Ghana could lose collateral to Sinohydro in bauxite-backed-loan – IMF warns

Adnan Adams Mohammed
The International Monetary Fund (IMF) has warned the
government of Ghana that it may not be possible to repay a US$2 billion bauxite-backed-loan
it contracted with Chinese state company, Sinohydro, in 2018 which could lead
to loss of collateral.
IMF concerns was captured in a new report released by the NRGI
dubbed: “RESOURCE-BACKED LOANS: PITFALLS
AND POTENTIAL”. Resource-backed loans have contributed to crippling debt
levels in Africa and are shrouded in secrecy. These loans to governments,
collateralized with oil or minerals, have been hidden from scrutiny for far too
long and that must change, say the report’s authors.
Ghana’s government is obligated to repay a US$2 billion loan
it agreed with Chinese state company Sinohydro in 2018. The repayment schedule
requires a rapid ramp-up of bauxite production and refining, which the IMF has raised
doubts about.
“The International Monetary Fund (IMF) has warned the
repayment of the US$2.0 billion bauxite-backed-loan may not be possible and
therefore could lead to loss of collateral”, the new report released, last week
stated.
A 232 square kilometers Atewa Forest Reserve in Ghana’s
Eastern Region where several billions of dollars in value of bauxite is
deposited, up to five percent (5%) the bauxite deposits have been allocated to
China through the China Development Bank. China would then pay Ghana with a
variety of infrastructure projects including expanding the rail network,
building new roads and bridges.
The government of Ghana estimates the country’s total
untapped bauxite reserves at US$460 billion and is hoping to cash in on the
rise in the price of alumina (refined bauxite). President Nana Akufo-Addo, in
his Independence Day, 2018, address to the nation declared that, bauxite
revenue was going to help fund his government’s much-trumpeted vision of ”A
Ghana Beyond Aid”.
As many African countries struggle with Chinese debt,
Beijing has been striking similar direct deals where precious minerals are
exchanged for loans as is in the case of Angola (cash for oil) and in another
deal with Guinea, to barter bauxite for infrastructure projects worth US$20
billion.
There is so much at stake for African economies and
communities with resource-backed loans, but there is very little accountability
and transparency and that has to change, said Silas Olan’g, NRGI Africa
co-director in the report. “Borrowers and lenders must allow for greater
scrutiny to ensure that these loans are sustainable and serve the interests of
the people and the countries they are supposed to benefit.”
Silas Olan’g added: “The deals may already have been signed
in Ghana and Guinea, but it’s not too late to come clean about the terms of the
loan and to involve the communities who will be affected by the mining in
meaningful discussions.”
Resource-backed loans have contributed to crippling debt
levels in Africa and are shrouded in secrecy, according to a new report. These
loans to governments, collateralized with oil or minerals, have been hidden
from scrutiny for far too long and that must change, say the report’s authors.
A resource-backed loan is a borrowing mechanism by which a
country accesses finance in exchange for, or collateralized by, future streams
of income from its natural resources, such as oil or minerals. Researchers from
the Natural Resource Governance Institute (NRGI) considered 52 resource-backed
loans made between 2004 and 2018, with a total value of more than $164 billion;
30 of them, with a combined value of $66 billion, were made to sub-Saharan
African countries.
Of the loans to sub-Saharan African countries considered by
the researchers, 53 percent of the amount borrowed came from two Chinese policy
banks: China Development Bank (CDB) and the China Eximbank. Most of the
remainder was provided by international commodity traders, mainly to Chad,
Republic of Congo and South Sudan.
The report, Resource-Backed Loans: Pitfalls and Potential,
explores both the risks and opportunities the loans represent and offers policy
recommendations that borrowers and lenders can implement to improve the
practice, with a greater focus on borrowers.
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