It is not every day that a highway is paid for with barrels of oil. Yet in parts of Sub-Saharan Africa, that is exactly how some of the region’s largest infrastructure projects are being financed. Instead of tapping their treasuries or issuing sovereign bonds, governments are concluding transactions where future exports of crude, copper, or cobalt cover the costs of new roads, dams, and power plants.
This approach, known as resource-backed finance (RBF), remains one of the most symbolically loaded and least understood mechanisms in China’s overseas lending toolkit. Although it accounts for less than 10% of China’s total lending to the continent, it has drawn disproportionate scrutiny because of its implications for debt sustainability, transparency, and sovereignty.
China’s Resource-Backed Finance: From Borrower to Lender
China did not invent resource-backed finance. In fact, it once received it. During the early stages of its own development, China borrowed heavily from countries such as Japan, repaying loans through the export of raw materials. These transactions were instrumental in funding the country’s early infrastructure drive and industrial modernization. Critically, China benefited from significant skill and technology transfer in the process, a dimension that is often absent in its replication of the model abroad.
China’s adoption and adaptation of RBF was shaped by its own economic evolution. By the early 2000s, facing saturated domestic markets and a growing need for natural resources, China began to re-engineer this model to serve both its development finance ambitions and its overseas resource security strategy. The RBF model offered a strategic solution to sovereign risk in fiscally constrained countries: rather than rely on traditional creditworthiness, Chinese lenders could tie repayment to physical exports of oil, copper, or other minerals.
In its typical form, a Chinese policy bank, such as China Exim Bank, extends a loan to the Ministry of Finance of an African country. That country then awards an infrastructure contract to a Chinese state-owned enterprise (SOE), often through a bundled EPC+F structure. Separately, a natural resource export agreement is signed between a domestic commodity exporter and a Chinese offtaker.
Payments for the exported resource are channelled into an escrow account held by the Chinese lender, which then disburses funds to the contractor based on certified milestones. If the resource in question is not yet fully developed, the host government may issue extraction licenses to a developer and pledge a portion of future revenues toward debt repayment. Importantly, escrow accounts are generally controlled by the lender, not the host government, limiting the latter’s flexibility and oversight.
Promises and Pitfalls of the Model
From the perspective of many African governments, RBF offers immediate infrastructure without placing strain on annual budgets. It creates a self-financing loop in which resource revenues are pre-committed to repay debt.
The model was first introduced on the continent in the mid-1990s in Angola, where it was used to reconstruct post-war infrastructure. Since then, it has been replicated in the Democratic Republic of Congo (DRC), Ghana, Equatorial Guinea, Ethiopia, Sudan, South Sudan, and Zimbabwe, among others. However, the model also presents significant risks. Commodity price volatility can undermine the value of pledged resources, forcing loan renegotiations, as witnessed in Angola during the 2014–2016 oil price crash.
These risks are further compounded by the complexity and opacity of RBF contracts. Unlike traditional infrastructure finance arrangements that are typically governed by published procurement laws or subject to multilateral oversight, resource-backed loans are often negotiated bilaterally, with limited public disclosure. In many cases, civil society organizations, media outlets, and even government line ministries are left in the dark about the terms, repayment schedules, or collateral arrangements underpinning these deals.
This opacity can result in unrealistic repayment assumptions, overvaluation of pledged resources, and misalignment between infrastructure delivery timelines and actual production revenues. Moreover, when future revenues are pre-committed to repaying external loans, it can constrain fiscal space for future administrations and weaken domestic investment in sectors such as health, education, or social protection.
In fragile political contexts, RBF arrangements may also be vulnerable to elite capture, with revenues diverted away from public priorities. While the logic of RBF may be sound in theory, turning natural wealth into public infrastructure, its success depends on whether the institutional checks exist to manage it prudently. Without greater transparency, broader stakeholder engagement, and rigorous project selection, resource-backed finance risks becoming a fiscal trap rather than a development tool.
A Double-Edged Sword for Africa’s Development
There are key differences between how China now implements RBF in Africa and how it experienced it during its own development. In China’s early agreements with Japan, for instance, there was an emphasis on local capacity building to ensure meaningful skill and technology transfer.
In contrast, China’s implementation in Africa often relies heavily on Chinese labor and contractors, limiting local participation and long-term benefits for domestic industry. The absence of robust local content provisions remains a common critique of Chinese-backed RBF deals.
China uses RBF selectively, not as a primary model, but when the host state agrees to it. When agreed to, it serves as a tool to unlock deals in high-risk, resource-rich environments. It allows Chinese banks to mitigate repayment risk, while offering host governments an alternative to budget-financed infrastructure or costly sovereign bonds.
As commodity-backed loans do not rely on a country’s formal credit rating, they appeal to governments that face limited access to concessional finance or capital markets due to their macroeconomic stability.
The success of RBF depends not just on the design of the deal, but on the institutional capacity of governments to negotiate, implement, and oversee the arrangement. Where governments exercise strong agency, carefully selecting projects, negotiating realistic terms, and ensuring accountability, RBF can deliver value.
Ultimately, like any tool, the utility of RBF depends on how it is used and by whom. For China, it has offered a way to de-risk lending in more challenging environments. For African governments, it remains a double-edged sword: a potential pathway to infrastructure and growth, or a route to opaque debt and lost revenues.
As part of China’s broader financing ecosystem, RBF reveals how trade, infrastructure, and development finance are increasingly intertwined. It also highlights the importance of financial literacy, institutional coordination, and long-term planning on the part of host governments.
But even the most creative financing model cannot deliver success in isolation. What ultimately drives better outcomes is not just how a deal is structured, but how governments approach it. The next article distils key takeaways from the past three discussions and outlines the practical considerations governments should keep in mind when negotiating finance terms.
About This Series
This article is part of “The Porcelain Jar at the End of the Rainbow,” a new series from the China Global South Project that unpacks how Chinese-backed power projects in Africa actually work. As global development partners shift and electricity demand rises, understanding China’s role — from financing and procurement to project delivery — has never been more important. Each installment offers practical, field-informed insights for policymakers, developers, and researchers navigating complex infrastructure environments.
The series is complemented by CGSP’s interactive Energy Tracker, a tool that maps Chinese-supported power generation projects across Africa, including data on capacity, financing, ownership, and implementation status.
