Opportunities for Russian Trade & Investment in Africa
- Numerous African countries have expressed interest in Free Trade Agreements with Russia and the Eurasian Economic Union.
- Alisa Andreevna Prokhorova, of the Russian Export Centre offers in-depth information and statistics about Russia’s trade with Africa.
Numerous African countries, and especially in North Africa, are in various stages of negotiating free trade agreements with the Eurasian Economic Union (EAEU), which includes Russia in addition to Armenia, Belarus, Kazakhstan, and Kyrgyzstan. Other interested African nations include Morocco and Tunisia, while nearby Jordan, Lebanon, and Syria have also discussed the potential for EAEU free trade. Moscow has also been discussing the possibility of investing in Special Economic Zones for Russian companies in Mozambique and Namibia.
The Belarus President, Alexsander Lukashenko, specifically called for a FTA with Egypt to be fast-tracked to allow EAEU member states access to the vast African market at the Supreme Eurasian Economic Council Heads of State meeting last week.
This has come about because from January 1 this year, the African Continental Free Trade Agreement (AfCFTA) came into effect, reducing or eliminating tariffs on 95% of all intra-African goods. This means that Russian (or other) investors can source different products from across Africa duty-free, then combine them, possibly with Russian and EAEU component parts, and assemble these into a finished product within one of the African Special Economic Zones (SEZ), using less expensive African labor. Russia has already invested in a SEZ at Egypt’s Port Said, which permits the duty-free import of Russian components, the ability to reclaim VAT on African sourced components, and then allow either the re-export of the finished item back to the EAEU or resale onto the African domestic market.
In this interview, which originally appeared in the Southern Africa Times, Alisa Andreevna Prokhorova of the Russian Export Centre discusses the pros and cons of Russian business in Africa.
Q: Is the African market promising from an economic point of view? What are the prospects of Russia playing a unique role on the African continent?
The demand is very high, but many countries are not creditworthy. Large corporations plan a strategy to enter the market with a deferred effect. So, they invest. For example, China which enters many African countries takes significant projects but implements them at its own expense because it is challenging to achieve high demand from the African population.
Russian companies do not have enough resources to engage in such investment expansion. The market is potentially the largest, Africa — is the continent of the future, but now, the demand is generally limited.
Secondly, the USSR (Russia’s predecessor, the Union of Soviet Socialist Republics) was very active in Africa. It had built and invested a lot, so since those times, Russia has a positive image. Besides the past achievements, it is necessary to form an economic strategy for the future.
Q: What are the dynamics of economic relations between Russia and Africa over the past five years? Which changes are being tracked?
A: Russian exports to African countries have generally shown a steady upward trend (adjusted for several specific factors). If in 2010 exports amounted to only US$5 billion (less than 1.5 percent of the total), then in 2019 — already US$14 billion (3.3 percent).
Due to the low share of fuel in the supplies, Africa’s role in non-commodity exports is much more significant. Over the past five years, Russian non-commodity export to Africa has consistently exceeded US$10 billion (2018 was a record year, exports amounted to US$ 14.4billion).
Speaking about Africa, we need to clearly distinguish the countries of this continent into two groups: the northern and southern parts. Russia traditionally has good economic relations with the countries of North Africa (trade turnover of US$11.7 billion in 2019), where there is a dynamic growth of Russian non-resource non-energy exports.
With the South African countries (trade turnover of US$5 billion in 2019), the statistics are more inconsistent, where the export of Russian non-commodity goods over the five past years ranges from US$1.8 billion in 2015 to US$2.2 billion in 2019. Despite that, 2018 was the most successful year with an export volume of US$2.7 billion.
Q: What is the role of non-commodity exports in trade with African countries? Are there any major infrastructure projects with the participation of Russia?
A: Russian Export Centre pays priority attention to the development of relations with sub-Saharan Africa. The outcome of 2020, the volume of non-commodity export amounted to US$432.1 million. There was support for the supply of Russian products in 34 countries of the region.
The main destinations of Russian non-commodity exports were: Rwanda (US$165 million), South Africa (US$32 million), Zambia (US$27.5 million), Tanzania (US$17.8 million), Ghana (US$17.1 million), Kenya (US$16.6 million) and Uganda (US$14.6 million). The primary export industries are agriculture, mechanical engineering, chemical industry, timber industry, and metallurgical.
The Russian Export Centre takes part in the development of prospects for the participation of Russian companies in many infrastructure projects, such as the equipment and construction of hydroelectric power plants in several countries in East Africa, and the construction of a railway in West Africa.
Today, our portfolio also includes projects for supplying products from the Russian automobile industry to Ghana, Nigeria, and Ethiopia. A project for providing agricultural and railway equipment to several countries in South Africa is being worked out. In total, the work is carried out on projects in 18 countries of the region.
With the participation of the Russian Export Centre the implementation of many landmark projects of Russian companies in Africa in critical industries, whose products are most in-demand on the continent, is being discussed. It’s about the mining industry, metallurgy, chemical industry, agricultural products, infrastructure projects.
Special attention is paid to the development of exports of Russian high-tech products, the possibilities of supplying medical equipment, high-tech solutions in the field of hydro and solar energy, communication and security systems are being worked out. It is important to note that most of these projects are long-term, and their full implementation and delivery of results require long-term collaboration with African counterparts.
Q: Economic partners from which African countries are interested in obtaining accreditation? And which of the services are in demand?
A: We are also stepping up our efforts to expand our foreign network. Since December 2021, the Russian Export Centre has accredited partners in countries such as the Democratic Republic of the Congo, Angola, the Republic of the Congo, Ivory Coast, and Rwanda. Partners in countries such as Ethiopia, Kenya, Tanzania, Ghana, and Senegal are in the process of accreditation.
We record an increase in the interest of Russian exporters in providing both financial services (lending and insurance) and non-financial services (search for a foreign buyer, top-level search for a partner) in West Africa (Nigeria, Benin, Ghana, Ivory Coast) and many East African countries (Tanzania, Kenya, Ethiopia).
We note an increase in the number of requests to find a Russian supplier from sub-Saharan Africa. Companies from such countries as South Africa, Nigeria, Ivory Coast, Ghana, Ethiopia, Tanzania, and Benin are most interested in increasing imports of Russian companies’ products. We frequently receive requests to search for suppliers in such industries as mineral fertilizers, food products and petrochemicals.
Q: Are you planning to establish co-operation with regional organizations and, if so, with which ones?
A: We plan to expand the channels of interaction with industry organizations and business councils of the Sub-Saharan African countries. Particular emphasis will be placed on cooperation with regional integration groupings, for example, the Southern African Development Community, the Economic Community of West African Countries and the East African Community.
Besides, several projects can be noted: the activities and plans of the Africom at the Russian Chamber of Commerce and Industry (CCI) in the direction of Africa, the Russia-Africa Summit 2022, and the possible opening of a trade pavilion in one of the African countries.
Q: Why is African business is low or completely absent, compared to Asian countries, in the Russian Federation? Under the circumstances, what should be done to improve the current situation, to make a two-way trade?
A: The development of bilateral relations in the business environment depends on the intergovernmental commissions. These commissions work out the terms of cooperation and resolve issues of economic, technical, and legal nature. To improve the situation in two-way trade, it is necessary to develop state cooperation.
Moreover, the remoteness and insufficiency of developed transport networks with Africa are also vital issues of bilateral cooperation. The elimination of trade barriers and dialogue at intergovernmental commissions will allow countries to improve two-way trade links.
Q: With the adoption of African continental free trade, what is your interpretation of this free trade, and how useful it could be for Russian corporate exporters?
A: The African free trade zone opens opportunities for the free movement of services, goods, capital, and labor in the region. This reduces costs and facilitates trade between countries, making Africa even more attractive to other states.
Russia supports the African free trade zone because it is very convenient for exporters who get the necessary certificates and trade permits in one country and then sell their products to other African states. This free trade area allows producers to reduce the costs and time of transportation of goods. It increases the attractiveness of the African market and makes it more significant for Russian exporters.
Russia Briefing is written by Dezan Shira & Associates, advisors to Russian investors in Asia. The practice has a significant network of partner firms in Africa and can provide support to Russian and EAEU investors in the continent. Please contact us at email@example.com for assistance.