The President of the African Development Bank, Akinwumi Adesina, has called for an end to loans given in exchange for Africa’s rich supplies of oil or critical minerals. These loans have helped China gain control over mineral mining in places like Congo and have left some African countries in financial crisis.
Adesina, in an interview with The Associated Press in Lagos, Nigeria, last week, said, “They are just bad, first and foremost, because you can’t price the assets properly. If you have minerals or oil under the ground, how do you come up with a price for a long-term contract? It’s a challenge.”
The shift to renewable energy and electric vehicles has caused a spike in the demand for critical minerals, driving these kinds of loans. This includes a China-Congo deal that strengthens Beijing’s position in the global supply chain for EVs and other products as it taps into the world’s largest reserves of cobalt, a mineral used to make lithium-ion batteries, in the impoverished central African country.
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.
“These are the reasons I say Africa should put an end to natural resource-backed loans,” Adesina said. He pointed to a bank initiative that helps “countries renegotiate those loans that are asymmetric, not transparent and wrongly priced.”
Adesina 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.
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.
Adesina said there was no “fixation” on one country as being behind these types of loans when asked about criticisms over China’s lending backed by oil; critical minerals such as cobalt and copper.
