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Financial Institutions to Support Russia-African Business Projects

Kester Kenn Klomegah

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An Interview with Dmitry Golovanov

Russian financial institutions have shown high interest in helping to raise the economic and business profiles both ways, Russian business in Africa and African business in Russia. For example, Eximbank of Russia has expressed readiness to take advantage of huge opportunities and existing growth potential in both regions. Eximbank of Russia is always open for a dialogue and discussion of projects of various degree of complexity.

In this exclusive interview, Dmitry Golovanov, Chairman of the Management Board of Eximbank of Russia, believes “there is everything necessary for that – significant experience of implementation of complicated infrastructural projects accumulated from Soviet days.”

He further advocates for an increased economic partnership between Russia and African countries, reaffirms the desire to continue developing business dialogue with interested companies in efforts to pursue active involvement in international programmes and projects for Africa. In addition, he raises some specific proposals necessary for facilitating business between Russia and Africa.

How do you assess the level of activity of economic cooperation between Russia and Africa today?

Golovanov: For the purposes of visibility, I would like to proceed to figures right ahead. Goods turnover between Russia and countries of Africa to the south of Sahara is today only about US$1.5 bn. Export – less than US$1 bn., among almost 50 countries real counteragents in export operations are less than 10. We can see that the structure of Russian export has deformed significantly towards export of raw materials. One more impressive statistics is that about 80% of Russian investments into Africa relate to exploration and mining of natural resources.

Skeptics will probably call such situation as “pessimistic”. We, Eximbank of Russia, see in the current situation high opportunities – a growth potential, on account of development of export of products other than raw materials. There is everything necessary for that – significant experience of implementation of complicated infrastructural projects and development of the territories accumulated from the times of the USSR, experience of Eximbank of Russia (financing of the project for construction of the satellite communications system), comprehensive approach to achievement of the objective: a line of credit and insurance products developed together with the Export Insurance Agency of Russia (EXIAR) especially for exporters, efficiency of taking decisions on issue of loans, market expertise and individual approach to every client.

Do you think that Russian authorities should support the business in cooperation between Russia and Africa? Can such support become a driver of growth of business activity between Russia and Africa? What is the role of the banking sector in this process?

Golovanov: Russian authorities provide considerable support to the business – moreover, at present support of its export initiative is a priority for the Russian Government. We, as a state bank oriented towards support of exporters, provide one of the efficient instruments capable to give a new impulse to economic cooperation between Russia and Africa.

In addition to specific proposals from exporting companies, in aggregate with deep understanding of needs of the African market, our portfolio contains a line of various financial products – this may be loans to Russian exporters, loans to foreign purchasers, leasing offers, financing involving foreign banks, all this is supplemented with a line of insurance products of EXIAR – so, the state provides significant support to export.

As regards to the banking sector, today there is no designated product line for the Russian exporters. Banks experiencing a difficult economic situation prefer only short-term profits and cannot afford development of business models which will become efficient in the long term. The state oriented towards timely support of export understands that it is necessary to invest into and develop this direction which will further become a driver of economic growth.

It is very important that cooperation between Russia and Africa can and should be developed on account of expansion of the export potential of companies which are now operating in the domestic market only. Eximbank of Russia has taken negotiations with companies willing to expand their business on account of achievement of foreign markets which need our financial support for this purpose.

Now we are taking negotiations for implementation of projects in such directions as supplies of geological equipment, equipment for washing plants, metal structures for construction of mining modules at the carrier Katoka (the 4th diamond deposit in the world by size). There are some perspective projects for supply of mineral fertilizers to Senegal, Togo and Benin, supply of medical goods, we discuss the possibility of financing of construction of social residential facilities in the region etc.

Experts believe that the share of Russian export to African countries is very low, first of all, due to insufficiently developed infrastructure in the industrial sector and problems with the production base. Do you agree to such an opinion? How the situation may be improved in the long term?

Golovanov: Obviously, Russia has faced some problems associated with poor development of the industrial base, however such problems are much less critical compared to the situation in the beginning of the 2000’s. Tasks set to our country may be resolved by means of implementation of joint projects.

In addition to the standard set of instruments for support and stimulation of export being implemented by national development institutes, the experience of our cooperation also includes such a solution as cooperation of Russian and African companies aimed at implementation of projects for export to third countries.

Cooperation will provide additional opportunities for investments; ensure additional load of production capacities; improve competitiveness of products on account of cooperation with other companies; become a catalyzer of expansion of sales markets by means of implementation of the strategy of “joint reach” of new markets. Competitiveness of joint projects will be ensured by advantages of our economies and instruments for support of private initiative.

We should not forget about accessibility of financial instruments regardless the level of development of the industrial sector and perspectives of a company interested in international trade, if the instrument necessary for that, for example, a loan is accessible at the rate of 17-20%, implementation of business plans will be postponed till stabilization in economy. Although we speak about the reserve dynamics – first we should support export, and in the long term, this will facilitate stabilization of economy.

How do you assess the potential of African producers interested in the Russian market? What may attract them to Russia?

Golovanov: Russia is a large developing market with growing purchasing capacity, interested in development of competition and improvement of quality of products supplied from abroad. We can surely say that companies which are ready to try the Russian market have a chance to gain much profit. It is to be noted that the Russian market has its own peculiarity, so companies entering the market should clearly understand economy, political components and legal issues.

We often face a problem that companies willing to enter international markets cannot simply find foreign purchasers for their products. I suppose that the same problem is experienced by African businessmen. Provision of consulting services, thanks to development of special state institutions, – they would facilitate their activity in Russia. If such support would be useful on our part, we are willing to provide it to our African partners.

You pronounced at the annual meeting of the AfroCom at Vnesheconombank some of specific solutions and proposals to improve the business climate between Russia and Africa – what steps do you suggest?

Golovanov: It is necessary to arrange large-scale Russian-African forums/summits. This format proposed by partners from China, USA and European Union, has proved itself – personal communications and contacts at all levels favor dynamics of cooperation development. A significant effect can be caused by formation of general registers of businessmen interested in cooperation. This will allow to facilitate the task of importers/exporters search for counteragents for placement of orders or sale of products.

Besides, joint implementation of projects in the area of infrastructural development will positively influence development of contracts between Russian and African companies. However, transparency and possibilities for medium and small business to access contracts within the framework of implementation of major projects are required. Such projects generally have significant multiplicative effect in terms of comprehensive development of territories.

One more direction of stimulation of cooperation may be provision of Russian and African companies with assistance in creation of value added chains, including creation of joint ventures which base their competitive potential on the use of country advantages. Eximbank of Russia works in this direction to the extent of creation of financial infrastructure to procure such projects. The Bank plans to develop cooperation with institutions for development of countries of the region. We are always open for a dialogue and discussion of projects of various degree of complexity.

Kester Kenn Klomegah is an independent researcher and writer on African affairs in the EurAsian region and former Soviet republics. He wrote previously for African Press Agency, African Executive and Inter Press Service. Earlier, he had worked for The Moscow Times, a reputable English newspaper. Klomegah taught part-time at the Moscow Institute of Modern Journalism. He studied international journalism and mass communication, and later spent a year at the Moscow State Institute of International Relations. He co-authored a book “AIDS/HIV and Men: Taking Risk or Taking Responsibility” published by the London-based Panos Institute. In 2004 and again in 2009, he won the Golden Word Prize for a series of analytical articles on Russia's economic cooperation with African countries.

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Economy

Success of G-20 Summit 2018

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G-20 Summit 2018, was termed as successful and hope for better world order. In fact, recently the tension between US and China & Russia was growing and world peace and stability was at stake. Since January 2018, when President Trump, addressed house of union, expressed anti-China and Russia sentiments. Later on imposition of traffic on Chinese products and several other action were aimed to curtail China’s growth countering Russian threats. APEC summit at Papua New Guinea has also given negative signals. Under this scenario, whole world has focused on the out-come of G-20 Summit 2018, held in Buenos Aires, Argentina, on 30 November-1 December 2018.

Chinese wisdom brought fruits finally, as a result of meeting between President Trump and President Xi, in Buenos Aires on 1 December 2018, where US president agreed to not to put additional tariffs on Chinese goods.  Since beginning of 2018, starting from the President Trump’s address to state of Union, anti-China sentiments were very much obvious. Putting tariff to Chinese goods by US Dollars 200 Billion, APEC summit at Papua New Guinea etc were the moments of worry for not only China but also for the whole world.

As, US is the largest and China as second largest economy of the World. These two economies were dominating the global economy. Any disturbance to US or Chinese economy may disturb the whole world’s economy and destabilize world trade. Any such chaos may lead to political instability globally. There were clouds of destabilization due to ongoing Trade War between the two big economies and all other nations were worried about the future of their own economies.

China is an ancient civilization and has passed many ups and downs throughout the history and have become much matured nation. Chinese policy of “Peace and Development” is beauty of its century old wisdom. By nature, Chinese people wanted a smooth and frictionless society. Since the beginning of confrontation or trade war, Chinese side observed patience and always struggling to find a solution by talk or negotiation. Even China was not eager to impose any tariff on US goods, but lately reciprocated as a last option.

President Xi’s speech at summit was very comprehensive and very clear spelling out the responsibilities and consequences of any destabilization of global economy. He urged that on trade issues, the world should firstly stick to openness and free trade, maintain and further expand an open market, and realize win-win cooperation through mutual exchanges and complementarity. China is stick to opening its doors to rest of world and believe in globalization and follow the WTO as guidelines. Secondly, G20 should stick to inclusiveness, and bring the benefits of international trade and economic globalization to people of all countries and all classes, including the under developed, developing nations and especially the poor states. Thirdly, G20 should uphold rules-oriented spirit and nurture a stable and expectable institutional environment for the healthy development of international trade.

President Trump was also positive and cooperative. Finally China and the United States have agreed to halt additional tariffs as both countries engage in new trade negotiations with the goal of reaching an agreement within 90 days. The breakthrough came after a dinner meeting between President Donald Trump and Chinese leader Xi Jinping. Trump agreed not to boost tariffs on $200bn of Chinese goods to 25 percent on January 1 as previously announced, while Beijing agreed to buy an unspecified but “very substantial” amount of agricultural, energy, industrial and other products, the White House said in a statement.

Overall, G-20 final communique said the members reaffirm ‘commitment to further strengthening the global financial safety net with a strong, quota-based, and adequately resourced IMF at its centre’. Further added that international trade and investment are important engines of growth, productivity, innovation, job creation and development. Also note on current trade issues, reaffirms pledge to use all policy tools to achieve strong, sustainable, balanced and inclusive growth. The communique said the group will safeguard against downside risks, by stepping up our dialogue and actions to enhance confidence.

Overall the Summit was termed as a very successful one and hopes for stability in the global economy is obvious. Especially the developing countries and poor economies felt sigh a relief. Pakistan is also passing through its worst hit era of economic crisis and was struggling to revive its ill-economy. As the international environment may improve and there may exist a space for Pakistan to play smartly and re-gain its position in the global economies. Although, Pakistan possess a huge potential for rapid growth, because of its natural edge over its rich agriculture and tremendous natural resources in the form of Minerals and mines. Pakistan work force is also a positive factor with 70% of its population under the age of 40, are well qualified. The hindrance is only, corruption, nepotism and poor management. It is responsibility of Government to introduce reforms, friendly incentive based policies, and strict-merit based implementation.

It is believed that China-Pakistan economic Corridor (CPEC) will also prosper and will achieve its desired results. The cooperation between China and Pakistan will grow further in all walk of life and benefits the common people of both sides.

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The Myth of Capitalism-Book Review

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Many people have labeled communism as but a myth: an unattainable fantasy.  Jonathan Tepper and Denise Hearn (T&H) have, by contrast, written a new book called The myth of capitalism: Monopolies and the death of competition.  It contains a series of liberal and conservative critiques of the economic system of the US in particular and the West more generally.

T&H chronicle the decline of competitiveness in almost every sector of the US economy.  Most people in the mainstream media are drooling over the record highs being recorded on the stock market, but the book notes,  “Between 1996-2016, the number of stocks in the US fell by roughly 50%, from more than 7300 to fewer than 3600, while rising 50% in other developed nations.”  As T&H painstakingly explain by citing studies and charts, the US economy has been stagnant by most truly relevant metrics since the Reaganomics of the 1980s, such as R&D spending, company longevity, competitive consumer product prices and the number of annual startups.

The superficiality of the recent Wall St gains is enabled via trickery such as stock buybacks, oligopolistic mergers & lobbyist-sponsored deregulation and tax exemptions.  Such corruption used to be illegal, in pre- Reagan and Buckley v. Valeo America.  Teddy and Franklin Roosevelt both cracked down on monopolies like Standard Oil and the New York Central Railroad by enforcing the Sherman and Clayton Antitrust Acts.  Every president since Teddy, both Democrat and Republican, cracked down on potential monopolies until Reagan.  This helped prevent a market crash akin to those of 1907 and 1929, which were the direct result of laissez-faire capitalism.

Wide-scale mergers started occurring during the Reagan Administration and have only picked up steam ever since. Concerning our last president, T&H note that, “Obama talked tough on big business and Wall Street, but he raised as much money from them as possible and was arguably even more pro-merger than Bush.  His DOJ approved all the airline mergers, creating an oligopoly of four airlines… He allowed Google’s major acquisitions that vertically integrated parts of the ad industry… The FTC prevented Comcast from buying Time Warner in 2015 and AT&T from acquiring T-Mobile in 2011.  These were the only notable mergers Obama’s DOJ blocked.”

The book lists all of the industries that have effectively become oligopolies or even monopolies: search engines, beer, beverages, glasses, weapons, banks, telecommunications, social media, cell phone manufacturing, agriculture, airlines, pharmaceuticals, credit rating, tobacco, railroads, etc.  The consolidation of market share to a handful of billion-dollar companies has throttled the entry of new companies in our so-called Age of the Startup.  T&H write how Facebook has (after buying out Instagram) been able to devastate upstart platform Snapchat by mimicking all of Snapchat’s features.  Such treachery, combined with Facebook’s 2B+ user base, ensured Snapchat would end up in the financial spiral that’s it’s currently in.   This is but one example of how the post-merger era has sabotaged fresh competition.  The book relays this sobering stat: “In 1995, the top 100 companies accounted for 53% of all income from publicly traded firms, but by 2015, they captured a whopping 84% of all profits.”  After decades of decline, the number of new firm entries fell below the number of firm exits in 2013.  This decline in the number of startup innovators inevitably ends up hurting technological innovations.

The merger bonanza may be great for Wall St, but it’s horrible for Middle America.  For instance, T&H write, “When workers have fewer employers to choose from in their line of work, their bargaining power disappears.  Corporate giants can squeeze their suppliers, but the main thing companies buy is labor, and they have been squeezing workers.”  Thus, wages have struggled to keep up with inflation for decades.  Benefits are cut, while stock buybacks soar.  Unhappy workers in all but 3 states can be shackled to soul-sucking jobs via non-compete clauses.  Furthermore, “56% of private sector non-unionized workers are forced into mandatory arbitration and of those, 23% were also denied any access to class-action lawsuits. This means that nearly a quarter of working Americans in the private sector don’t have the basic right to sue their employer.”

Mergers aren’t good for consumers either, despite what the corporatist rhetoric will tell you.  T&Hgive countless examples of how industries became less innovative after drinking the Oligopoly Kool-Aid.  The lack of competition this environment leads to complacency and, thus, a lack of product innovation or even concern for customer service.  The book also reports that, “in mergers that led to 6 or fewer significant competitors, prices rose in nearly 95% of cases… On average, post-merger prices increased 4.3%.”  Industries from beer to pharmaceuticals are infamous for fixing prices, due to high barriers of entry for startups and tacit (and sometimes explicit) collusion.  According to the book’s data, the average specialty pharmaceutical medication cost jumped 217% from 2011-2015.  Unsurprising, when you consider that, “In 2017, drug makers paid for 882 lobbyists and spent more than $171.5M in an effort to oppose lower prescription drug prices.”

Ironically, lobbyists will argue that mergers lead to lower prices and greater innovation.  They make the dishonest argument that the goal of the antitrust acts was solely to help consumers.  In fact, the legislation never even mentioned consumer efficiency; the bills were all about breaking up the power of the trusts.  People like Teddy Roosevelt and Woodrow Wilson saw how monopolies exceeded government authority in many cases; a lack of government enforcement of industry ultimately led to the Great Depression and the resulting New Deal reformations.

In the era of the Too-Big-to-Fail banks and corporations, the lessons of The myth of capitalism are more important than ever. They expose the façade of the post-recession “economic recovery” for what it is: stock buybacks and mergers puffing up the economy.  Everyone and everything from workers, consumers, people with medical conditions, startups and the IRS suffer from the corruption of American capitalism.  Tepper and Hearn frame their central thesis with liberal ideals and arguments (protecting the consumer, income inequality, maintaining government independence from corporate influence), as well as conservative (market competitiveness, cutting red tape for small business, low consumer prices).  A lot is written about the thoughts of Hayek and Friedman, but also leftists like FDR and Marx.  The final chapter offers some solutions to the problems of our times, but they’re pretty predictable if you’ve been reading along the whole way.  Page after page of charts succinctly illustrate the points T&H make about trust-busting, the corrosiveness of the lobbyist class, the benefits of competitive markets, and livings standards for people on Main Street.  The myth of capitalism is a very readable, even-handed and informative primer for anyone questioning whether or not they’re being gas lighted by the nonstop barrage of praise for the economy by the oligopolistic mainstream media.

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The Single Market: Europe’s best asset in a changing world

MD Staff

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European Commission presents a fresh assessment of the situation in the Single Market and calls on Member States to renew their political commitment to the Single Market.

Over the last 25 years, the Single Market has made Europe one of the most attractive places to live and to do business. Its four indivisible freedoms – the free movement of people, goods, services and capital – have helped improve our citizens’ prosperity and strengthen the EU’s competitiveness. To exploit its full potential in the digital era and ensure sustainable growth of our economy, the Single Market needs to function properly and constantly evolve in a rapidly changing world. However, today, deeper integration requires more political courage and commitment than 25 years ago and greater efforts to close the gap between rhetoric and delivery.

Jyrki Katainen, Vice-President in charge of Jobs, Growth, Investment and Competitiveness, said: “Six months before the European elections, it is worth reminding Europeans about how the Single Market improves our daily lives and provides a unique springboard for our companies to innovate and expand their activities across borders. And to those tempted to draw up new barriers, let’s consider the bigger picture: in a world where multilateralism is being challenged, and where Europe’s competitors are growing faster both in terms of GDP and population, the Single Market is a unique asset to preserve and boost our continent’s standing, values and influence in the world.”

Elżbieta Bieńkowska, Commissioner for the Internal Market, Industry, Entrepreneurship and SMEs, added: “The Single Market means freedom, opportunity and prosperity. But for people, services, products and capital to circulate freely – physically or online – we need everybody in the EU to play by the commonly agreed rules. We need effective and consistent enforcement. And just as we are resisting protectionism outside the EU, we should resist fragmentation inside the EU. We need to continuously uphold our Single Market to preserve our best asset for future generations.”

The Commission highlights three main areas where further efforts are needed to deepen and strengthen the Single Market:

Swiftly adopt proposals on table: The Commission has presented 67 proposals directly relevant for the proper functioning of the Single Market, 44 of which remain to be agreed. The Commission calls on the European Parliament and the Council to adopt the key proposals on the table before the end of this legislature. This includes relevant proposals to integrate digitisation and new technologies at the core of the Single Market, to ensure more secure and sustainable energy in Europe, and to build the Capital Markets Union (see factsheet Overview of initiatives)

Ensure the rules deliver in practice: Citizens and businesses can only enjoy the many benefits of the Single Market (see factsheet on the Single Market) if the rules that have been jointly agreed actually work on the ground. The Commission calls on Member States to be vigilant in implementing, applying and enforcing EU rules and refrain from erecting new barriers. For its part, the Commission will continue to ensure respect of EU rules across the board, from car emissions to e-commerce, from social media to the services sector, and much more besides.

Continue adapting the Single Market: Faced with growth gradually slowing down at global level and a changing geopolitical context, the EU needs to show leadership and political courage to take the Single Market to a new level. There is significant potential for further economic integration in the areas of services, products, taxation and network industries. It will make the Union even more attractive to international trading partners and provide it with additional leverage on the international stage.

With this Communication, the Commission is providing a first response to an invitation by the European Council in March to present a state of play of the Single Market and an assessment of remaining barriers and opportunities for a fully functioning Single Market. It also invites the European Council to dedicate an in-depth discussion at Leaders’ level to the Single Market in all its dimensions to identify common priorities for action and appropriate mechanisms to match the much needed new political commitment to the Single Market with concrete delivery at all levels of governance.

The Commission is today also presenting an Action Plan on standardisation, which presents four key actions to increase the system’s efficiency, transparency and legal certainty.

Removing bottlenecks to stimulate investment in the Single Market is also one of the key objectives of the Commission’s Investment Plan, also known as the Juncker Plan. This is why today’s Communication on the Single Market goes hand in hand with the Communication taking stock of what has been achieved under the Juncker Plan also published today.

Background

The Single Market allows Europeans to travel freely, study, work, live and fall in love across borders. They have a great choice of products – whether buying at home or cross-border – -and benefit from better prices as well as high standards of environmental, social and consumer protection. European businesses – small and large– can expand their customer base and exchange products and services more easily across the EU. Simply put, the Single Market is Europe’s best asset to generate growth and foster competitiveness of European companies in globalised markets.

With the Single Market Strategy, the Capital Markets Union and the Digital Single Market Strategy, the Commission has put forward an ambitious and balanced set of measures over the last four years to deepen the Single Market further and make it fairer. Several proposals have already been adopted, but the European Parliament and the Council still have to agree on 44 out of the 67 proposals set out in these strategies. The Commission has also made important and forward-looking proposals to build a Banking Union in Europe as well as strengthen the circular economy, energy, transport and climate policies which will deepen the Single Market and foster sustainable development. To ensure that the Single Market remains fair, the Commission has proposed safeguards in the fields of employment, taxation, company law and consumer protection.

For the next long-term EU budget 2021-2027, the Commission has proposed a new, dedicated €4 billion Single Market programme, to empower and protect consumers and enable Europe’s many small and medium-sized enterprises (SMEs) to take full advantage of a well-functioning Single Market.

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