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Akinwumi Adesina called such deals bad and pointed to a bank initiative that helps countries renegotiate them. The AfDB chief called for properly pricing the assets such as minerals, oil, metals, and gas under the ground, which can give a fair return to the host country.
The head of the African Development Bank has urged African countries to put an end to natural resource-backed loans. He made this point while he was talking to an international wire agency recently.
Akinwumi Adesina called such deals bad and pointed to a bank initiative that helps countries renegotiate them. The AfDB chief called for properly pricing the assets such as minerals, oil, metals, and gas under the ground, which can give a fair return to the host country.
Giving his insights on the subject, Adesina said that most countries that want to do asset-natural resource-backed loans are probably dealing with bigger countries, and larger commercial banks that want to give them a loan. The country seeking loans under these conditions would have a reduced bargaining power, which the lenders would take advantage of. Linking future revenue from natural resource exports to loan paydowns is often touted as a way for recipients to get financing for infrastructure projects and for lenders to reduce the risk of not getting their money back.
The shift to renewable energy and electric vehicles has caused a spike in the demand for critical minerals, driving these kinds of loans, which has caused several problems. Adesina highlighted the uneven nature of the negotiations, with lenders typically holding the upper hand and dictating terms to cash-strapped African nations.
This power imbalance, coupled with a lack of transparency and the potential for corruption, creates fertile ground for exploitation, Adesina said. He said loans secured with natural resources pose a challenge for development banks like his and the International Monetary Fund, which promote sustainable debt management.
Countries may struggle to get or repay loans from these institutions because they have to use the income from their natural resources — typically crucial to their economies — to pay off resource-tied debts, he said.
Adesina specifically mentioned Chad’s crippling financial crisis after an oil-backed loan from commodity trader Glencore left the central African nation using most of its oil proceeds to pay off its debt.
After Chad, Angola, and the Republic of Congo approached the IMF for support, the multilateral lender insisted on the renegotiation of their natural resource-backed loans.
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At least 11 African countries have taken dozens of loans worth billions of dollars secured with their natural resources since the 2000s, and China is by far the top source of funding through policy banks and state-linked companies. Western commodity traders and banks, such as Glencore, Trafigura, and Standard Chartered, also have funded oil-for-cash deals, notably with the Republic of Congo, Chad, and Angola.
