Russia/Africa: Challenges And Opportunities
With new trends and directions in global business, African countries have to look to the Eurasian region as a huge market for exports as well as make efforts to consolidate and strengthen economic cooperation, says Tatiana Cheremnaya, the President of ANO "Center for Effective Development of Territories" and Head of the working group on public-private partnership "Business Union of Eurasia" in this wide-ranging interview.
She further discusses Russia’s economic relationship, challenges and untapped potential business and investment opportunities with Africa. She spoke recently in this interview with Kester Kenn Klomegah, an independent research writer on Russian-African affairs in Moscow.
Interview excerpts follow:
Q: How important is Eurasian market for African countries?
Cheremnaya: The Eurasian marketplace, in scale and capital intensity, is huge. It includes some countries of Europe and post-Soviet countries and rather fast-growing Asian countries. It is obvious that the interest among African countries for access to these markets is enormous both in the context of just entering the market of a particular country and implementation of joint interstate projects. In this case, first of all, we are talking about high requirements in the implementation in Africa of infrastructure projects, including roads, bridges, pipelines, electricity and the search for alternative sources of energy, communication, without which it is impossible to imagine a dynamic and systematic development of the economies of African States.
The implementation of such projects can be possible with the introduction of public-private partnerships. Here you can define several main points of contact between the Eurasian and African companies:
1. The implementation of joint projects in the framework of BRICS. We know that the unit includes one African country – South Africa. Today in the framework of the unit formed the New development Bank BRICS, the funding of joint transnational projects. In 2016, the Bank has approved the financing of the first investment projects in the BRICS countries totaling more than $1.5 billion.
2. Joint cooperation between the units of the Eurasian Economic Commission and the African Union. It is qualitatively new direction in the cooperation between the two blocs was laid in July 2016, when in Addis Ababa in Ethiopia, the delegation of the Eurasian Economic Commission held talks at the African Union Commission. It is worth noting that the African Union itself includes the 54 African States, and in the area of Eurasia includes 89 countries. The scale of the Eurasian-African cooperation is evident.
3. Giant cross-country infrastructure projects, which can be safely attributed to the project Great Silk Road. Here the role of the Eurasian economic Union and the project "Economic Belt Silk Road" is the formation of a common economic space, institutional capacities mates, and the possible components of a proactive commercial and economic strategy of Russia and its Eurasian Economic Union partner. Project financing is also being implemented in the framework of interstate financial institutions creates a system of regional-global financial institutions with total capital to date $240 billion Asian Infrastructure Investment Bank, development Fund of Silk Road.
Q:How challenging, of course, is this market?
Cheremnaya: Of course, to enter the Eurasian markets from Africa is quite difficult. Here we are talking primarily about the high-tech, and the competitiveness of African business. That is, on one hand, we have a cheap labor force, good climate, really good opportunities all appearing for business development on the African continent. But, on the other hand, it often happens that a business can't compete with the Eurasian giants. However, in time within such a community as BRICS, or the cooperation between the Eurasian economic Union and the African Union, can be reached certain agreements on implementation of joint projects and the release of African companies into the Russian market, what needs to be done.
Q: Do you also think that industrialists and business directors from the Eurasian region can cooperate with other foreign investors on projects in Africa?
Cheremnaya: Of course, we can talk about cooperation between the African and Eurasian investors. Generally, in the age of globalization, cooperation is a basic and necessary condition for the development of cooperation among countries and enhanced the pace of development of the economies of some African countries gives reason to predict the emergence of truly important and profitable joint projects.
It is worth noting that according to the World Bank, in 2013, among the 50 economies that have improved their economic performance since 2005, about a third owned by the countries of sub-Saharan Africa. Studies conducted over the past three years also show that Africa today is no longer perceived as a backward region. It becomes an attractive investment and Eurasian countries see it as a place for prospective business.
It is worth noting that the basis for cooperation, for example, Russia and Africa are already actively created. So, in 2014, the visit of the official Russian delegation to Zimbabwe, where they discussed a number of key bilateral agreements designed to provide preferential treatment to investment from Russia. Russian companies interested in developing major infrastructure projects in the African region, primarily in the mining industry, and have the necessary experience, technology and expertise for the development of industrial and infrastructure projects.
Between countries today are considered joint projects that can participate in such major Russian companies as KAMAZ, Russian Railways, ALROSA, Uralvagonzavod and "Inter RAO". In addition, to the infrastructure of the Russian-African partnership is also planned in other areas, such as automotive, agricultural production, implementation of joint projects in the sphere of development of agriculture, education and tourism.
Specifically, there is an investment in the republic of Ghana "One District, One Factory". Opportunities to attract investment from the Eurasian countries have in most African States. For example, South Africa is the infrastructure in Zimbabwe and high-tech projects, and Ghana is the implementation of the "One District, One Factory". All projects are very important for economic development of the African continent. But in each case for the investor is important, and profitability of such projects. For example, for the "One District, One Factory", each individual plant will be measured from the point of view of expediency of investment of the investor. Here one should not expect miracles, but you need to work on each project with the Eurasian partners.
Q: Do you think potential investors from the Eurasian region face competition for investment projects with other foreign players in Africa?
Cheremnaya: Yes, of course, investors of the Eurasian region are interested in implementation of joint projects. It is worth noting that today for the African continent, plays an increasingly important role in the foreign policy of the developed countries, is real struggle among the major powers of the world. For example, countries such as the United States, England, France, China, and India are gradually increasing its economic and political influence on the African continent. The interest of the developed world to Africa is, of course, largely from the increased need of their industry in the extraction of raw materials, which are present on the continent of Africa.
Furthermore, Africa is still untapped market for technology products and consumer goods. Also other Eurasian countries have interest in the continent; we can hardly compete with the leading world powers. Russian business is very interested in business development and their presence in Africa.
So in the near future can predict the development of the Eurasian-African cooperation in the field of business. In this situation it is necessary to search for effective forms of cooperation that have a solid foundation for the cooperation of business, addressing the goals and objectives of the Eurasian countries and Africa
Q: So these Russian companies such as KAMAZ, Russian Railways, ALROSA, Uralvagonzavod, "Inter RAO"...how do you assess their influence or activities in Africa? What are their levels of operations in Africa? For instance, Russia Railways, how do you measure this company's success as compared to China in Africa? China has completed railway lines in a number of African cities including Addis Ababa, Ethiopia.
Cheremnaya: With regard to the participation of Russian companies in infrastructure projects in Africa, they are already there and as I wrote, will increase significantly. So, for example, Russian Railways is increasing its influence and implementation of joint projects in the field of railways, as Africa is actually very poorly developed railway infrastructure. If we consider the railway infrastructure in Africa, we note, for example that Algeria has an extensive network of railways in the north of the country; the rail infrastructure of Angola was virtually destroyed during years of civil war; in Botswana, Chad, the Gambia and Burundi passenger railways in general no; in Ethiopia, Djibouti, Guinea, Ghana and the Congo, there is one rail that is in poor condition; railroad developed only in Egypt, Kenya, Namibia, Zimbabwe.
There has been much activity in the railway sector in East Africa. From an economic point of view, it is a very profitable business. On the one hand, there is access to global markets and with another - stimulates regional trade. The countries themselves certainly can't afford to implement such capital intensive projects, so come to the aid of other countries. And if the past is largely in the construction of railways helped the European countries, now in road infrastructure often puts China. Of the ongoing projects, it is worth noting the railway Mombasa – Nairobi to Kigali (Rwanda) and Juba (South Sudan), the road between Addis Ababa and Djibouti. The construction financing deals with Export-Import Bank of China. Except for the road construction, China also supplies and most of the rolling stock, including locomotives.
But the Russian Railways company is also one of the participants of the market of road infrastructure projects in Africa. In particular, the Sudanese government suggested that Russia participate in construction of Trans-African railroad from Dakar (capital of Senegal), in Port Sudan in the Red sea, which would connect many countries from the Atlantic to the Indian Ocean. In the future, this railway will connect the capital of Senegal, with the port of Djibouti. The management of Russian Railways said that the company is interested in participation in infrastructure projects in Ethiopia. The Russian Railways, in fact, can become a consultant or general contractor of the project in Africa, as the team has the necessary experience and knowledge.
As for the Russian company "KAMAZ" it is necessary to note that "KAMAZ" works in countries on the African continent since the days of the Soviet Union, the machine "Soviet-style" still can be seen on the roads of Africa. The share of the African continent in the global economy in the near future will increase, and the management of "KAMAZ" seeks to take advantage of a favorable situation. The company "MAZ" - the Russian manufacturer of trucks - in November 2016 began to put Africa right-hand drive trucks. While we are talking only about South Africa, but in the future cooperation is planned with countries such as Botswana, Zambia, Zimbabwe, Mozambique and Namibia.
However, the Russian production is not always able to compete with the Chinese, because in many areas of work in Africa, China has the best position. But currently, Russia is strengthening its position in Africa, these projects that implement only experienced Russian companies.
Q: How important is Russian Export Center for Africa? Which Russian products "Made in Russia" are being promoted in Africa market currently, again compared to India and China whose various products including consumer goods, pharmacy and automobiles very common in Africa?
Cheremnaya: The importance of the Russian Export Center is difficult to overestimate. Indeed, the Center is doing a great job for development, including the African market. According to the report of the Russian Export Center, export of Russian goods to the African continent increased by more than 50 percent in 2016. In Africa, the demand for Russian goods, while their exports to other countries, by contrast, only falls. Given that the difficult economic situation in Russia contributed to a significant decline in exports in almost all countries of the world, has shrunk by nearly a third to US$129,7 billion and in African countries we are seeing demand growth, contrary to the general trend of demand for Russian goods. The maximum growth of exports showed Algeria (US$556 million), Angola (US$298 million) and Egypt (US$178 million).
It should be noted that the attractiveness of African markets is associated with a low level of competition because the market is actually free for low-end products. As for China, here directly is not a competitor to Russia because Russia is a strong player and China is interested in markets with much greater capacity. For Russia as a country that traditionally exported only raw materials, Africa is a very good place to start. However, we know that African countries are fast growing. So, the International Monetary Fund (IMF) predicts by 2016 economic growth in Tanzania 6%, Zimbabwe 3%, while, for example, in the USA only 2%. That is, for Russia, the African market is very interesting and we can talk about expanding cooperation with African countries to export products "Made in Russia" in various segments.
Q: So what are the key problems and impediments to developing practical and active Russian-African business, especially in the manufacturing and consumer sectors, not theories but real active bilateral economic cooperation? What should be done from both sides, from Russian side and from African side?
Cheremnaya: The problems of effective cooperation between Russia and Africa are political in nature. Thus, the strengthening of Russia's position leads to the strengthening of its influence in the world, including in Africa and vice versa, sectional policy has significantly reduced Russian exports.
The second problem for the development of Russian-African business is the lack of competitiveness of Russia which allows working only in the low-budget segment. This is due to structural problems in the Russian economy, the need for modernization, the bulk of the products produced during the Soviet Union.
The third problem is the unwillingness of the African market to cooperate, due to the strong backlog of the country in socio-economic aspects, for example, we are talking about the lack of qualified personnel, low standard of living of the population and hence the low effective demand.
The fourth problem is competition from the United States, China and India as more developed countries with more advanced technological solutions, and from the European countries as the former "patrons" of African countries.
However, these barriers can be gradually removed by constant open dialogue between African governments and Russia, as well as directly between interested companies of the two countries. For cooperation with Russia is necessary to develop competitive solutions in terms of infrastructure development and proposals for the supply of consumer goods, as well as the removal of bureaucratic barriers. African countries need not only steps on the path to economic growth, but also political decision-making directed at improving living standards and increasing the stability of the political and economic systems of African countries which could significantly reduce risks for investing in African projects. Interview by Kester Kenn Klomegah, an independent research writer on Russian-African affairs.