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AfDB President Urges African Nations to Cease Natural Resource-Backed Loans

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The President of the African Development Bank has emphasized the importance for African nations to halt the practice of securing loans backed by natural resources in an interview with the Associated Press.

Akinwumi Adesina denounced such agreements as fundamentally flawed and highlighted a bank initiative aimed at assisting countries in renegotiating these arrangements.

“The inherent risk associated with natural resource-backed loans is multifaceted,” Adesina stated. “Firstly, accurately valuing underground assets like minerals, oil, and gas for long-term contracts poses a significant challenge due to their unmarketed nature.”

“Secondly, the negotiation process tends to be heavily skewed, with lending entities often wielding disproportionate power over cash-strapped African nations. This power asymmetry, coupled with a lack of transparency and susceptibility to corruption, creates an environment ripe for exploitation.”

Linking loan repayment to future revenue from natural resource exports has been promoted as a means to secure financing for infrastructure projects while mitigating lenders’ risk. However, the surge in demand for critical minerals driven by the shift to renewable energy and electric vehicles has exacerbated the reliance on such loans.

Adesina, whose institution in Abidjan, Ivory Coast, supports development financing across Africa, outlined a litany of problems associated with these arrangements. He underscored the uneven nature of negotiations, typically favoring lenders and dictating terms to African nations in dire need.

“This power imbalance, combined with opacity and the potential for corruption, underscores the urgent need for Africa to discontinue reliance on natural resource-backed loans,” Adesina asserted, referring to a bank initiative aimed at assisting countries in renegotiating asymmetric, opaque, and improperly priced loans.

The former Nigerian Agriculture Minister noted that loans tied to natural resources present challenges for development banks like his and the International Monetary Fund (IMF), which advocate for sustainable debt management. Utilizing income from natural resources to repay loans exacerbates the financial strain on countries already dependent on these resources for economic stability.

Adesina cited Chad’s financial crisis following an oil-backed loan from commodity trader Glencore, which left the nation allocating most of its oil proceeds to debt repayment. He mentioned that at least 11 African countries have secured numerous loans totaling billions of dollars with their natural resources since the early 2000s, with China being the primary source of funding.

In addition to China, Western commodity traders and banks like Glencore, Trafigura, and Standard Chartered have also participated in oil-for-cash deals, notably with countries such as the Republic of Congo, Chad, and Angola.

Adesina clarified that there is no singular country to blame for these types of loans, urging a collective effort to address the systemic issues underlying natural resource-backed lending practices.