In an interview with the Associated Press, the head of the African Development Bank advised African nations to stop accepting loans secured by natural resources.
Akinwumi Adesina denounced the agreements and cited a bank program that assists nations in renegotiating them. He said, “The risk that one has with natural resource-backed loans, as far as I’m concerned, is that they are just bad, bad, and bad. First and foremost, because you can’t price the asset properly. If you have minerals, oil, metals, and gas under the ground, it’s not actually being marketed, so how you actually come up with a price of that for a long-term contract? It’s a challenge.”
“Second, is that the negotiation is very asymmetric. Most countries that want to do asset-natural resource-backed loans are probably dealing with bigger countries, bigger commercial banks that want to give them a loan and say, ‘Well, look, it’s urgent, we need it. But this is what you have to sign.’ But it is those that actually want to give the loan that have the upper power, not the person who wants or the country that wants to receive the loan.”
It’s common to hear that beneficiaries can obtain funding for infrastructure projects and lenders can lower the risk of default by tying future revenue from natural resource exports to loan paydowns. These loans are being driven by the surge in demand for essential minerals brought on by the transition to renewable energy and electric vehicles.
These arrangements come with a list of issues, according to Adesina, whose organization, based in Abidjan, Ivory Coast, helps finance development in African countries. He emphasized how the talks were inequitable, with lenders usually having the upper hand and imposing conditions on financially struggling African countries.
According to Adesina, this power disparity, together with a lack of openness and the possibility of corruption, foster an environment that is conducive to exploitation.
