.
“I hardly see my kids now,” said Sam-Onuawonto, his life changed as a result of a slump in global commodity prices whose impact is being felt around the world on currencies, companies, consumers, national economies and - potentially - governments.
At one end of the wealth scale, the rout has affected huge companies such as Swiss-based trading and mining company Glencore, whose market value has shrunk in the past year. At the other end, it holds the key to the fate of entire communities dependent on the raw materials they produce.
In Tarkwa, a town of 34,000, production of gold continues but several firms have stopped work or laid off staff in the last two years as the effects of the price slump trickled down.
One African bank has shut its Tarkwa branch, bars and hotels are emptier and the streets are less clogged with traffic as people struggle with new financial problems.
“Since the fall in the gold price, things have never been the same,” said Yvonne Mensah, who has seen business wilt at the stationary shop she runs from a converted shipping container. Ghana as a whole, once Africa’s star economy, is suffering. Not only is gold it biggest source of foreign exchange but the price of oil, which it also produces, has sunk, it has double-digit inflation and the value of the cedi currency has declined.
There are similar tales of misfortune across the continent, with the impact felt on both the poor and the middle class. The UN Conference on Trade and Development (UNCTAD) says falling commodity prices threaten economic and political stability in developing economies across Latin America, Africa, the Middle East and Asia.
The events are seen by some experts as signalling the end of a commodity “super-cycle” in which prices surged following the rapid industrialisation of China after it opened up in the 1980s.
Countries and companies made huge investments in commodities while prices were still high in almost all energy and raw material markets, but this resulted in oversupply when economies stalled in what had been booming markets.
Many producer countries are paying the price for failing to predict the end of the cycle and not reducing their dependence on commodities.
The most important factor in the price slump is seen as the economic slowdown and drop in demand in China, though downturns in Indonesia, Malaysia and developed economies such as Japan and South Korea have also contributed to the situation. Commodity-producing powerhouses such as Brazil, Australia, South Africa and Russia are now in economic downturns. A halving of the oil price in the past year has been especially painful for Russia, also hit by sagging metals and mining prices.
“Hundreds of billions of dollars were spent in new oil, natural gas, iron ore, coal and many other commodities in the expectation that China would continue to grow insatiably forever,” said Frederic Neumann, Co-head of Asian Economic Research at HSBC in Hong Kong.
“That’s changed, so many of the investments made by governments and companies now look really bad, and that’s hitting economies and company stocks hard ... It’s been a huge bubble, a massive misallocation of capital which now has to be wound down.”
There are some beneficiaries, such as consumers in developed nations including the US who are enjoying lower gasoline prices at the pump, but the developed world is far from immune to the decline in prices.
