Russia, Africa, To Drop US Dollar and Euro In Trade Settlements
Russia-African trade target to reach US$40 billion by 2024
Russia and African nations are moving towards settlements in national currencies, Russian Foreign Minister Sergey Lavrov stated on Wednesday, (January 18) adding that the parties are preparing documents on rearranging the mechanism of cooperation under Western sanctions.
Lavrov’s announcement was made during a press conference on the results of the activities of Russian diplomacy in 2022. The official earlier stated that Russian and African partners are working on reducing, though gradually, trade in the US Dollar and the Euro in mutual trade payments.
“As you know, we are planning a second summit with Africa this year, at the end of July in St. Petersburg, and we are preparing a whole series of events for it, documents are being prepared to reconfigure the mechanisms of interaction in the face of sanctions and threats, we will create new tools for trade and investment cooperation, supply chain systems, and payments,” Lavrov stated, adding “There is a transition to settlements in national currencies, this process is not fast, but it is underway and it is gaining momentum.”
Moscow has been steadily pursuing a policy of de-dollarization in foreign trade. In recent years, Russia and some of its trade partners, including India and China, have been ramping up the use of domestic currencies in mutual settlements in an effort to move away from the US Dollar and Euro. Saudi Arabia has also just announced it will be following a similar policy.
Russia’s expansion of military, economic, and political cooperation with Africa has grown in recent years. For example, Russia signed more than 20 bilateral agreements with African countries and has increased its trade volume with the continent. Sergey Lavrov, the Russian Foreign Minister, visited four African nations last year, visiting Egypt, Ethiopia, Uganda, and the Republic of Congo.
Lavrov wrote an article, “Russia and Africa: A Future-Bound Partnership” at that time, which was widely circulated amongst African media. In it, Lavrov expressed his gratitude to the African countries that did not support the UN General Assembly resolution in March condemning Russia’s invasion of Ukraine. In total, 24 out of the 54 African states abstained or were absent from the vote.
He also stated “I would specially emphasize: our country does not impose anything on anyone or tells others how to live. We treat with great respect the sovereignty of the States of Africa, and their inalienable right to determine the path of their development for themselves. We are firmly committed to the “African solutions to African problems” principle” – a statement well received by African governments wary of European neo-colonialism and a United States perceived as engaging in ‘diplomatic bullying’.
There have also been commitments concerning agriculture, with Russia stepping in at the height of the Ukraine blockade last year to insist that deliveries of grain were dispersed to African and poorer nations in need than the wealthier EU bloc. Russian President Putin, back in September last year revealed that of the then 87 ships containing Ukrainian grain, only two had been sent to developing countries (Ethiopia and Yemen) – the rest went to the EU.
Russia has since doubled up on its efforts since then to support Africa in both food and energy – while the EU have pushed prices up, purchased oil, LNG and grain originally destined for other markets, and put many countries at energy risk. South Africa, for example is currently suffering 12 hour daily blackouts, an issue for which the blame is squarely being laid by Pretoria at Brussels doorstep. This is also a major driver to encouraging African-Russian trade in Rubles or other currencies as opposed to the US Dollar or Euro as sanctions mean there are no mechanisms to pay Russia for product in these currencies. Africa therefore sees itself as a victim of European policies towards Russia yet without receiving coordinated European assistance to alleviate the spill-over effects.
There have also been promises of increased trade. At the first Russia-Africa summit, held in October 2019 in Sochi, the working format was unveiled as intent to foster political, economic, and social cooperation between Russia and Africa. That 2019 summit was attended by representatives of all 54 African states, of which 45 were represented by their heads of state, while at the event, Russian President Putin announced the intention to double the trade volume between Russia and Africa to US$40 billion by 2024. In part, that has been stymied by Western sanctions, but Russia is being seen to actively seek to overcome these.
The Bank of Russia for example has begun officially quoting two African currency exchange rates against the Ruble, being the South African Rand and the Egyptian Pound. The bank also quotes against the SDR, being an international reserve asset created by the IMF to supplement the official reserves of its member countries. The SDR is not a currency. It is a potential claim on the freely usable currencies of IMF members. As such, SDRs can provide a country with liquidity.
Of the African currencies, the Rand and the Egyptian Pound may therefore take some of the lion’s share of upcoming Ruble trade as both are also freely exchangeable throughout Africa. Other African countries have tied their currencies to US Dollar or Euro pegs, including Nigeria, Algeria, Morocco, Ethiopia, and the Central-West African states – Benin, Burkina Faso, Guinea-Bissau, Ivory Coast, Mali, Niger, Senegal and Togo, and the six-nation Central African CFA franc zone, which includes Cameroon, Central African Republic, Chad, Republic of the Congo, Equatorial Guinea and Gabon. These have their respective currencies pegged to the Euro XOF=. Both are guaranteed by the French treasury and were pegged to the French Franc before the Euro. Although the two currencies are in theory separate legal tenders, they have been effectively interchangeable. The CFA Franc is pegged at 655.957 to the Euro. These existing mechanisms therefore give some leeway for Russia to examine ways in which to construct a viable, and reliable Ruble-African currency exchange rate, a requirement for trade and financial stability when avoiding US Dollar or Euro use.
How soon these mechanisms can be tied together to provide that financial trade stability between Russia and the 54 African nations will take time to accomplish, but as Lavrov says, work is being conducted. With Russia having no colonial historic negativity in Africa, alongside China, both can be expected to increase their African trade and investment as they seek new markets and new resource opportunities. Both Russia and China will be keen to see the African Continental Free Trade Agreement (AfCFTA) get into gear – a pan-African deal that disposes of tariffs on all intra-African trade and opens up the possibilities of matching Russian and Chinese components to African resources, creating manufacturing and market opportunities both for resale on the African market and for re-export elsewhere.
There are other trade bloc developments that would link a variety of African countries more closely to Russian trade and investment. Algeria, Egypt, Nigeria and Senegal have all made official representations to join the BRICS grouping; South Africa is already a member. The Eurasian Economic Union signed off an agricultural agreement with the AfCFTA in 2019, while Egypt is pursuing an EAEU Free Trade Agreement.
The bilateral trade and investment relations between Russia and Africa can be expected to grow in coming years: part as replacement for EU consumer markets and part as Russia sees Africa as a major energy and development play. Joint Ventures between African and Russian businesses will become rather more common.
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