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Assessing Russia’s Relationship With Africa

Kester Kenn Klomegah

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Over the past two decades, Russia’s efforts to regain its Soviet-era influence in Africa have achieved little success because “times have changed significantly, for example, a new economic and political environment, new emerging challenges, new competitive conditions and new bases for cooperation,” according to Nataliya Zaiser, a Public Policy Advisor at Squire Patton Boggs Moscow office covering Russia, the Eurasian Union and Africa, and also the Chair (Head) of the Africa Business Initiative.

Since March 2016, Zaiser has been the Chair (Head) of Africa Business Initiative (ABI), created with the support of Russian businesses as a platform for the humanitarian, economic and legal expertise, aimed at strengthening relations between Russia and Africa. The main goal of this organization – to unite the efforts in promoting and supporting the interests of Russian businesses within the framework of broader international cooperation on the territory of the African continent.

In this exclusive interview, Nataliya Zaiser explains some of the aspects of the current Russia-African relations, problems and challenges, and its future perspectives.

As one of the participants at the St. Petersburg International Economic Forum (SPIEF) held from June 16 to 18, what were some of the significant questions raised during the Roundtable discussions on Russia and Africa?

The round table was very interesting. Both sides (Russian and African) demonstrated a strong desire for cooperation. We talked about some specifics: about the main economic sectors that various African countries are interested in most; about business diversification away from a focus on mining and oil and gas towards infrastructure projects, telecommunications and biotechnologies.

We spoke on the need to encourage the participation of small and medium size businesses in Africa; on bilateral cooperation; on the importance of the legal aspects of all these and on improving the system of legal regulation of projects, from customs and tax matters to the export licenses. The panelists also touched on enhancing cooperation with Africa in the global fight against drugs and epidemiological diseases, and combating terrorism. We listened to the companies that are active and successful on the continent; they shared some of their experiences, particularly good practice in building business relationships.

Why Russia’s efforts to regain its economic influence have achieved little success, why soft power is softer than Soviet days?

We should not say whether the power is “softer” or “harder” than in the days of the Soviet Union. It’s just different. Times have changed significantly. New economic and political environment, new challenges, new competitive conditions, new bases for cooperation. People are different, minds are different, technologies are different. In all that, we have to find absolutely different approaches and strategies to building business relationships. What remains the same is a will, a very loyal mutual attitude between Russia and African countries and strong desire to push forward these mutual efforts.

In your expert view, looking at Russia’s economic power, its global status and as a staunch member of BRICS bloc, how would you assess its current investment and business engagement with Africa?

Many organizations are trying to solve local problems and find ways for business cooperation with the African continent. The issue of investment looms, perhaps, particularly large. I think that in cooperating with African states, organizations can be guided by an approach of shared responsibility, including the financial aspects. Russia is clearly showing that open partnership with and support of Africa remains a priority. In the current conditions, it will seek ways of co-financing, co-investment and co-partnership. There may also be opportunities too for international partnerships, whether BRICS or any other groupings, formal or otherwise, on African projects.

Some policy experts have attributed Russia’s economic policy setbacks to the lack of a system of projects and business financing. For instance, China has set up China Africa Development Fund as one major source of support and implementing its projects in Africa. What are your views about this?

Russia has developed a number of business councils for cooperation both with individual African countries as well as with its own regions and neighbours. For Africa in particular, the Africa Business Initiative (ABI) offers the chance of a consolidated approach, and an independent organization that can work with the business community in Russia and at the same time combine the interests of the diplomatic community, the state, academic views and so forth.

At this stage when Russia is feverishly struggling to raise its economic profile through dialogues and consultations at the state level, do you suggest that Russia’s financial institutions, especially the banks, get involved in financing corporate projects on the continent?

Investors and lenders today understand the potential benefits of investing in emerging markets like African countries. They also understand the critical importance of addressing the political and economic risks that may accompany an investment in such markets. This is the work, which needs to be carried out. MIGA (Multilateral Investment Guarantee Agency) is one of the biggest international organizations, for example, that helps investors and lenders to deal with such risks by insuring eligible projects against losses.

In Russia, there is EXIAR (The Russian Agency for Export Credit and Investment Insurance) which was established in late 2011 as Russia’s first ever export credit agency. I am sure it has big potential and expect that they will look closely at African projects to support Russian business and guarantee the insurance and safety of their investments. In any case, for a start, it is important that Russia becomes a member or starts cooperation with key major African organizations, such as the African Development Bank, the African Union, the NEPAD, etc. That will significantly extend the boundaries for Russian-African business opportunities.

We have been talking about economic diplomacy between Russia and Africa. And it’s also important to look at the relations as a two-way road. Could you please explain the possible reasons why Africa business is extremely low or completely absent, compared to Asian countries, in the Russian Federation?

This is a good question that I want to address to you as the representative of the African diaspora (smiles). Of course, this is a bilateral cooperation. Russia is open. Africa has much to offer Russia, which is a large country and has excellent prospects in the regions, many of which are developing very rapidly and are ready to accept new partnerships, and discuss forms of cooperation. Moreover, Russian regions are facing similar problems with several African countries: the development of the agricultural sector, technological investment and progress which will support a rise in the standard of living of the population. There is a good case for creating a specific program (a roadmap if you will) for cooperation between African countries and the Russian regions.

As an expert with the reputable U.S. law firm, what would you say about the prospects of Eurasian Economic Community (Russia, Belarus, Kazakhstan, Armenia and Kyrgyzstan). Explain further what African countries can make out of this economic bloc.

There’s often a compelling case for neighbouring countries to get together and engage in some kind of union because it can facilitate and stimulate trade relations, reducing barriers without overloading them with tax and customs issues, bureaucratic procedures and other things that may mitigate mutual economic progress. I am sure Africa will take an active part in working with the Eurasian Union as with other international or supra-national organizations and alliances because this kind of cooperation opens the gates to wider initiatives.

Of course, as a global firm our trade practice in particular is a leading advisor on international economic and commercial initiatives – the Transatlantic Trade and Investment Partnership and Trans-Pacific Partnership are two obvious ones that spring to mind. Squire Patton Boggs works globally, with a powerful geographic reach of 46 offices in 21 countries. We advise clients on a wide range of legal and public policy matters.

As for Africa, by the way, we have a dedicated Africa Practice inside the firm which involves numerous specialist teams and industry groups and individual lawyers and public policy advisors who actively work with clients across the continent. With an understanding of key legal, economic and political issues that surround doing business in Africa we have established ourselves as a premier firm for Africa-based transactions offering in-depth market knowledge, extensive experience and unique transactional and public policy combination that helps companies to achieve their African business strategies.

Finally, tell us more about the newly created Africa Business Initiative (ABI), why it has become necessary at this time, its primary roles or tasks and its overall future plans?

The Africa Business Initiative (ABI) was launched and initiated primarily by businesses in Russia. The concept behind this is to develop a focal point for the promotion of business interests which would consolidate the efforts of existing structures: the diplomats, scientists, academics, consultants and so on. The key participation of Russia’s Institute for African Studies, as a serious platform for research, analysis and database, means that we can add significant insight to the actual experience of corporations that are successfully working on the ground.

The main goal is to create a pool of economic expertise aimed at revitalizing the “chemistry” in African-Russian business relationships. It has been widely acknowledged many times that Africa is on the path towards economic prosperity. The economies of many African states are becoming more balanced and there have been a lot of institutional transformations. We need to fundamentally accelerate the approach, backed by a program of long-term trade, geo-economic relations and strategy that would keep pace with the ambitions of individual states. What African continent needs now is the broad development of infrastructure, agriculture, consumer goods, health care and information technology.

The Africa Business Initiative (ABI) can help outline an approach for Russian companies to come to the African market as a whole, as reliable business partners. Through this framework, it will be able to consolidate the interests of companies in different sectors; to address and promote the development of a common position on a whole range of issues; to establish joint strategic initiatives and to expand its presence in the investment field. The task is not to duplicate or simulate the activity of state bodies.

The participation of and partnership with the Institute for African Studies is very important. Historically, the Institute has been and remains the alma mater for many Africans. It has the most powerful research base in Russia, a deep knowledge about developments on the continent. Education and increasing awareness among Russian businesses is key. To understand the features of successful business in Africa, people should be well-versed in the social and political organization of all African countries, especially in their internal relationships, geographical peculiarities, and culture, in legislation, public administration, and so on.

The role of the Institute, as a partner to Africa Business Initiative (ABI), is to provide maximum assistance. Good knowledge of the legal field, regulation, competent interaction with decision-makers and government structures of African states – all these constitute the key to a mutually beneficial and balanced cooperation. The international experience and global presence of the Squire Patton Boggs, which is also one of the members of the Africa Business Initiative (ABI), allows us to assist businesses in the broader international cooperation, involving foreign colleagues and contacts that are interested in doing business in Africa.

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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Losing The Battle: How China is Outperforming the USA in Sub-Saharan Africa

Henry Hama

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Under what conditions could the United States regain its position of strategic dominance in sub-Saharan Africa (SSA) despite increasingly reduced economic support programs as well as a limited-to-no Foreign Military Financing (FMF) grants? With the expansion of China’s economic and military cooperation activities across SSA in the last decade, the United States is increasingly becoming unpopular to much of the region. It is imperative to comprehend that China did not emerge accidentally as a global economic contender. When the United States was engaged in the “Global War Against Terror (GWAT),” following the September 11, 2001 (9/11) terrorist attacks, much of its focus was in Southwest Asia and the Middle East. Most of the West, and particularly the United States, thought SSA countries had never been strategically important enough to make the priority list of geopolitically important countries. Historically, only a handful of African countries mattered to the United States: countries such as Morocco remained important due to military and commercial vessels traversing the Straits of Gibraltar into the Alboran Sea; likewise, Egypt mattered due to the Suez Canal and the Red Sea; additionally, Djibouti has also been an important country due to the Bab al-Mandab Strait. It is reasonable to assess that the United States prioritized these countries due to their proximity to those global choke points, but they still did not constitute a serious prioritization on the part of America.

Over the past half century, following their independence from colonial powers, much of SSA has been ruled by state actors who were predominantly rent-seeking and authoritarian. This is particularly important as it demonstrates the ease with which China ventured onto the African continent and immediately established engaged relations. In an effort to satisfy its need for raw materials due to its exponential population growth and scarcity of indigenous materials, China capitalized on opportunities to perform transactional economic activities while forging new relationships and partnerships across SSA.  For many years the United States underestimated China as a potential economic competitor to reckon with, especially across Sub-Saharan Africa.  China’s economic capacity grew though “race to the bottom” approaches, whereby China flooded African and other world markets with cheaper products, taking away competitive advantage from local businesses. Additionally, while the United States was consumed with fighting two wars in Afghanistan and Iraq post-9/11, China was expanding its economic operations and military cooperation activities across SSA. Even then the US underestimated this new development in global activity, as it saw China’s expansion as unsustainable as well as an insignificant maneuver. The United States was content with its aid packages to SSA, which accounted for less than one percent of America’s Gross Domestic Product (GDP),in addition to HIV/AIDS relief programs. Unfortunately for the US, it became quickly seen at the local level that those aid packages could not come close to the stimulus investment/trade transactions China was conducting throughout SSA.

At first glance, SSA countries viewed China’s activities on the continent as primarily humanitarian in nature. In her book entitled Dead Aid, Dr. Dambisa Moyo stated that China’s African role was wider, more sophisticated, and more business-like than any other country at any time in the post-war period.  She later recanted those statements after realizing that China was in Africa to compete and not necessarily to provide humanitarian assistance. During the initial stages of China’s movement into SSA, the focus was mostly economic and infrastructure development that was also in support of China’s own domestic economic objectives. These moves are seen through China’s development of road and rail networks, which then feed into several air and seaports across the continent to ease the movement of goods inland to seas and airports across SSA. While that was ongoing, China opened its first military naval base abroad in Djibouti, a small but strategically relevant country of 800,000 inhabitants.  Djibouti is also home to several other foreign military bases abroad, including the United States, with approximately 4,500 personnel stationed at Camp Lemonnier, the Combined Joint Task Force Horn of Africa (CJTF-HOA). Other bases include those of the Japanese, Italian, Spanish, and French militaries.

China provides countries in SSA with suitable capital goods and cheap consumer goods, while those countries supply China with the commodities it needs to fuel its continued economic expansion, such as oil, iron ore, cotton, diamonds and timber. The relationship is complementary because both China and SSA gain from the mutual exchanges. The negative aspect, however, is China’s ability to undercut the market for locally-owned small businesses. China is causing a massive economic imbalance in these countries. For example, oil exports to China account for 86 to 100 percent of all oil exports from Angola, Sudan, Nigeria, and Congo. According to Kaplinsky, SSA’s exports to China were less than one percent of its exports to industrialized countries in 1990; by 2006,the same exports had risen to 11 percent.

Along with the surge in trade, China’s foreign direct investment (FDI) has increased exponentially in SSA due to resource and market considerations. The negative impacts of globalization, trade tariffs, and economic structural adjustment programs (ESAP) set by the International Monetary Fund (IMF) on indebted countries in SSA, have prompted many of these developing countries to enter into bilateral agreements with China in order to lessen their hardships. Most of the Chinese FDI in SSA are from companies that are government-owned.  Chinese FDI in SSA is higher than anywhere else in the world; it increased significantly from approximately $20 million per year in the 1990s to over $25billion by 2013. As one travels through SSA, there is high visibility of Chinese infrastructural development projects, which makes it difficult to differentiate FDI from aid.  While the United States is mostly focused on counter-terrorism initiatives and military capacity-building across SSA to counter violent extremism, neglecting economic development and self-sustenance capacity-building in the region basically reverses those former efforts. This is where China exploits the opportunity to address those American shortfalls: its activities in SSA create suitable conditions to be SSA’s preferred partner of choice over the United States.

Formal aid connections between China and SSA were initiated through the Bandung Conference in 1955. However, in October 2000, during the Forum on China-Africa Cooperation (FOCAC) in Beijing, there were agreements to enhance cooperation between China and financial institutions in Africa.  It was also during the FOCAC that China expressed its willingness to reduce Africa’s debt burden, promote investment, and assist in the development of human resources in Africa.    The superb new African Union (AU) Conference and Office Complex built by the Chinese government in Addis Ababa, Ethiopia, free of charge to the AU, demonstrates real partnership between Africa and China.  Within the past decade, China has committed over $75 billion in aid and development projects throughout Africa. Some International Relations analysts argue that beyond the need for natural resources, China’s infrastructural development projects in SSA – trade, FDI, debt relief, and the provision of medical support – are all part of China’s public diplomacy strategy to build up goodwill and international support for the future.  In essence, China has taken advantage to expand its footprint on the resource-rich continent of Africa by providing much-needed aid while developing lasting relationships with SSA that are less punitive than aid from the IMF or USA.

China’s establishment of a naval base in Djibouti, where the United States military has operated in since 2001, was a bold move. China also built and now controls Djibouti’s freight container shipping port, the Port of Doraleh, through which the United States base is resupplied. Djibouti is the only country on the African continent with a United States military base; it is also where the United States projects force into the region, targeting al-Shabab terrorist cells and activities. Obviously, the strategic construction of the Chinese naval base in Djibouti potentially threatens US military and commercial vessels traversing this global choke point, the Bab al-Mandab Strait. Other foreign countries, such as Russia and Turkey, have also expressed interest in foreign bases in Djibouti, but the Djiboutian president cannot part with the $63 million paid by the United States annually to lease Camp Lemonnier. In addition, he also collects rent from the Chinese and Italians also based in the country.

When the United States’ FMF, security cooperation and security assistance (SC/SA) in SSA were drastically reduced and in some cases terminated by the Trump administration, China viewed that as an opportunity to strengthen its military cooperation with SSA countries. Generally, SSA countries prefer American military equipment and training over those of China or Russia. However, due to human rights vetting built into US processes, equipment and training provision to the countries of SSA takes a significant amount of time. China does not have these processes and tends to deliver much faster than the United States. Even though regarded by SSA countries as of lower quality, China delivers the needed equipment and training unlike the United States, which delivers two to three years later and when the operational requirements have become outdated.

If the United States hopes to regain its dominance in SSA, it must change its paternalistic behavior towards African countries and it must regard China as true competition. The United States must discontinue rhetoric to discourage SSA countries from doing business with China, particularly when it is not presenting any alternative options. This will only alienate the United States from the very countries with which it wishes to strengthen bilateral relations.  Instead of attempting to undo progress China has made in SSA, the United States must compliment those works and find ways to build capacity across African countries and sustain those new capabilities.

Africans desire economic independence. However, that can only be achieved through aiding them in the building of their own capacities rather than just making them dependent on the US. America must continue to encourage SSA build strong governing institutions. It is imperative to understand that democracy is more conducive to economic development because of the protection and balance of these various institutions. Developing countries need an institutional framework that supports a market economy, which include distinct institutions that foster exchange by lowering transaction costs and encouraging trust as well as those that influence the state and other powerful actors to protect private property and persons rather than expropriate and subjugate them respectively. The United States must do more to differentiate itself from China and become the preferred partner of choice across sub-Saharan Africa. So far, its strategy seems to be too focused on just criticizing China’s efforts and ignoring the legitimate relationship advantage it has built over the last decade. Unfortunately for America, the time has passed where the countries of Africa automatically will choose the US over all other competitors. The longer it takes America to realize this, and adapt to it competitively, the longer it will remain an African also-ran.

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South Africa: Better Education & Spatial Integration Crucial for Reduced Inequality, Job Creation

MD Staff

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In an environment of accelerating but still modest growth, government policies that stimulate competition and create the fiscal space needed to build a skilled labor force from the poor population of South Africa, would create jobs and help reduce inequality, according to the South Africa Economic Update released by the World Bank today.

The World Bank expects real growth in gross domestic product (GD) to accelerate from 1.3 percent in 2017 to 1.4 percent in 2018, supported by a rise in confidence, global growth and benign inflation. For 2019, the forecast is 1.8 percent and 1.9 percent in 2020. But despite this modest rebound, growth in South Africa remains constrained and continues to lag behind its peers. Overall, South Africa is projected to remain largely below the average growth rate of 4.5 percent in 2018 and 4.7 percent in 2019 in emerging markets and developing economies.

“This outlook calls for fundamental policy action to turn the economy around through policies that can foster inclusive growth and reduce inequality,” said Paul Noumba Um, World Bank Country Director for South Africa.  “Creating labor demand and fiscal space to finance improved education as well as reinforcing spatial integration will enhance the ability of the poor people of South Africa to participate meaningfully in the economy”.

The special focus section of this 11th edition of the South Africa Economic reviews the evolution and nature of South Africa’s inequality – among the highest in the world– arguing that it has increasingly been driven by labor market developments that demand skills the country’s poor currently lack. It suggests that significantly raising South Africa’s economic potential will require breaking away from the equilibrium of low growth and high inequality in which the country has been trapped for decades, discouraging the investment needed to create jobs.

Simulations assessing the potential impact of a combination of various policy interventions on jobs, poverty, and inequality suggest a scenario in which the number of poor people could be brought down to 4.1 million by 2030, down from 10.5 million in 2017. This would be driven by increasing the skilled labor supply among poor households through improved education and spatial integration as well as increasing labor demand through strengthened competition.

In this scenario, the Gini index of inequality would be reduced from 63 today to 56 in 2030. An additional 800,000 jobs would be created with higher wages for workers from poor households, and cheaper goods and services contributing to these outcomes, according to the report.

In the short term, these policy interventions would include, getting the implementation of the recently granted free higher education right, continuing to address corruption, improving the competitiveness of strategic state-owned enterprises, restoring policy certainty in mining, further exposing South Africa’s large conglomerates to foreign competition and facilitating skilled immigration,” said Sebastien Dessus, World Bank Program Leader.

In the longer term, the report suggests that improving the quality of basic education delivered to students from poor backgrounds and reinforcing the spatial integration between economic hubs, where jobs are located, and underserviced informal settlements, would reduce poverty and inequality and support job creation.

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Can Insurance Help Low-Income Ethiopians Cope With Risk?

MD Staff

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Photo: Binyam Teshome / World Bank

The loss of crop or livestock as well as concerns about illness and accidents are key financial expenses on the minds of low-income Ethiopians.

Unexpected expenses associated with these issues are relatively common. A third of low-income Ethiopian households experienced at least one major health issue in the previous year, often paying for it out-of-pocket.

In rural areas, almost 50% of households experienced some agricultural loss in the previous year. For three-quarters of these households, these financial losses accounted for more than half of their income in a typical year.

Yet even though these crises affect a large number of the population, Ethiopians don’t have adequate mechanisms in place to cope with the financial hardship they bring.

“People don’t put money aside to deal with risk. Instead, they rely on cash and savings, if they have them, borrow money from family, if possible, or as a last resort, sell livestock to cope with these unexpected shocks,” said Craig Thorburn, a Lead Financial Sector Specialist with the Finance, Competitiveness and Innovation Global Practice of the World Bank Group, and the technical lead for a FIRST Initiative funded project that produced the new report What People Want: Investigating Inclusive Insurance Demand in Ethiopia.

Informally borrowing money is a common coping strategy as loans from formal financial institutions are expensive and hard to get. However, when a crisis, such as drought, affects an entire community, informally borrowing money from relatives isn’t a viable option. And selling livestock may inject rural households with quick access to cash, but this approach ultimately leaves families poorer and less resilient.

Last year, the World Bank Group conducted a demand-research study in Ethiopia to examine risks low-income households face and see whether insurance could be a tool that Ethiopians could tap into to reduce and better manage these financial burdens.

This country-wide survey reached close to 3000 households, totaling 13,000 people, from both rural and urban areas.

“Understanding the needs of underserved populations, including low-income households, is key to developing quality insurance products and expanding insurance markets,” Thorburn said. “Without this knowledge, potential insurers wouldn’t understand the real and perceived risk of this unserved market segment.”

The survey found that people had little knowledge or experience with insurance, and that 50% of surveyed households never heard of insurance. However, people expressed interest in it if insurance products were devised as accessible and inexpensive.

Ethiopians have unserved needs that could be met with affordable products they actually want.

For example, 97% of focus group participants indicated they would buy a proposed prototype crop insurance product if it were available to them, as it would allow them to replace lost income and buy inputs for the next crop cycle.

And for health-related issues, the survey found that while many people fear a high-cost illness, they could manage many basic expenses with their existing resources, with 75% reporting that they were able to fully recover from financial hardship. This indicated that a well-designed insurance product could leverage existing strategies such as savings, and provide peace of mind. Interest in a hospital cash prototype was high, with close to half of participants willing to pay an actuarially sound premium.

This openness to insurance could provide a great opportunity for insurers, particularly if they can customize and tailor their products to suit customers’ needs.

While this initial research indicates that low-income households are interested in insurance, it would require insurers, the government and other stakeholders to work together to develop insurance products that are accessible, affordable and appropriately designed for people’s needs. Other aspects related to extending the insurance market would need to be considered as well. These include adapting the regulatory framework to motivate insurers to enter this market and devise financial education programs to educate people on insurance.

“Ethiopia provides a significant opportunity for insurers to expand their businesses, the government to improve the overall stability of the low-income population, and low-income people to stabilize their economic status,” said Thorburn.

Focus group participants indicated they would be most likely to purchase insurance from formal financial institutions, such as banks or microfinance institutions, which would bring stability and financial capacity. They indicated that they would be less likely to purchase insurance through informal formal groups, such as savings and credit cooperatives or Edirs, which are well-ingrained local community-based organizations created to help cover funeral expenses.

The World Bank is working in Ethiopia to create an enabling environment for inclusive insurance.

These survey findings are part of a broader World Bank study that that looked at supporting more inclusive insurance markets in Ethiopia.

This study and the report were done jointly with MicroInsurance Centre at Milliman and EA Consultants. The study and the report were funded by the FIRST Initiative.

World Bank

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