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Russia: Time to Finance Infrastructure and Investment Projects in Africa

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Over the past few years, Russian companies have shown an increasing interest towards investment and preparedness to compete with other foreign players in Africa, but they have also complained bitterly of lack of state financial support and investment credit guarantees from policy banks and money-lending institutions.

China, India and Japan, and more recently the United States have provided funds to support companies ready to carry out projects in various sectors in African countries.

This situation has sparked discussions among policy experts. For instance, Dr Martyn Davies, Chief Executive Officer of the South African based Frontier Advisory (Pty) Ltd, does not think that the Chinese model of financing various infrastructure and construction projects in Africa is replicable considering the current structure/nature of the Chinese policy banking system, adding that Russia’s banking sector operates quite differently.

There are now approximately 50 leading Chinese state-owned enterprises that are all Fortune 500 firms that are present in Africa, with the majority of these active in infrastructure and construction in Africa, he explained to Buziness Africa.

Explaining further, he said although the rapidity of and pervasiveness of their market entry into Africa has taken many by surprise, and the main factor that has assisted this speedy market engagement was that the projects were largely “de-risked” from a financial perspective.

Arguably the single greatest risk of contracting (with governments) in Africa is ultimately getting paid. In the case of the Chinese contracted projects, the Chinese state’s so-called policy banks have provided finance and have underwritten the infrastructure roll-out very often supported by sovereign guarantees from the recipient African state. No other (even development) banks have been willing to absorb such financial risks on infrastructure projects in Africa. This accounts for China’s “success” in building infrastructure in Africa in recent years, according to the academic professor.

“It is almost impossible for the model to be replicated in a true commercial sense. The only likelihood of similar financial structures arising is in the case of tied-aid for commercial purposes. I would argue that the strategy of China Inc. is resulting in a rethinking of how aid/developmental capital is being allocated or spent in Africa by other partners. This is especially the case with Japanese aid to Africa, with the Fifth Tokyo International Conference on African Development (TICAD) meeting and the commercial outcomes from it evidence of this,” Davies concluded assertively.

When the former Chinese President Hu Jintao delivered a speech at the opening ceremony of the Fifth Ministerial Conference of the Forum on China-Africa Cooperation (FOCAC), he indicated explicitly that “China will expand cooperation in investment and financing to support sustainable development in Africa. China provided $20 billion dollars of credit line to African countries to assist them in developing infrastructure, agriculture, manufacturing and small and medium-sized enterprises.”

Japan made a five-year commitment of $32 billion dollars in public and private funding to Africa, and the money to be used in areas prioritized as necessary for growth by the Fifth Tokyo International Conference on African Development (TICAD).

Japan’s new pledge is nearly four times larger than its last commitment to the group. The plan of action is ambitious. Japanese funds will help in a number of areas, including trade, infrastructure, private sector development, health and education, good governance and food production

Suffice to say that the United States, Britain, Brazil and India have followed concretely Chinese footsteps with financial commitment towards sustainable development projects in Africa. These steps have, indeed, made competition keen for bidding for available infrastructural projects on the continent.

During the official working meeting with Barack Obama, South African President Jacob Zuma told his colleague: “The United States’ strategy towards sub-Saharan Africa that you launched is well-timed to take advantage of this growing market. We look forward to strengthening the US-Africa partnership and we are pleased with the growing bilateral trade and investment.”

For example, there are 600 US companies operating in South Africa which have created in excess 150,000 jobs for local people. Many experts still believe that Russian authorities have to provide incentives.

Charles Robertson, Global Chief Economist at Renaissance Capital, thinks that the major problem is incentives. China has two major incentives to invest in Africa. First, China needs to buy resources, while Russia does not. Second, Chinese exports are suitable for Africa – whether it is textiles or iPads, goods made in China can be sold in Africa. Russia exports little except oil and has (roughly 2/3 of exports), steel and metals (which is either not cost effective to sell in Africa, or again is the same as Africa is selling) and military weapons.

“Most importantly, Chinese firms see African growth as benefiting China, while Russia has less to gain from this. There is little incentive for Russian firms to operate in Africa…though Renaissance Capital sees opportunities, as does Rusal, and a few others. The problem is not investment credits or guarantees,” Robertson pointed out.

In his objective views, Russia has a northern hemisphere focus. And that explains why Russia has shown low financial commitment in its foregn policy implementation in Africa as compared to countries such as Japan, India and China.

According to Jimmy Saruchera, a Director at Schmooze Frontier Markets, an investment fund that works to support small-and-medium sized businesses in new emerging markets, suggested that both Russia and Africa needed work on a good trade policy, stable and transparent institutions are the fundamental ingredients, then tools such as credits and export guarantees can be more effective.

Dr Scott Firsing, a visiting Bradlow fellow at the South African Institute for International Affairs (SAIIA) and a senior lecturer in international studies at Monash University in Johannesburg, said “the absence of export credit guarantees can be a real obstacle to some in countries such as Russia because there are businesses and policy holders that look for these guarantees to help alleviate the fear of doing business in high risk markets like Africa.”

Export credit guarantees show the exporter protection against the main risks, which include political and commercial risks, in places such as Africa. This has been very successful for countries like South Africa, which even manage to stockpile cash over time due to the premiums being more than the payouts. Moreover, one can deduce that without such cover or this ‘safety net’, South African companies might have never taken such risks or would have been unable to bid or win contracts in developing economics, according to his explanation to Buziness Africa.

“I would suggest such a move that Russia has to design a policy strategy. One of China’s policy banks, the Chinese Development Bank (CDB) is the country’s largest lender for funding acquisitions and investments overseas, totaling more than its four main commericial banks. This has helped expand the overseas presence of Chinese companies like ZTE Corp and Huawei that wouldn’t have been previously unlikely without the assistance from such a policy bank,” he added.

According to Dr Firsing: a similar statement can be made of the importance of American institutions like their Export-Import Bank that supports American companies and their expansion into African markets. Obama’s latest African Power Initiative sees the Export-Import Bank granting up to US$5 billion in support of U.S. exports for the development of power projects across sub-Saharan Africa. Russia can learn a lot from the approach of these countries.

Professor David H. Shinn, an Adjunct Professor at the Elliott School of International Affairs George, Washington University, suspects that Russia’s problem goes well beyond investment credits and export credit guarantees. Just look at Russian trade with Africa. It is embarrassingly low. Turkey has twice as much trade with Africa as Russia. Most Russian investment in Africa goes into large energy and mineral projects. China is investing in just about everything.

Professor Shinn, who was a former U.S. ambassador to Ethiopia (1996-99) and Burkina Faso (1987-90), wrote in an email interview to Buziness Africa, that lack of or weakness of Russian government incentives for investing outside Russia seems to be the significant part of its African policy problem, that compared, China does a lot of project financing in Africa.

He argued that western countries are also at a disadvantage because there is much more separation between the government and the private sector and there is no equivalent government state-owned sector, at least, not in the United States. Most Chinese investment in Africa occurs with the large state-owned companies, which work closely with the government. President Barack Obama recently tried to energize the US private sector in Africa during his recent visit, especially with the Power Africa initiative.

Interestingly, Russian policy experts have repeatedly called for state support for corporate investment initiatives as well as helping systematically private entrepreneurs to make strong strategic inroads into mutually viable investment sectors and to raise economic presence in Africa.

“Until recently, Africa was poorly represented in macro-economic forecasting and research, especially in terms of Russian-African relations,” wrote Professor Aleksei Vasiliev and Evgeny Korendiasov both from the Russian Academy of Sciences, Institute of African Studies (IAS). Vasiliev is the current Director of the IAS and former Special Presidential Envoy to African Countries while Korendiasov retired Russian Ambassador and now the Head of the Department for Russian-African Research at the IAS.

They both authored an article published in June that Russia has officially declared promoting relations with Africa a priority goal. Assurances made by Russian officials in their statements that Africa is “in the mainstream of Russia’s foreign policy” have not been substantiated by systematic practical activities, and the development of relations between Russia and Africa has so far nothing to boast about.

According to the academic researchers, currently the scope for Russian-African partnership is significantly expanding and of the 48 countries in Sub-Saharan Africa, Western experts consider 24 to be democratic countries.They both argued that “through large-scale and purposeful participation in the international development assistance, Russia strives to advance its foreign policy priorities and strengthen the positions of Russian business in the African economic space.”

But, they pointed out unreservedly that the situation in Russian-African foreign trade will change for the better, if Russian industry undergoes technological modernization, the state provides Russian businessmen systematic and meaningful support, and small and medium businesses receive wider access to foreign economic cooperation with Africa.

Among other policy recommendations, they stressed “defining clear guidelines and priorities of Russian policy towards Africa, creating conditions for the promotion of Russian goods and investments in African markets, setting up mechanisms of financial support by the state of export and investment projects which is a compulsory condition for successful Russian business activity on the African continent and introducing tariff preferences for trade with African partners.”

MD Africa Editor 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

The Blazing Revival of Bitcoin: BITO ETF Debuts as the Second-Highest Traded Fund

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It seems like bitcoin is as resilient as a relentless pandemic: persistent and refusing to stay down. Not long ago, the crypto-giant lost more than half of its valuation in the aftermath of a brutal crackdown by China. Coupled with pessimism reflected by influencers like Elon Musk, the bitcoin plummeted from the all-time high valuation of $64,888.99 to flirt around the $30,000 mark in mere weeks. However, over the course of the last four months, the behemoth of the crypto-market gradually climbed to reclaim its supremacy. Today, weaving through national acceptance to market recognition, bitcoin could be the gateway to normalizing the elusive crypto-world in the traditional global markets: particularly the United States.

The recent bullish development is the launch of the ProShares Bitcoin Strategy ETF – the first Bitcoin-linked exchange-traded fund – on the New York Stock Exchange. Trading under the ticker BITO, the Bitcoin ETF welcomed a robust trading day: rising 4.9% to $41.94. According to the data compiled by Bloomberg, BITO’s debut marked it as the second-highest traded fund, behind BlackRock’s Carbon fund, for the first day of trading. With a turnover of almost $1 billion, the listing of BITO highlighted the demand for reliable investment in bitcoin in the US market. According to estimates on Tuesday, More than 24 million shares changed hands while BITO was one of the most-bought assets on Fidelity’s platform with more than 8,800 buy orders.

The bitcoin continued to rally, cruising over the lucrative launch of BITO. The digital currency rose to $64,309.33 on Tuesday: less than 1% below the all-time high valuation. In hindsight, the recovery seems commendable. The growing acceptance, albeit, has far more consequential attributes. The cardinal benefit is apparent: evidence of gradual acceptance by regulators. “The launch of ProShares’ bitcoin ETF on the NYSE provides the validation that some investors need to consider adding BTC to their portfolio,” stated Hong Fang, CEO of Okcoin. In simpler terms, not only would the listing allow relief to the crypto loyalists (solidifying their belief in the currency), but it would also embolden investors on the sidelines who have long been deterred by regulatory uncertainty. Thus, bringing larger, more rooted institutional investors into the crypto market: along with a surge of capital.

However, the surging acceptance may be diluting the rudimentary phenomenon of bitcoin. While retail investors would continue to participate in the notorious game of speculation via trading bitcoin, the opportunity to gain indirect exposure to bitcoin could divert the risk-averse investors. It means many loyalists could retract and direct towards BITO and other imminent bitcoin-linked ETFs instead of setting up a digital custodianship. Ultimately, it boils down to Bitcoin ETFs being managed by third parties instead of the investor: relenting control to a centralized figure. Moreover, with growing scrutiny under the eye of SECP, the steps vaguely intimate a transition to harness the market instead of liberalizing it: quiet oxymoronic to the entire decentralized model of cryptocurrencies.

Nonetheless, the listing of BITO is an optimistic development that would draw skeptics to at least observe the rampant popularity of the asset class. While the options on BITO are expected to begin trading on the NYSE Arca Options and NYSE American Options exchanges on Wednesday, other futures-based Bitcoin ETFs are on the cards. The surging popularity (and reluctant acceptance) amid tightening regulation could prove a turn of an era for the US capital markets. However, as some critics have cited, BITO is not a spot-based ETF and is instead linked to futures contracts. Thus, the restrain is still present as the regulators do not want a repeat of the financial crisis. Nevertheless, bitcoin has proved its deterrence in the face of skepticism. And if the BITO launch is to be marveled at, then the regulations are bound to adapt to the revolution that is unraveling in the modern financial reality.

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Is Myanmar an ethical minefield for multinational corporations?

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Business at a crossroads

Political reforms in Myanmar started in November 2010 followed by the release of the opposition leader, Aung San Suu Kyi, and ended by the coup d’état in February 2021. Business empire run by the military generals thanks to the fruitful benefits of democratic transition during the last decade will come to an end with the return of trade and diplomatic sanctions from the western countries – United States (US) and members of European Union (EU).  US and EU align with other major international partners quickly responded and imposed sanctions over the military’s takeover and subsequent repression in Myanmar. These measures targeted not only the conglomerates of the military generals  but also the individuals who have been appointed in the authority positions and supporting the military regime.

However, the generals and their cronies own the majority of economic power both in strategic sectors ranging from telecommunication to oil & gas and in non-strategic commodity sectors such as food and beverages, construction materials, and the list goes on. It is a tall order for the investors to do business by avoiding this lucrative network of the military across the country. After the coup, it raises the most puzzling issue to investors and corporate giants in this natural resource-rich country, “Should I stay or Should I go?”

Crimes against humanity

For most of the people in the country, war crimes and atrocities committed by the military are nothing new. For instances, in 1988, student activists led a political movement and tried to bring an end to the military regime of the general Ne Win. This movement sparked a fire and grew into a nationwide uprising in a very short period but the military used lethal force and slaughtered thousands of civilian protestors including medical doctors, religious figures, student leaders, etc. A few months later, the public had no better options than being silenced under barbaric torture and lawless killings of the regime.

In 2007, there was another major protest called ‘Saffron Uprising’ against the military regime led by the Buddhist monks. It was actually the biggest pro-democracy movement since 1988 and the atmosphere of the demonstration was rather peaceful and non-violent before the military opened live ammunitions towards the crowd full of monks. Everything was in chaos for a couple of months but it ended as usual.

In 2017, the entire world witnessed one of the most tragic events in Myanmar – Again!. The reports published by the UN stated that hundreds of civilians were killed, dozens of villages were burnt down, and over 700,000 people including the majority of Rohingya were displaced to neighboring countries because of the atrocities committed by the military in the western border of the country. After four years passed, the repatriation process and the safety return of these refugees to their places of origin are yet unknown. Most importantly, there is no legal punishment for those who committed and there is no transitional justice for those who suffered in the aforementioned examples of brutalities.

The vicious circle repeated in 2021. With the economy in free fall and the deadliest virus at doorsteps, the people are still unbowed by the oppression of the junta and continue demanding the restoration of democracy and justice. To date, Assistant Association for Political Prisoner (AAPP) reported that due to practicing the rights to expression, 1178 civilians were killed and 7355 were arrested, charged or sentenced by the military junta. Unfortunately, the numbers are still increasing.

Call for economic disengagement

In 2019, the economic interests of the military were disclosed by the report of UN Fact-Finding Mission in which Myanmar Economic Corporation (MEC) and Myanmar Economic Holding Limited (MEHL) were described as the prominent entities controlled by the military profitable through the almost-monopoly market in real estate, insurance, health care, manufacturing, extractive industry and telecommunication. It also mentioned the list of foreign businesses in partnership with the military-linked activities which includes Adani (India), Kirin Holdings (Japan), Posco Steel (South Korea), Infosys (India) and Universal Apparel (Hong Kong).

Moreover, Justice for Myanmar, a non-profit watchdog organization, revealed the specific facts and figures on how the billions of revenues has been pouring into the pockets of the high-ranked officers in the military in 2021. Myanmar Oil & Gas Enterprise (MOGE), an another military-controlled authority body, is the key player handling the financial transactions, profit sharing, and contractual agreements with the international counterparts including Total (France), Chevron (US), PTTEP (Thailand), Petronas (Malaysia), and Posco (South Korea) in natural gas projects. It is also estimated that the military will enjoy 1.5 billion USD from these energy giants in 2022.

Additionally, data shows that the corporate businesses currently operating in Myanmar has been enriching the conglomerates of the generals and their cronies as a proof to the ongoing debate among the public and scholars, “Do sanctions actually work?” Some critics stressed that sanctions alone might be difficult to pressure the junta without any collaborative actions from Moscow and Beijing, the longstanding allies of the military. Recent bilateral visits and arm deals between Nay Pyi Taw and Moscow dimmed the hope of the people in Myanmar. It is now crystal clear that the Burmese military never had an intention to use the money from multinational corporations for benefits of its citizens, but instead for buying weapons, building up military academies, and sending scholars to Russia to learn about military technology. In March 2021, the International Fact Finding Mission to Myanmar reiterated its recommendation for the complete economic disengagement as a response to the coup, “No business enterprise active in Myanmar or trading with or investing in businesses in Myanmar should enter into an economic or financial relationship with the security forces of Myanmar, in particular the Tatmadaw [the military], or any enterprise owned or controlled by them or their individual members…”

Blood money and ethical dilemma

In the previous military regime until 2009, the US, UK and other democratic champion countries imposed strict economic and diplomatic sanctions on Myanmar while maintaining ‘carrot and stick’ approach against the geopolitical dominance of China. Even so, energy giants such as Total (France) and Chevron (US), and other ‘low-profile’ companies from ASEAN succeeded in running their operations in Myanmar, let alone the nakedly abuses of its natural resources by China. Doing business in this country at the time of injustice is an ethical question to corporate businesses but most of them seems to prefer maximizing the wealth of their shareholders to the freedom of its bottom millions in poverty.

But there are also companies not hesitating to do something right by showing their willingness not to be a part of human right violations of the regime. For example, Australian mining company, Woodside, decided not to proceed further operations, and ‘get off the fence’ on Myanmar by mentioning that the possibility of complete economical disengagement has been under review. A breaking news in July, 2021  that surprised everyone was the exit of Telenor Myanmar – one of four current telecom operators in the country. The CEO of the Norwegian company announced that the business had been sold to M1 Group, a Lebanese investment firm, due to the declining sales and ongoing political situations compromising its basic principles of human rights and workplace safety.

In fact, cutting off the economic ties with the junta and introducing a unified, complete economic disengagement become a matter of necessity to end the consistent suffering of the people of Myanmar. Otherwise, no one can blame the people for presuming that international community is just taking a moral high ground without any genuine desire to support the fight for freedom and pro-democracy movement.

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The Covid After-Effects and the Looming Skills Shortage

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coronavirus people

The shock of the pandemic is changing the ways in which we think about the world and in which we analyze the future trajectories of development. The persistence of the Covid pandemic will likely accentuate this transformation and the prominence of the “green agenda” this year is just one of the facets of these changes. Market research as well as the numerous think-tanks will be accordingly re-calibrating the time horizons and the main themes of analysis. Greater attention to longer risks and fragilities is likely to take on greater prominence, with particular scrutiny being accorded to high-impact risk factors that have a non-negligible probability of materializing in the medium- to long-term. Apart from the risks of global warming other key risk factors involve the rising labour shortages, most notably in areas pertaining to human capital development.

The impact of the Covid pandemic on the labour market will have long-term implications, with “hysteresis effects” observed in both highly skilled and low-income tiers of the labour market. One of the most significant factors affecting the global labour market was the reduction in migration flows, which resulted in the exacerbation of labour shortages across the major migrant recipient countries, such as Russia. There was also a notable blow delivered by the pandemic to the spheres of human capital development such as education and healthcare, which in turn exacerbated the imbalances and shortages in these areas. In particular, according to the estimates of the World Health Organization (WHO) shortages can mount up to 9.9 million physicians, nurses and midwives globally by 2030.

In Europe, although the number of physicians and nurses has increased in general in the region by approximately 10% over the past 10 years, this increase appears to be insufficient to cover the needs of ageing populations. At the same time the WHO points to sizeable inequalities in the availability of physicians and nurses between countries, whereby there are 5 times more doctors in some countries than in others. The situation with regard to nurses is even more acute, as data show that some countries have 9 times fewer nurses than others.

In the US substantial labour shortages in the healthcare sector are also expected, with anti-crisis measures falling short of substantially reversing the ailments in the national healthcare system. In particular, data published by the AAMC (Association of American Medical Colleges), suggests that the United States could see an estimated shortage of between 37,800 and 124,000 physicians by 2034, including shortfalls in both primary and specialty care.

The blows sustained by global education from the pandemic were no less formidable. These affected first and foremost the youngest generation of the globe – according to UNESCO, “more than 1.5 billion students and youth across the planet are or have been affected by school and university closures due to the COVID-19 pandemic”. On top of the adverse effects on the younger generation (see Box 1), there is also the widening “teachers gap”, namely a worldwide shortage of well-trained teachers. According to the UNESCO Institute for Statistics (UIS), “69 million teachers must be recruited to achieve universal primary and secondary education by 2030”.

From our partner RIAC

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