“African leaders have often taken out these loans to help with their own short-term political ambitions, but their countries have ended up severely indebted and with the risk of losing collateral worth more than the value of the loan itself,” says Evelyne Tsague, an NRGI Africa co-director.

Indeed, resource-backed loans need not be a bad thing. Most of the deals are linked to specific infrastructure projects for example, so if executed as laid out on paper they could help shorten the path to closing the African infrastructure gap estimated to be around $90 billion a year.

But it is the lack of transparency with these bilateral deals that concerns bodies like NRGI and the World Bank, particularly with the oil producers. “These deals, sometimes labeled as oil advances, often resemble pay-day loans,” says David Mihalyi, co-author of the report and senior economic analyst with NRGI. “They have short maturities, high interest rates and fees, and no commitments on how the money will be used.”

And if anymore evidence of the riskiness of bad deals was needed, the imminent global economic crisis prompted by the coronavirus pandemic is clear. The downturn in Chinese demand and subsequent face-off between Saudi Arabia and Russia in the oil markets has seen prices drop to levels that will disrupt the budget plans of major oil producers in Africa. Nigeria’s oil-dependent economy for example has a 2020 budget based on revenue from with oil priced at $57. Prices have dropped to between $33 to $35.

These price drops could have even more significant impact for countries whose resource-backed loans were struck at the higher prices.

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