The African Development Bank Group Chief Economist Complex Africa Economic Brief Volume 2, Issue 7 Russia’s Economic Engagement with Africa1 11 May, 2011 1 . Introduction and CIS borders and to enhance their In the aftermath of the collapse of the political and commercial ties with Soviet Union in 1991, the Russian African countries and other emerging Federation, an ideological friend and ally markets. of many African countries during the Contents: Cold War period, started to disengage This brief will examine Russia’s from Africa and other developing economic reengagement with African countries, and to develop closer relations countries by quantifying trade1. Introduction with the Western countries. between the two regions, analyzing2. Russia-Africa Trade the investment flows of Russian Relations As Russia’s economic strength started to companies into Africa, and assessing reinvigorate in the late 1990s, the Russian the potentials of Russia’s energy3. Growing Interest of foreign policy objective of reestablishing expertise for Africa’s resource-rich Russian Investors its geopolitical stature led to a renewal of countries. its relations with Africa. This was driven4. Prospects of not only by political ambitions but also Russia’s 2. Russia–Africa Trade Relations by economic and commercial Reengagement with motivations. The African continent, The importance of Russia as a trading Africa enriched by vast natural resources and partner to African countries is quite with burgeoning consumer markets, has minimal when compared to other5. Conclusion become a very attractive destination for developed countries and emerging Russian investment. The post-2000 markets such as the European Union, Russian economic stability, which the United States, China, India, and resulted in strong economic growth Brazil. Bilateral trade between Russia (yearly average GDP growth rate of 6.9 and Africa reached its peak of US$ 7.3 percent), increasing demand for Russian billion in 2008. Although this is close exports (mostly oil and other natural to a tenfold increase from the very lowMthuli Ncube resources) and higher foreign exchange trade volume of US$ 740 million firstname.lastname@example.org reserves (world’s third largest reserve). 1994, it is not significant enough to+216 7110 2062 guarantee Russian companies aCharles Leyeka Lufumpa This presented an opportunity for the bargaining edge when engaging email@example.com+216 7110 2175 Russian government and business elites African countries. To improve its to expand their influence beyond Russian political and commercial ties withDesire Vencatachellumd.firstname.lastname@example.org+216 7110 2076 1 Prepared by the following staff: Habiba Ben Barka, Senior Planning Economist (SAEC), under the supervision of Kupukile Mlambo , Advisor & Lead Economist (ECON). Disclaimer: The views and interpretations in this brief are those of the author and not necessarily those of the African Development Bank. The figures in the tables and in other parts of the document have been collected from different sources and may differ from the official figures of Government of Russia due to accounting period and other reasons.
Russia’s Economic Engagement with Africa Page 2 Africa and facilitate market access to its firms, the Russian government embraced a new foreign policy toward Africa, undertook high official visits to some African countries, and advocated for conflict resolution, humanitarian assistance, and debt relief for Africa. “Russian imports from Africa rose overall from US$ 350 million in 2000 to US$ 1.6 billion in 2009 while exports grew from US$ 947 million to US$ 4 billion over the same period.” Source: UN COMTRADE, AfDB Since 2000, Russia’s trade with Africa started to rise but with imports of African products increasing at a slower pace than Russian exports to the Africa continent. “Russia has Imports from Africa rose overall from US$ 350 million in 2000 to US$ 1.6 billion in maintained a trade 2009 while exports grew from US$ 947 million to US$ 4 billion over the same surplus with Africa, period. Both exports and imports grew steadily from 2000 to 2008, after which they which stood at US$ slightly decreased because of the impacts of the world financial and economic crisis. 597 million in 2000, Russia has maintained a trade surplus with Africa, which stood at US$ 597 million rising to US$ 3.3 in 2000, rising to US$ 3.3 billion in 2008 and falling to US$ 2.3 billion in 2009. billion in 2008 and falling to US$ 2.3 billion in 2009.” Source: UN COMTRADE, AfDB
Russia’s Economic Engagement with Africa Page 3 Russian imports from Africa are also and more than three-fourths of its concentrated in a few countries, namely oil and gas exports went to Europe. Algeria, Egypt, Morocco, Guinea, Côte Oil and gas account for 30 percent d’Ivoire and South Africa – jointly these of Russia’s GDP, and constitute account for about 80 percent of Africa’s more than 40 percent of government “Russia’s renewed exports to Russia. The exports from revenues. While the recent high oil interest in Africa has Africa are slightly more diverse and prices are projected to keep the been fueled by the include ores, uranium, iron, and other current account in surplus (peaking crucial need to access concentrates of base metal, fruits and nuts, at US$ 103.7 billion in 2008), foreign energy reserves cocoa, tobacco, and inorganic chemical falling Russian oil reserves may as Russia runs the risk elements. Although the import of African slow down the strong economic of exhausting its oil products increased at a compounded growth experienced over the past annual growth rate (CAGR) of 19 percent ten years (6.9 percent increase on reserves should the between 2000 and 2009, Africa still average per year). current scale of national exploitation accounts for only 1 percent of Russia’s remain constant.” world trade. 3. Growing Interest of Russian This marginalized position of Africa vis- Investors à-vis trade with Russia may reflect the country’s long withdrawal from the Africa’s vast natural reserves make continent following the end of the Cold the continent an increasingly War. It is unlikely to reverse because of attractive investment destination for Russia’s growing interest to modernize its Russia’s energy and other natural trade network by expanding its trade of resource industries. On account of machinery and equipment, and other its strong economic growth, large technologies. At the current stage of its external assets (US$ 480 billion in “Russia’s outward development and given the limited foreign exchange reserves), investment is dominated dynamics of its export base, Africa may increasing outward direct by large resource-based not be in a position to meet Russia’s trade investment stock (from US$ 3 corporations that seek to interests. billion in 1995 to US$ 249 billion in gain greater access to the 2009), and politico-strategic African market of fuel.” Nevertheless, it is worth mentioning that ambitions, Russia represents a major Russia’s renewed interests in Africa has potential investor in African been fueled by the crucial need to access countries. At the same time, foreign energy reserves as Russia runs the Russia’s outward investment is risk of exhausting its oil reserves should dominated by large resource-based the current scale of national exploitation corporations that seek to gain remain constant. Africa’s rich untapped greater access to the African market oil and natural gas reserves provide an of fuel, energy and metallurgy, and opportunity for Russia’s outbound expand Russian investment flows to exploration drive and strategic goal of Africa, which peaked at US$ 20 remaining the world’s largest exporter of billion in 2008. The table below oil (second to Saudi Arabia) and natural illustrates some of the major gas, and maintaining Europe’s Russian investment operations in dependence on its export of natural gas. African countries. In 2009 oil, fuel and gas accounted for 67.4 percent of total exports from Russia,
Russia’s Economic Engagement with Africa Page 4 Major Investments of Russian Companies in Africa Russian Host Industry Type of Value Year Investor Country/ Investment Company Norilsk South Africa Gold mining M&A (acquired US$1.16 2004 Nickel Gold Fields and 30% of Gold billion processing Fields) Norilsk Botswana Nickel mining M&A (acquisition US$2.5 2007 Nickel Tati Nickel and of Canada Lion Ore billion processing Mining gave it 85% stake in Tati Nickel Sintez South Africa, Oil, gas, ‘Greenfield’ US$10- 2006 Namibia, diamonds and Investment 50 Angola copper million exploration Lukoil Côte d’Ivoire, Oil M&A (acquired US$900 2010 Ghana exploration interest in 10,500 million km² deep water “Oil, gas and other blocks) natural resources Rusal Nigeria Aluminum M&A (acquired US$250 sectors have been the ALSCON refining majority stake in million major contributors to Aluminum Smelter Company - the Russian economic ALSCON of boom and increasingly, Nigeria) they dominate Russian Severstal Liberia Iron ore M&A (acquired US$40 2008 outward investment.” control of iron ore million deposit in Putu Range area of Liberia Gazpro Algeria Natural gas Joint exploration US$4.7 2006 m Sonatrach exploration and development billion projects by debt and write-off agreement US$7.5 and arms deal billion Alrosa Angola, Diamond Greenfield US$300- 1992 Namibia, mining, and Investment 400 DRC hydro- million electricity Rosatom Egypt Nuclear Ongoing US$1.8 2010 power negotiations to billion build Egypt’s first nuclear power plant Sources: various media sources; Russian company websites. As mentioned above, oil, gas and multinationals such as Lukoil, other natural resources sectors have Gazprom, Norilsk Nickel, Alrosa, been the major contributors to the Rusal and Severstal invest in oil, Russian economic boom and gas, diamond, aluminum, iron ore increasingly, they dominate Russian and other metal products in many outward investment. Therefore, it is African countries including Algeria, not surprising to see large Russian Angola, Botswana, Côte d’Ivoire,
Russia’s Economic Engagement with Africa Page 5 Egypt, Gabon, Guinea, Namibia, accessing Russia’s reserves of Nigeria, and South Africa. diamonds, uranium, gold, copper, nickel and other metals and their reduced The motivation behind Russian economic viability given the volatility business expansion in Africa is of these products’ world prices, have also driven by the depletion of the encouraged Russian firms to turn to resources base in Russia (see table Africa as an alternative source of below). The absence of new supply, as the costs of exploration and discoveries and technological production are much lower there. In advancement, which are fact, Africa’s underexploited mineral weakening Russia’s domestic reserves, which account for about 30 energy, together with the lack of percent of global resources, will be easy access to the remaining strategic complementarities to Russia’s “Africa’s underexploited underground mineral deposits in depleting natural resource base, mineral reserves, which Russia, are some of the factors including zinc, diamond, gold, uranium, account for about 30 leading Russian Africa’s oil, copper, nickel, manganese, bauxite, percent of global considerable natural resources. and coal. Moreover countries such as resources, will be While Africa’s share of global Algeria, Angola, Botswana, DRC, strategic energy production is about 12 Egypt, Gabon, Ghana, Guinea, complementarities to percent and increasing, its share of Morocco, Sierra Leone, South Africa, Russia’s depleting global commercial energy Tanzania, and Zambia, which dominate natural resource base, consumption is only 3 percent, the African mining industry, will including zinc, diamond, which represents a significant potentially attract an increasing number gold, uranium, oil, supply for Russia’s growing oil of Russian business elites. copper, nickel, demand. The high costs of manganese, bauxite, Depletion Timeline of Russia’s Mineral Reserves and coal.” Year Economically Viable Reserves All Reserves 2011 Zinc 2013 Chromium Ores; Diamonds; Quartz Quartz 2015 Tin; Uranium; Gold; Oil 2016 Copper; Nickel; Tungsten 2018 Platinum; Graphite Beyond Coal; Phosphate; Potash; Zinc; Chromium Ores; Diamond; 2025 Bauxite; Iron Ores; Natural Tin; Uranium; Gold; Oil; Copper; Gas; Vanadium; Fluorspar; Salt Nickel; Tungsten; Platinum; Graphite; Coal; Phosphate; Potash; Bauxite; Iron Ores; Natural Gas; Vanadium; Fluorspar; Salt Source: Russian Federation; US Geological Survey (USGS) Cold War period, largely driven 4. Prospect for Russia’s by the Kremlin’s search for geostrategic advantage. After Reengagement with Africa the Cold War, leading up to the Russia’s involvement in Africa is 1990s, Russian foreign policy not new; it heightened during the resulted in withdrawal from
Russia’s Economic Engagement with Africa Page 6 Africa and other developing Africa and Russia Supply of World Major Energy strong attraction for Russian exerting a countries. As Russia begun to return energy companies. The African to African countries in the early continent currently accounts for about 2000s, its pursuit of Africa’s high 9.7 percent of the world proven oil Oil concentrations of strategic minerals reserves of 1.2 trillion barrels and its oil Share of world production and significant deposits of petroleum 1973 2009 reserves are growing at an annual rate of and uranium emerged as a key driver Africa 10.1 12.4 3.2 percent. With regard to natural gas, Russia 15.0 16.7 of its increasing commercial Africa’s share of the global gas deposits engagement with the continent. of 181.46 trillion cubic meters is Russia’s geopolitical goal to extend estimated at 7.8 percent. As Africa’s Europe’s dependence on the import comparative advantage in the scope and Gas of its energy also inspired its quest Share of world production frequency of new discoveries is being for Africa’s natural resources. 1973 2009 courted by global energy consumption Africa 0.8 6.5 countries such as Russia, precautionary Russia 19.7 24.8 Although self-sufficient in fuels and measures should be put in place to power generation, Russia’s energy- ensure that sustainable economic and dependence (primary source of hard social benefits accrue from natural currency and revenues) and the Coal resources exploitation. plummeting reserves of oil and gas Share of world production 1973 2009 could negatively affect its recent Increasing Russian investments in Africa 3.0 14.6 economic growth and drive to Russia 22.8 6.3 Africa could have both positive and become a world-leading energy negative outcomes. On the one hand, producer. Under the Soviet system, while such investments might represent Russian energy pricing and significant economic opportunities for consumption policies called for Hydro resource-rich African countries, there is subsidized prices far below world Share of world production a risk that, coupled with limited 1973 2009 market prices and higher output Africa 2.2 3.0 domestic policies, they might generate volumes without conservation Russia 9.4 7.3 negative social and environmental measures, which resulted in excessive outcomes for Africa. On the other hand, consumption of energy, increased Russia’s well-established expertise in exports of natural gas and oil, and, extracting energy resources and Nuclear more recently, in plummeting energy advanced nuclear know-how presents a Share of world production reserves. With the current proven oil 1973 2009 value-added opportunity for Africa. It is reserves of 60 billion barrels, Russia Africa 0.0 0.0 worth noting that Russia is participating will have to rely on new discoveries Russia 5.9 9.7 in tenders for the construction of the of oil in order to meet the growing first nuclear power plants in Egypt and global demand for energy. Similarly, Source: International Energy Agency Statistics 2010 Nigeria, which have significant uranium Europe’s increasing consumption of reserves. energy and dependence on oil and gas imports from Russia puts pressure on Also, Russia’s own experience with the the Kremlin to seek alternative problems that plagued its energy sector sources of energy. during the 1990s and its ability and knowledge to restructure the sector for Africa, with its rich endowment of improved management and higher crude oil reserves, natural gas productivity, could provide a salutary deposits, and other minerals, is lesson to be learned by African countries.
Russia’s Economic Engagement with Africa Page 7 Furthermore, Russia’s membership in the G8 and its development commitments, 5. Conclusion offer African countries additional economic opportunities through opening Every reengagement effort since 2000 its market, writing off African debt, and has reinforced the Kremlin’s relations advocating for more debt reduction, with African governments and boosted especially for resource-rich African economic and commercial partnerships countries. To date, Russia has written off between Russia and the continent. over US$ 20 billion of Africa debt, and, Although the current volume of trade “To date, Russia has between Russia and Africa is relatively like other G8 members, has pledged to written off over US$ low (considering the former Soviet double its ODA to African countries. In 20 billion of Africa Union’s total trade volume with the addition to negotiating debt reliefs, debt, and, like other world), the growing trend of commercial Russia could contribute to promoting G8 members, has African regional cooperation by making activities between the two regions has pledged to double its debt reliefs conditional upon African reasserted Moscow’s geo-economic ODA to African nations’ demonstrated commitment to strategic ambitions. Moreover, Russian countries…” regional energy sector cooperation (i.e. firms seeking greater access to African policy harmonization, transborder natural resource fields are playing a key projects, free trade agreements, and role in renewing and expanding Russia’s integrated pipeline and transmission sphere of influence in Africa. networks on the continent). While Russia’s search for alternative Resource-based firms in both developed sources of energy provided the impulse and emerging countries have been for its new engagement with Africa, the playing a central role in generating Kremlin’s goal of remaining the world’s revenues for the national economies of largest energy exporter propelled “To date, Russia has oil- and resource-rich countries in Africa. Russian corporations into the continent. written off over US$ However, those revenues do not always Russia’s pursuit of strategic natural 20 billion of Africa translate into long-term sustainable resources will benefit African countries; debt, and, like other growth, nor do the revenues generated not only from a revenue-generating point G8 members, has of view, but also because of the catalytic pledged to double its from natural resources production always contribute to human capital and social role the increased investments will have ODA to African on socioeconomic growth and countries…” infrastructure development in African countries. Foreign investment companies development. should be called upon to create incentives or adopt measures to generate sustainable Russia’s expertise in energy exploration and shared benefits for resource- and production, and its membership in producing countries in Africa. For the G8 present an opportunity for instance, Russian resource-based firms African governments to work jointly should negotiate exploration and with Russian companies and extraction agreements with the provision international organizations such as the that a percentage of the investment African Development Bank in order to should be earmarked for socioeconomic ensure a strong and constructive linkage development, i.e. a trust fund to be set up between Russia’s energy interests and to support agro-business, education, sustained economic growth in the health, and other forms of social welfare. continent.