Connect with us

World

Experts Discuss Russia’s Weak Economic Presence in Africa

Published

on

Russia's Weak Economic

By Kester Kenn Klomegah

Russia’s weak economic presence in Africa has become a thing of concern for some experts in the country and they wonder why the nation is not aggressive with this like its ally, China.

In July 2021, participants at the Association of Economic Cooperation with African States (AECAS), established under the aegis of the Secretariat of the Russia-Africa Partnership Forum (RAPF), agreed that lack of financial support was the major reason for this.

The forum, which had in attendance some leading Russian companies and banks, discussed an effective system of financing projects and supporting investment in Africa.

Financing projects in Africa is one of the important keys and, at the same time, the most difficult issue for major Russian companies attempting to expand to Africa, and the financial instruments at their disposal are insufficient, according to Anna Belyaeva, Executive Director of AECAS.

“We explicitly understand that the current funding mechanisms are not enough. We have analysed the experience of European and Western colleagues from developed countries, our direct competitors in Africa: all of them already have mechanisms and funds focused on Africa,” she said.

Nikita Gusakov, Head of the Russian Export Credit and Investment Insurance Agency (EXIAR), reiterated that Africa was a priority for the agency, outlining a number of deals that EXIAR has been involved in on the continent.

He was also critical and frank on a few points relating to finance mechanisms and slowness in delivering on investment pledges and the extent these have affected effective economic cooperation between Russia and Africa.

“We have the desire and the capacity to finance projects in Africa. In our experience, there are two problems that need to be addressed: the low level of project planning by Russian companies wishing to enter the African market, and the lack of awareness among Russian companies of the opportunities available on the African market,” Gusakov unreservedly underlined.

The meeting collectively acknowledged Africa as a huge continent that still requires economic development. Its active demographic growth and abundance of natural resources offer conditions to become the world’s biggest market in the next few decades.

Russians are searching for long-term businesses and entrepreneurship in a wide range of sectors, citing the presence of the strong presence of the United States, European Union members, China, India, and many others in the continent.

The current geopolitical developments and the scramble for emerging opportunities by external countries in Africa is the stacked reality.

Perspectives and outlook for future development are immense, some African leaders and particularly corporate business leaders with foreign players are consistently collaborating and fixing their strategic partnership networks within the continent, striving to understand the emerging challenges and mapping out how to seize the opportunity to build businesses in Africa.

In addition to that, foreign players are investing research and development (R&D) with their African partners. As Nikita Gusakov, Head of the Russian Export Credit and Investment Insurance Agency (EXIAR), reiterated at the meeting, one of the roadblocks is the lack of adequate knowledge among Russian companies about the opportunities available in Africa. It is partly due to limited interaction with the private sector actors and civil society.

There should be an emphasis on employing policy strategists who actually understand business cultural ideas, the current political and economic trends in Africa. Russians must also invest in more R&D collaborations with their African partners.

In order to raise the economic influence, Russians have been making efforts to identify a structured finance mechanism for mega infrastructure projects such as nuclear power and energy, natural resources exploration and to significantly increase trade with Africa.

For instance, the United States, European Union members, Asia countries such as China, India and Japan, have provided funds to support companies ready to carry out projects, and that include some basic researches, in various sectors in African countries. Some have publicly committed funds, including concessionary loans, for Africa.

During the last Ministerial Conference of the Forum on China-Africa Cooperation (FOCAC), Chinese President Xi Jinping said “China will expand cooperation in investment and financing to support sustainable development in Africa. China provided US$60 billion of credit line to African countries to assist them in developing infrastructure, agriculture, manufacturing and small and medium-sized enterprises.”

 It fully understands Africa’s needs and its willingness to open the door to cooperation in the field of scientific and technological innovation on an encouraging basis.

The method for financing the building of infrastructure is relatively simple. In general, governments obtain preferential loans from the Export-Import Bank of China or the China Development Bank, with the hiring of Chinese building contractors.

The Chinese policy banking system allows leading Chinese state-owned enterprises to operate effectively in Africa, with the majority of these activities in infrastructure and construction in Africa.

China has always been committed to achieving win-win cooperation and joint development with Africa. Russia could consider the Chinese model of financing various infrastructure and construction projects in Africa.

 Official proposals for all kinds of support for trade and investment has been in the spotlight down the years.

In May 2014, Russian Foreign Minister Sergey Lavrov wrote in one of his policy articles published on the ministry’s website: “we attach special significance to deepening our trade and investment cooperation with the African States. Russia will provide African countries with extensive preferences in trade.”

Lavrov wrote: “At the same time, it is evident that the significant potential of our economic cooperation is far from being exhausted and much remains to be done so that Russian and African partners know more about each other’s capacities and needs. The creation of a mechanism for the provision of public support to business interaction between Russian companies and the African continent is highly on the agenda.”

After the first Russia-Africa Summit in the Black Sea city, Russia Sochi in October 2019, Russia and Africa have resolved to move from mere intentions to concrete actions in raising the current bilateral trade and investment to appreciably higher levels in the coming years.

“There is a lot of interesting and demanding work ahead, and perhaps, there is a need to pay attention to the experience of China, which provides its enterprises with state guarantees and subsidies, thus ensuring the ability of companies to work on a systematic and long-term basis,” Foreign Minister Lavrov said.

According to Lavrov, the Russian Foreign Ministry would continue to provide all round support for initiatives aimed at strengthening relations between Russia and Africa.

“Our African friends have spoken up for closer interaction with Russia and would welcome our companies on their markets. But much depends on the reciprocity of Russian businesses and their readiness to show initiative and ingenuity, as well as to offer quality goods and services,” he stressed.

Senator Igor Morozov, a member of the Federation Council Committee on Economic Policy, and Chairman of the Coordinating Committee on Economic Cooperation with Africa noted during one of the meetings that in conditions of pressure from sanctions, it has become necessary to find new markets, new partners and allies for Russia.

“This predetermines the return of Russia back to Africa, makes this direction a high priority both from the point of geopolitical influence and in the sphere of trade and economic context,” he underscored his objective comments.

“It is important for us to expand and improve competitive government support instruments for business. It is obvious that over the thirty years when Russia left Africa, a number of countries such as China, India, the United States and the European Union have significantly increased their investment opportunities there in the region,” Morozov stressed.

With a renewed growing interest in Africa, Russians are feverishly looking for establishing effective ways of entry into the huge continent.

As result, Senator Igor Morozov unreservedly suggested creating a new structure within the Russian Export Centre – an investment fund, explaining further that “such a fund could evaluate and accumulate concessions as a tangible asset for the Russian raw materials and innovation business.”

His Coordinating Committee has the responsibility for adopting a more pragmatic approach to business, for deepening and broadening economic collaborations and for the establishment of direct beneficial contacts between entrepreneurs and companies from Russia and African countries.

The Coordinating Committee for Economic Cooperation with African States was created in 2009 on the initiative of the Chamber of Commerce and Industry of the Russian Federation and Vnesheconombank with support from the Federation Council and the State Duma of the Federal Assembly of the Russian Federation. It has had support from the Ministry of Foreign Affairs, the Ministry of Economy and Trade, the Ministry of Natural Resources, as well as the Ministry of Higher Education and Science.

President of the Russian Chamber of Chamber and Industry, Sergei Katyrin, added his voice for the establishing a finance mechanism, saying “the primary task now is to accelerate Russia’s economic return to African continent, from which we practically left in the 90s and now it is very difficult to increase our economic presence there in Africa.”

According to Katyrin, Russia’s economic presence in Africa today is significantly inferior in comparison to the positions of leading Western countries and BRICS partners. “It’s time to overcome this yawning gap. Today, we face a difficult task to ensure the activities of Russian entrepreneurship on the African continent in the new conditions, taking into account all the consequences of the coronavirus pandemic.”

Katyrin, in addition, said “we need a state financial mechanism to support the work of Russian business in Africa otherwise it will be very difficult to break through the fierce competition of Western companies with such support. We need to focus on those areas where we can definitely count on success.”

According to UNCTAD’s World Investment Report 2020, the top five investors in the African continent are European Union (Netherlands, France, Germany, the United Kingdom), the United States and China. There are also the Gulf States, United Arab Emirates and Turkey consistently playing active roles on the continent.

In practical reality, the introduction of the African Continental Free Trade Area (AfCFTA), gives an additional signal for foreign players to take advantage of this new opportunity in Africa. It aims at creating a continental market for goods and services, with free movement of business people and investments in Africa. As trumpeted, the AfCFTA has a lot more on offer besides the fact that it creates a single market of 1.3 billion people.

Notwithstanding the setbacks down these years, Russians are still full of optimism. That said, however, Russia has its own approach towards Africa. It pressurizes no foreign countries neither it has to compete with them, as it has its own pace for working with Africa. After the first Russia-Africa Summit, there is a well-functioning structure to achieve more practical and comprehensive results from the new phase of relations between Russia and Africa.

With the same optimism towards taking emerging challenges and opportunities in Africa, Russia has to show financial commitment especially now when the joint declaration adopted from the first historic Summit held in October 2019 ultimately sets the path for a new dynamism and provides an impetus for the existing Russia-Africa relations.

Click to comment

Leave a Reply

World

Africa Gets Just 12% of Climate Change Financing

Published

on

Climate Change

By Adedapo Adesanya

A new report from Climate Policy Initiative (CPI) has said that Africa is getting just 12 per cent of the finance it needs to manage the impact of climate change.

It, however, raised pressure on rich nations to do more in the run-up to global climate talks at COP27 in November.

CPI said that around $250 billion is needed annually to help African countries move to greener technologies and adapt to the effects of climate change, yet funding in 2020 was just $29.5 billion.

Wealthy countries have faced growing criticism for failing to meet a pledge made in 2009 to provide $100 billion annually to help poorer countries and the issue is likely to be central to discussions at the COP27 climate talks in Egypt.

According to the International Energy Agency, Africa has about a fifth of the world’s population but produces less than 3 per cent of its carbon dioxide emissions.

“Harnessing climate investment opportunities in Africa will require innovation in financing structures and strategic deployment of public capital to ‘crowd-in’ private investment at levels not yet seen,” the CPI report said.

It cited a lack of skills, infrastructure, data and financial markets depth, governance issues, and currency risks as holding back climate investment to varying degrees in African countries.

The barriers were most numerous in central African countries, where infrastructure and access to credit are lacking and there are high risks of political and regulatory issues hampering investment, the report said.

“While these barriers are real, the perception of risk linked to investments in the African continent is often aggravated by a limited understanding of national contexts by private investors,” it said.

Continue Reading

World

Australia Begins Process to Introduce Central Bank Digital Currency

Published

on

australia central bank digital currency

By Adedapo Adesanya

As more countries gravitate towards a digital currency, Australia joined the cadre as it announced the beginning of a collaborative effort to review the case for a central bank digital currency (CBDC) in the country.

The Reserve Bank of Australia (RBA), Treasury, and other agencies will oversee the research effort designed to explore the potential economic benefits of introducing such a currency in Australia, the RBA said in a statement Tuesday. The project is expected to run for about a year.

Speaking on this, the RBA’s Deputy Governor Michele Bullock said the work “is an important next step in our research on CBDC. We are looking forward to engaging with a wide range of industry participants to better understand the potential benefits a CBDC could bring to Australia.”

The central bank reiterated the research comes in the context of Australia already having “relatively modern and well-functioning payment and settlement systems.”

The RBA is collaborating with the Digital Finance Cooperative Research Centre in the project, while Treasury is participating as a member of the steering committee. The work will involve the development of a “limited-scale pilot that will operate in a ringfenced environment for a period of time.”

Over the course of the next 12 months, interested industry participants will be invited to develop specific use cases that demonstrate how the digital currency could be used to provide innovative and value-added payment and settlement services to households and businesses, the RBA added.

A report on the findings, including an assessment of the various use cases developed, will be published at the conclusion.

Central banks worldwide are acting swiftly to ensure they don’t fall behind as money edges toward its biggest reinvention in centuries with alternative concepts like cryptocurrencies taking hold.

Nigeria is one of the countries at the forefront of a CBDC with the introduction of the eNaira in 2021 with the Digital Euro still under investigation phase while Jamaica began its own testing phase in May. China’s Digital Yuan has been in testing since 2020.

Blockchain technology, as well as events like the coronavirus pandemic, are among the forces pushing consumers to go cashless.

Continue Reading

World

Mozambique Risks Economic Stability Over Russian Oil

Published

on

Mozambique Risks Economic Stability

By Kestér Kenn Klomegâh

Mozambique risks destabilizing its economy and further losing western development finance if it goes ahead to purchase sanctioned oil from Russia.

With the return of western development finance institutions such International Monetary Fund (IMF), World Bank and the USAID, and currently showing tremendous support for sustainable development projects and programmes, Mozambique would have to stay focused and stay clear of the complexities and contradictions of the Russia-Ukraine crisis.

Mozambique needs to seriously concentrate on and pursue its plans of exporting liquefied natural gas (LNG), extracted from the Coral South field, off the coast of Palma district, in the northern province of Cabo Delgado, possibly starting this October. It marks an economic turning point and opens a new chapter for its revenue sources.

According to our research, Mozambique will become the first country in East Africa to export LNG. It will be produced on a floating platform, belonging to a consortium led by the Italian energy company, Eni. The platform, built in a Korean shipyard, arrived in Mozambican waters in January and is now anchored in Area Four of the Rovuma Basin, some 40 kilometres from the mainland.

This is the first deep-water platform in the world to operate at a water depth of about two thousand meters. The Coral South project is expected to produce 3.4 million tons of LNG per year over its estimated 25-year lifespan.

A second project is planned for Area One of the Rovuma Basin, where the operator is the French company TotalEnergies. The planned LNG plants for this project, are onshore, in the Afungi Peninsula of the Palma district. The jihadists seized Palma town in March 2021, and TotalEnergies withdrew all of its staff from the district. Subsequently, the Mozambican defence and security forces and their Rwandan allies drove the terrorists out of both Palma and the neighbouring district of Mocimboa da Praia.

The current global economic situation is changing, and competition and rivalry for markets are also at their height. During the past months, Russia has cut its export of gas as a reciprocal action against European Union members and has redirected its search for new clients in the Asian region. It has already offered discounted prices to China and India, and now looking beyond Africa.

United States Special Envoy to the United Nations, Thomas-Greenfield, has made one point clear in her speeches with African leaders that “African nations are free to buy grain from Russia but could face consequences if they trade in U.S.-sanctioned commodities such as oil from Russia.”

“Countries can buy Russian agricultural products, including fertilizer and wheat,” Linda Thomas-Greenfield said. But she added that “if a country decides to engage with Russia, where there are sanctions, then they are breaking those sanctions. We caution countries not to break those sanctions because then … they stand the chance of having actions taken against them.”

Russian Ambassador to Mozambique, Alexander Surikov, after a meeting with the Confederation of Economic Associations of Mozambique (CTA), had proposed that the Mozambican authorities could buy Russian oil in roubles after Moscow presented the option to Maputo. Ambassador Surikov further expressed Russian companies’ continuing interest in investing in Mozambique. Likewise, the possibility was raised of Russia opening a bank in Mozambique focused on supporting bilateral trade and investment.

Russia previously had a VTB bank in Maputo, later involved in opaque deals. It was a financial scandal involving three fraudulent security-linked companies, and two banks – Credit Suisse and VTB of Russia, relating to illicit loan guarantees issued by the government under former President Armando Guebuza. Until today, it is popularly referred to as the “Hidden Debts” scandal involving US$2.7 billion (€2.3 million), the financial scandal that happened in 2013.

In the aftermath, financial institutions exited, projects were abandoned and this southern African country has struggled to rebound economically. Now they are returning with new financial assistance programmes that would promote sustainable and inclusive growth and long-term macroeconomic stability.

In the context of the current cereal crisis, one other issue that the ambassador raised was how Mozambican companies could have direct access to Russian wheat suppliers. In this regard, it was not clear how Russian wheat would enter the market and how it would be paid for because Mozambique uses principally the US dollar in its foreign transactions, and Russia cannot conduct transactions using the US currency due to the sanctions imposed following the invasion of Ukraine.

“The rouble and the medical are worthy currencies that do not need the benevolence of some other countries that control the international system,” the Russian diplomat explained, adding that Moscow wanted to strengthen cooperation with Maputo.

Nonetheless, Minister of Mineral Resources and Energy of Mozambique, Carlos Zacarias, admittedly the possibility of buying Russian oil in roubles. “I am sure that we will study and verify the feasibility of this offer from Russia. If it is viable, for sure Russian oil will be acquired in roubles,” Carlos Zacarias said.

Mozambique’s receptivity to the Russian proposal stems from the fact that the world is experiencing a peculiar moment, characterized by great volatility in oil prices on the international market as a result of the Russia-Ukraine war.

Mozambique was among the countries that abstained on two resolutions that were voted on by the General Assembly of the United Nations, one condemning Russia for the humanitarian crisis in Ukraine as a consequence of the war and the other suspending Moscow from the Human Rights Council.

The Mozambican Liberation Front (Frelimo, the ruling party) was an ally of Moscow during the time of the former USSR and received military support during the struggle against Portuguese colonialism and economic aid after independence in 1975.

Mozambique and Russia have admirable political relations. Mozambique has to focus on trade and economic development with external partners. According to data provided by CTA, the annual volume of economic transactions between Mozambique and Russia is estimated to be, at least, US$100 million (€98.5 million at current exchange rates).

Experts aptly point to the fact that there is a tremendous opportunity window for Mozambique. With partners including ExxonMobil Corp., China National Petroleum Corp. and Mozambican state-owned Empresa Nacional de Hidrocarbonetos, Mozambique has to move towards its own energy development. These past few years, experts have also reiterated adopting a suitable mechanism, mapping out strategies and utilizing financial support for sustainable development.

Mozambique has considerable gas resources and the right decision is to move toward both an onshore concept and an offshore concept. The ultimate goal has to establish connectivity between its resource exploration and national development. The idea is to foster economic relations based on its domestic development priorities. And consequently, it has to determine influential external investment partners ready to invest funds and, in practical terms, committed to supporting sustainable development in the country.

The Mozambique LNG offshore project, valued at around $20 billion, aims to extract about 13.12 million tonnes of recoverable gas over 25 years and generate profits of US$60.8 billion, half of which will go to the Mozambican state.

The process to achieve this task has started and would generate 14,000 possible jobs in phases – first creating 5,000 jobs for Mozambicans in the construction phase and 1,200 in the operational phase, with a plan to train 2,500 technicians and so forth. These projects also have a great capacity to create indirect jobs, with foreign labour decreasing throughout the project and Mozambican labour increasing. Most of these jobs are expected to be provided by contractors and subcontractors.

Several corporate projects came to a halt due to armed insurgency in 2017 in Cabo Delgado province. The entry of foreign troops to support Mozambican forces in mid-2021 has improved the security situation. Since July 2021, an offensive by government troops was fixed, with the support of Rwandans and later by the Standby Joint Force consisting of forces from members of the Southern African Development Community (SADC).

Cabo Delgado province, located in northern Mozambique, is rich in natural gas. Although the gas from the three projects approved so far has a destination, Mozambique has proven reserves of over 180 trillion cubic feet, according to data from the Ministry of Mineral Resources and Energy. With an approximate population of 30 million, Mozambique is endowed with natural resources. It is a member of the Southern Africa Development Community (SADC) and the African Union.

Continue Reading

Latest News on Business Post

Like Our Facebook Page

%d bloggers like this: