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As of 2020, Africa鈥檚 natural resources were pledged to back nearly in loans made for the most part from China鈥檚 state-controlled Development and Exim Banks. 

Africa has enormous economic potential. It is the youngest continent in the world, and  of the world鈥檚 working-age population will be African in 30 years. With that youth comes not only a vast source of ready labor, but also a potential treasure trove of new ideas and innovations. The continent is also home to a large portion of the world鈥檚 most valuable natural resources: , nearly 90% of chromium and platinum and, overall, about  of the world鈥檚 known critical minerals supply. The value of these natural resources will only grow as the global search for new sources of energy and components for ever-faster microchips intensifies. The International Monetary Fund (IMF) estimates demand for nickel will likely double by 2050, triple for cobalt, and increase ten times for lithium. Given these demand projections, the IMF estimates that African countries could reap 10% of  from copper, nickel, cobalt, and lithium鈥攚hich together are estimated to reach $16 trillion dollars鈥攐ver 25 years. 

As Dr. Akinwumi Adesina, head of the African Development Bank Group (AfDB) , 鈥淎frica has no reason to be poor鈥� if the continent manages its natural resources well. With 鈥渢he right policies, investments, infrastructure, logistics, and financing鈥� in place, Dr. Adesina believes many African countries can make immense development strides in a relatively short period of time.  

But will young Africans actually see the benefits of these resources? Will Africa鈥檚 bounty of cobalt, lithium, and more help Africa become the world鈥檚 home for emerging technologies and manufacturing? Or will they be used merely to fuel high tech development elsewhere? 

According to Dr. Adesina, that鈥檚 what may be at stake if the continent鈥檚 mineral resources continue to be pledged as collateral for large-scale financing. He warns that such arrangements are often a 鈥溾�� because they are 鈥渘ot transparent, and wrongly priced.鈥� Under many of these financing arrangements, if interest rates rise or commodity prices become unstable over the life of the loan, borrower countries either fall into default or end up devoting nearly all the income from their pledged resources to pay off debt. 

Dr. Adesina鈥檚 strong opinions about the risks of natural resource-backed loans are supported by a recent Natural Resource Governance Institute (NRGI)  examining 52 such loans across Sub-Saharan Africa and Latin America. NRGI found that since only a few lenders offered resource-backed loans, the market for these financial products was , and lenders could largely dictate their terms and prevent public disclosure of the details of any financial arrangements. None of the borrowing nations in the study were found to have compared rates or loan terms with other lenders prior to entering into their loan agreements, and in only  examined by NRGI was the primary lending contract document public. Even such basic information as loan interest rate were publicly available in only  cases surveyed. Without such disclosures, citizens in the remaining 33 countries had little awareness of the potential for outside interests to control the use of the resources that could otherwise be the key to future economic growth and opportunity.

According to Africanews, at least 11 African countries have taken out dozens of natural resource-backed loans worth billions of dollars since the 2000s. While Western banks have been the lenders in some of these arrangements, most of these loans come from two Chinese government-controlled institutions: the China Development Bank and its Export-Import Bank. In the last three years alone, Ethiopia, Ghana, and Zambia have all defaulted on sovereign debt due to rising interest rates, and experts have pointed to natural resource-backed financing as a major cause of what has been termed a 鈥溾�� in the country of Chad. Continent-wide, Africa鈥檚 total debt burden reached  in the spring of this year, with much of this debt involving countries with known large resource-backed loans. Nations like Zimbabwe, Mozambique, Ghana, the Democratic Republic of Congo, and Angola currently have a total government debt as a percentage of GDP of more than .

Elected leaders who turn to resource-backed loans may very well realize the risks they鈥檙e taking on. But perhaps they鈥檙e more keenly aware of the pressure to show their citizens tangible signs of economic progress鈥攏ew dams to generate electricity and power homes, new roads to improve local commutes. This short-term pressure has long-term consequences for their nation鈥檚 economic trajectory, and the trajectory of Africans鈥� future. 

Africans often turn to China because it is ready and willing to engage. Too often the US is not.

Christopher Cao and Katherine Schauer contributed research and writing to this blog.