AfDB warns of linking African loan payment to critical resources

Head of the African Development Bank called for an end to loans in exchange for oil or critical minerals, which helped countries like China control vast resources in the continent.

In an interview with the Associated press, AFDB chief Akinwumi Adesina explained how such loans lead to undervaluing natural resources of African countries and further erode financial stability prospects in these countries.

These loans “are just bad, first and foremost, because you can’t price the assets properly,” Adesina said.

“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,” he added.

Linking resources from critical minerals- notably those used in smartphones and EV batteries for example- to loans, was a method used by lenders to secure loan payment.

A China-Congo loan was linked to cobalt helping Beijing secure a critical mineral for EV batteries and energy transition.

This means that many countries trapped into such loans would struggle to pay loans by using income from their mineral resources, i.e., their main income.

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.