Study on Resource-Backed Loans in Africa and Latin America

The Natural Resource Governance Institute (NRGI) published in February 2020 an important study titled "Resource-Backed Loans: Pitfalls and Potential" by David Mihalyi, Aisha Adam, and Jyhjong Hwang. NRGI is based in New York and has offices in a number of countries, including Ghana and Tanzania. It is committed to assisting countries to get a good deal for their natural resources and ensure that the resulting revenues are managed for the benefit of their citizens.

The study looked at 52 resource-backed loans (RBLs) in Sub-Saharan Africa and Latin America. Thirty of the loans were in Sub-Saharan Africa and 22 in Latin America. Chinese policy banks and state-owned enterprises accounted for 42 of the 52 loans. Most were backed by oil. Eleven countries in Sub-Saharan Africa had RBLs: Angola, Chad, DRC, Ghana, Guinea, Niger, Republic of Congo, Sao Tome and Principe, South Sudan, Sudan, and Zimbabwe. Three countries in Latin America received RBLs. Angola was the largest RBL borrower in Sub-Saharan Africa and Venezuela the largest borrower in Latin America. Two-thirds of the RBLs went to countries with a poor or failing score on NRGI's Resource Governance Index.

The study concludes that RBLs are opaque and pose a major finance risk. Of the 14 RBL recipient countries, 10 experienced serious debt problems after the commodity price crash of 2014, with RBLs often an important contributor. There is now an important momentum to change how RBLs are undertaken by learning from past mistakes and finding more sustainable ways forward. This report provides guidelines for more responsible use of RBLs going forward.

The South China Morning Post published on 8 March 2020 a good journalistic account of the report titled "How Chinese Loans Can Become 'Perilous Pitfalls for Africa" by Jevans Nyabiage.