The AfDB’s $475 million loan – a gift to corruption, not infrastructure
Austrian thinkers have long warned that without clear ownership, competition, and accountability, corruption becomes not an exception but a rational outcome.
Written by: Econ Bro
South Africa has won approval for a $474.6 million loan from the African Development Bank (AfDB) to overhaul power lines, rail links and ports[1]. The money looks like a lifeline after years of blackouts and freight logjams, yet history shows that large cash injections often leak away before they touch concrete or steel.
Why corruption blooms when the state spends big
Teachings from the Austrian and Monetarist school stress that public cash placed in an opaque system faces no profit‑and‑loss test. Managers in a state agency are shielded from bankruptcy when they waste funds, so the discipline that checks private firms is absent. That gap attracts rent seekers, padded invoices and political favouritism. The bigger the pot, the stronger the pull to cheat.
South Africa’s own record
Eskom’s drain – A former chief executive told parliament that roughly one billion rand disappears every month through theft and fraud at the power utility, calling that figure “conservative.”[2]
Bribery rings – Court papers in the United States show McKinsey’s local arm paying bribes to Eskom and Transnet officials and now forfeiting more than 120 million dollars.[3]
Mega‑plant overruns – The Medupi and Kusile coal stations, launched as flagship projects, are almost R300 billion over budget and still operate below design output.[4]
Each scandal drains parts, skills and trust from the very networks the new loan aims to repair.
Nigeria’s costly lesson
Between 1999 and 2023 Nigeria poured over ₦11 trillion into power projects. Civil‑society audits found the money trapped in idle turbines, ghost transmission lines and padded management fees, leaving households to rely on diesel generators.[5] Throwing more funds at the grid did not brighten a single bulb for long.
Kenya’s train that cannot pay its fare
Kenya’s Chinese‑financed Standard Gauge Railway opened in 2017. Revenues fell far short of forecasts, fares have risen, and watchdogs say taxpayers may pay three times the original tender once hidden costs and kickbacks are counted.[6] Debt soared while the promised trade boom stalled.
How corruption kills value
Free‑market economists point out that corruption is not only immoral. It also reroutes scarce capital from productive use into offshore accounts and luxury imports. Honest firms that could deliver cheaper, better work are pushed aside. Citizens end up paying twice: once through taxes that service the loan and again through outages and delays that raise daily costs.
When corruption is expected, suppliers quote higher prices to cover “facilitation” risks. Officials, fearing exposure, make deals complex because complexity hides tracks. Oversight units are stretched thin, whistle‑blowers face retaliation, and low trust breeds new graft in a self‑reinforcing spiral.
Debt without delivery
Fresh loans can leave a nation with heavier liabilities but only modest gains. South Africa already devotes a large slice of revenue to interest. If the AfDB funds drift into pockets rather than projects, the gridlock and blackouts will remain while the repayment schedule grows. Kenya’s rail and Nigeria’s turbines remind us that lenders rarely forgive the bill once the money is gone.
Guardrails that [might] work
Corruption thrives in silence. Clear accounts make it difficult to conceal padded expenses or fake vendors. Public, competitive tenders reduce backdoor dealings by letting the market examine contracts. All deals must be visible, each project stage reviewed by outside experts, and every transaction trackable on a real-time, open system. People should easily understand what was pledged, what’s completed, and what’s left. The tools to enable this already exist. Most important, there must be consequences—any official who signs off on fake progress or inflated costs must face personal liability. Without these guardrails, even well-meaning loans will drift into the wrong hands. The money will build loyalty networks and election slush funds, not rails, cables, or substations.
Why the guardrails might not work
All economic behaviour begins with the individual acting to achieve personal goals. That includes the pursuit of profit. When someone is elected or appointed to public office, this motive does not disappear.
Profit-seeking drives innovation, efficiency, and better services. In government, where resources are not earned through voluntary exchange but through taxation or inflation, the same drive often finds less productive outlets. Without a profit and loss test, there are no consequences for misusing funds and so officials may innovate new ways to exploit their position: using shell companies to win tenders, inflating invoices through change orders, or diverting money via middlemen and relatives.
Control mechanisms, such as asset declarations, procurement rules, etc. become another system to game. Just as private entrepreneurs innovate to meet consumer needs, public actors often innovate to bypass safeguards. The state’s monopoly on enforcement and its ability to hide decisions behind bureaucracy only increase this risk.
Austrian thinkers have long warned that without clear ownership, competition, and accountability, corruption becomes not an exception but a rational outcome. Taxpayers bear the cost, but no single taxpayer has the incentive or access to prevent it.
Corruption, then, is not caused by a lack of rules, but by a system that allows unchecked power over other people’s money. So long as human beings act with self-interest, corruption will always be a possibility in government, especially when large sums are involved.
Conclusion
Unlike private spending where corruption is less likely because waste leads to losses, government spending always puts the option of corruption on the table.
For the sake of the SA people, I hope I am wrong, but experience teaches me that that this AfDB loan will not be different.
Econ Bro (@EconBreau and @EconBreau2 on Twitter/X) is a Nigerian Austrolibertarian economist and an apprentice at the Mises Institute. Under the organisation name “The Freedom Institute” he teaches individual liberty, personal responsibility, private property rights, free markets, and sound money to mostly young people across Nigeria. Econ Bro is an Associate of the Free Market Foundation.
[1] https://www.reuters.com/world/africa/african-development-bank-give-south-africa-475-million-loan-2025-07-01/?utm_source=chatgpt.com
[2] https://mg.co.za/news/2023-04-26-de-ruyter-r1-billion-a-month-being-stolen-from-eskom-is-conservative-estimate/?utm_source=chatgpt.com
[3] https://www.justice.gov/usao-sdny/pr/mckinsey-company-africa-pay-over-120-million-connection-bribery-south-african
[4] https://mybroadband.co.za/news/energy/443784-medupi-and-kusile-eight-years-late-and-r300-billion-over-budget.html
[5][5] https://www.premiumtimesng.com/news/headlines/239711-obasanjo-yaradua-jonathan-govts-allegedly-squandered-n11-trillion-electricity-fund-serap.html?tztc=1
[6] https://www.the-star.co.ke/news/2023-12-06-civil-societies-residents-up-in-arms-over-monies-lost-in-sgr-project
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