The African Development Bank (AfDB) is calling for a halt to loans offered in exchange for a nation’s natural resources, like oil and critical minerals.
Akinwumi Adesina, AfDB president, highlighted the challenges of these deals, stating the difficulty of accurately valuing resources for long-term contracts.
While these loans are presented as a way for African countries to finance infrastructure projects and lenders to secure repayment, concerns linger.
Resource-backed loans have been linked to China gaining significant control over mineral mining in countries like Congo. Additionally, these deals have pushed some African nations towards a financial crisis.
The growing demand for critical minerals in electric vehicles and renewable energy has further fueled these types of loans.
Adesina emphasized the inherent issues with resource-backed loans. Negotiation imbalances often leave cash-strapped African countries vulnerable, with lenders dictating terms.
This power disparity, coupled with a lack of transparency, creates a ripe environment for exploitation, Adesina warned.
The AfDB, along with institutions like the International Monetary Fund (IMF), promotes sustainable debt management.
Resource-backed loans directly contradict this goal, Adesina explained. Countries struggling to repay these loans are forced to prioritize debt repayment over vital economic investments, often funded by natural resource revenue.
The AfDB president cited Chad’s crippling financial crisis as a cautionary tale.
After acquiring an oil-backed loan from Glencore, a commodity trader, Chad was forced to dedicate most of its oil revenue towards debt repayment.
Similar situations in Angola and the Republic of Congo led both nations to seek IMF support, with the lender pushing for renegotiation of their resource-backed loans.
Since the 2000s, at least 11 African countries have secured billions of dollars in loans through this method, with China being the primary source of funding.
While not singling out any specific country, Adesina stressed the potential for exploitation exists whenever nations enter such agreements without proper knowledge and safeguards.
