The African Development Bank (AFDB) has called for an end to loans given to African countries in exchange for their critical natural resources such as crude oil and lithium. 

Akinwumi Adesina, president of the AFDB, who made the call, explained that the deals have assisted countries like China gained control over mineral mining and placed African countries in financial debt. 

“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,” Mr Adesina said in an interview with The Associated Press. 

Lithiums, which are part of critical mineral resources used in smartphone and electrical car batteries have helped China gain control in countries like Congo. 

Mr Adesina observed that the current arrangement comes with its litany of problems, highlighting the nature of the negotiations with lenders typically holding the upper hand and dictating terms to cash-strapped African countries. 

He noted that the power imbalance has led to a lack of transparency and the potential for corruption which created fertile ground for exploitation. 

“These are the reasons I say Africa should put an end to natural resource-backed loans,” Mr Adesina said. 

He also pointed to a bank initiative that aids “countries renegotiating those loans that are asymmetric, not transparent and wrongly priced.”

According to him, loans secured with natural resources posed a challenge for development banks including the International Monetary Fund (IMF) which also promotes 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.” 

Mr Aiyedatiwa 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.

Although, western commodity traders and banks, such as Glencore, Trafigura and Standard Chartered have funded oil-for-cash deals, notably with the Republic of Congo, Chad and Angola.

At least 11 African countries have taken dozens of loans worth billions of dollars secured with their natural resources since the 2000s, according to AFP. 

China, however, tops the source of funding through policy banks and state-linked companies.