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Interview: Russia’s business and investment opportunities in Africa

Kester Kenn Klomegah

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With new trends and directions in global business, African countries have to look to the Eurasian region as a huge market for exports as well as make efforts to consolidate and strengthen economic cooperation, says Tatiana Cheremnaya, the President of ANO “Center for Effective Development of Territories” and Head of the working group on public-private partnership “Business Union of Eurasia” in this wide-ranging interview.

She further discusses Russia’s economic relationship, challenges and untapped potential business and investment opportunities with Africa. She spoke recently in this interview with Kester Kenn Klomegah, an independent research writer on Russian-African affairs in Moscow.

How important is Eurasian market for African countries?

The Eurasian marketplace, in scale and capital intensity, is huge. It includes some countries of Europe and post-Soviet countries and rather fast-growing Asian countries. It is obvious that the interest among African countries for access to these markets is enormous both in the context of just entering the market of a particular country and implementation of joint interstate projects. In this case, first of all, we are talking about high requirements in the implementation in Africa of infrastructure projects, including roads, bridges, pipelines, electricity and the search for alternative sources of energy, communication, without which it is impossible to imagine a dynamic and systematic development of the economies of African States.

The implementation of such projects can be possible with the introduction of public-private partnerships. Here you can define several main points of contact between the Eurasian and African companies:

1. The implementation of joint projects in the framework of BRICS. We know that the unit includes one African country – South Africa. Today in the framework of the unit formed the New development Bank BRICS, the funding of joint transnational projects. In 2016, the Bank has approved the financing of the first investment projects in the BRICS countries totaling more than $1.5 billion.

2. Joint cooperation between the units of the Eurasian Economic Commission and the African Union. It is qualitatively new direction in the cooperation between the two blocs was laid in July 2016, when in Addis Ababa in Ethiopia, the delegation of the Eurasian Economic Commission held talks at the African Union Commission. It is worth noting that the African Union itself includes the 54 African States, and in the area of Eurasia includes 89 countries. The scale of the Eurasian-African cooperation is evident.

3. Giant cross-country infrastructure projects, which can be safely attributed to the project Great Silk Road. Here the role of the Eurasian economic Union and the project “Economic Belt Silk Road” is the formation of a common economic space, institutional capacities mates, and the possible components of a proactive commercial and economic strategy of Russia and its Eurasian Economic Union partner. Project financing is also being implemented in the framework of interstate financial institutions creates a system of regional-global financial institutions with total capital to date $240 billion Asian Infrastructure Investment Bank, development Fund of Silk Road.

How challenging, of course, is this market?

Of course, to enter the Eurasian markets from Africa is quite difficult. Here we are talking primarily about the high-tech, and the competitiveness of African business. That is, on one hand, we have a cheap labor force, good climate, really good opportunities all appearing for business development on the African continent. But, on the other hand, it often happens that a business can’t compete with the Eurasian giants. However, in time within such a community as BRICS, or the cooperation between the Eurasian economic Union and the African Union, can be reached certain agreements on implementation of joint projects and the release of African companies into the Russian market, what needs to be done.

Do you also think that industrialists and business directors from the Eurasian region can cooperate with other foreign investors on projects in Africa?

Of course, we can talk about cooperation between the African and Eurasian investors. Generally, in the age of globalization, cooperation is a basic and necessary condition for the development of cooperation among countries and enhanced the pace of development of the economies of some African countries gives reason to predict the emergence of truly important and profitable joint projects.

It is worth noting that according to the World Bank, in 2013, among the 50 economies that have improved their economic performance since 2005, about a third owned by the countries of sub-Saharan Africa. Studies conducted over the past three years also show that Africa today is no longer perceived as a backward region. It becomes an attractive investment and Eurasian countries see it as a place for prospective business.

It is worth noting that the basis for cooperation, for example, Russia and Africa are already actively created. So, in 2014, the visit of the official Russian delegation to Zimbabwe, where they discussed a number of key bilateral agreements designed to provide preferential treatment to investment from Russia. Russian companies interested in developing major infrastructure projects in the African region, primarily in the mining industry, and have the necessary experience, technology and expertise for the development of industrial and infrastructure projects.

Between countries today are considered joint projects that can participate in such major Russian companies as KAMAZ, Russian Railways, ALROSA, Uralvagonzavod and “Inter RAO”. In addition, to the infrastructure of the Russian-African partnership is also planned in other areas, such as automotive, agricultural production, implementation of joint projects in the sphere of development of agriculture, education and tourism.

Specifically, there is an investment in the republic of Ghana “One District, One Factory”. Opportunities to attract investment from the Eurasian countries have in most African States. For example, South Africa is the infrastructure in Zimbabwe and high-tech projects, and Ghana is the implementation of the “One District, One Factory”. All projects are very important for economic development of the African continent. But in each case for the investor is important, and profitability of such projects. For example, for the “One District, One Factory”, each individual plant will be measured from the point of view of expediency of investment of the investor. Here one should not expect miracles, but you need to work on each project with the Eurasian partners.

Do you think potential investors from the Eurasian region face competition for investment projects with other foreign players in Africa?

Yes, of course, investors of the Eurasian region are interested in implementation of joint projects. It is worth noting that today for the African continent, plays an increasingly important role in the foreign policy of the developed countries, is real struggle among the major powers of the world. For example, countries such as the United States, England, France, China, and India are gradually increasing its economic and political influence on the African continent. The interest of the developed world to Africa is, of course, largely from the increased need of their industry in the extraction of raw materials, which are present on the continent of Africa.

Furthermore, Africa is still untapped market for technology products and consumer goods. Also other Eurasian countries have interest in the continent; we can hardly compete with the leading world powers. Russian business is very interested in business development and their presence in Africa.

So in the near future can predict the development of the Eurasian-African cooperation in the field of business. In this situation it is necessary to search for effective forms of cooperation that have a solid foundation for the cooperation of business, addressing the goals and objectives of the Eurasian countries and Africa

So these Russian companies such as KAMAZ, Russian Railways, ALROSA, Uralvagonzavod, “Inter RAO”…how do you assess their influence or activities in Africa? What are their levels of operations in Africa? For instance, Russia Railways, how do you measure this company’s success as compared to China in Africa? China has completed railway lines in a number of African cities including Addis Ababa, Ethiopia.

With regard to the participation of Russian companies in infrastructure projects in Africa, they are already there and as I wrote, will increase significantly. So, for example, Russian Railways is increasing its influence and implementation of joint projects in the field of railways, as Africa is actually very poorly developed railway infrastructure. If we consider the railway infrastructure in Africa, we note, for example that Algeria has an extensive network of railways in the north of the country; the rail infrastructure of Angola was virtually destroyed during years of civil war; in Botswana, Chad, the Gambia and Burundi passenger railways in general no; in Ethiopia, Djibouti, Guinea, Ghana and the Congo, there is one rail that is in poor condition; railroad developed only in Egypt, Kenya, Namibia, Zimbabwe.

There has been much activity in the railway sector in East Africa. From an economic point of view, it is a very profitable business. On the one hand, there is access to global markets and with another – stimulates regional trade. The countries themselves certainly can’t afford to implement such capital intensive projects, so come to the aid of other countries. And if the past is largely in the construction of railways helped the European countries, now in road infrastructure often puts China. Of the ongoing projects, it is worth noting the railway Mombasa – Nairobi to Kigali (Rwanda) and Juba (South Sudan), the road between Addis Ababa and Djibouti. The construction financing deals with Export-Import Bank of China. Except for the road construction, China also supplies and most of the rolling stock, including locomotives.

But the Russian Railways company is also one of the participants of the market of road infrastructure projects in Africa. In particular, the Sudanese government suggested that Russia participate in construction of Trans-African railroad from Dakar (capital of Senegal), in Port Sudan in the Red sea, which would connect many countries from the Atlantic to the Indian Ocean. In the future, this railway will connect the capital of Senegal, with the port of Djibouti. The management of Russian Railways said that the company is interested in participation in infrastructure projects in Ethiopia. The Russian Railways, in fact, can become a consultant or general contractor of the project in Africa, as the team has the necessary experience and knowledge.

As for the Russian company “KAMAZ” it is necessary to note that “KAMAZ” works in countries on the African continent since the days of the Soviet Union, the machine “Soviet-style” still can be seen on the roads of Africa. The share of the African continent in the global economy in the near future will increase, and the management of “KAMAZ” seeks to take advantage of a favorable situation. The company “MAZ” – the Russian manufacturer of trucks – in November 2016 began to put Africa right-hand drive trucks. While we are talking only about South Africa, but in the future cooperation is planned with countries such as Botswana, Zambia, Zimbabwe, Mozambique and Namibia.

However, the Russian production is not always able to compete with the Chinese, because in many areas of work in Africa, China has the best position. But currently, Russia is strengthening its position in Africa, these projects that implement only experienced Russian companies.

How important is Russian Export Center for Africa? Which Russian products “Made in Russia” are being promoted in Africa market currently, again compared to India and China whose various products including consumer goods, pharmacy and automobiles very common in Africa?

The importance of the Russian Export Center is difficult to overestimate. Indeed, the Center is doing a great job for development, including the African market. According to the report of the Russian Export Center, export of Russian goods to the African continent increased by more than 50 percent in 2016. In Africa, the demand for Russian goods, while their exports to other countries, by contrast, only falls. Given that the difficult economic situation in Russia contributed to a significant decline in exports in almost all countries of the world, has shrunk by nearly a third to US$129,7 billion and in African countries we are seeing demand growth, contrary to the general trend of demand for Russian goods. The maximum growth of exports showed Algeria (US$556 million), Angola (US$298 million) and Egypt (US$178 million).

It should be noted that the attractiveness of African markets is associated with a low level of competition because the market is actually free for low-end products. As for China, here directly is not a competitor to Russia because Russia is a strong player and China is interested in markets with much greater capacity. For Russia as a country that traditionally exported only raw materials, Africa is a very good place to start. However, we know that African countries are fast growing. So, the International Monetary Fund (IMF) predicts by 2016 economic growth in Tanzania 6%, Zimbabwe 3%, while, for example, in the USA only 2%. That is, for Russia, the African market is very interesting and we can talk about expanding cooperation with African countries to export products “Made in Russia” in various segments.

So what are the key problems and impediments to developing practical and active Russian-African business, especially in the manufacturing and consumer sectors, not theories but real active bilateral economic cooperation? What should be done from both sides, from Russian side and from African side?

The problems of effective cooperation between Russia and Africa are political in nature. Thus, the strengthening of Russia’s position leads to the strengthening of its influence in the world, including in Africa and vice versa, sectional policy has significantly reduced Russian exports.

The second problem for the development of Russian-African business is the lack of competitiveness of Russia which allows working only in the low-budget segment. This is due to structural problems in the Russian economy, the need for modernization, the bulk of the products produced during the Soviet Union.

The third problem is the unwillingness of the African market to cooperate, due to the strong backlog of the country in socio-economic aspects, for example, we are talking about the lack of qualified personnel, low standard of living of the population and hence the low effective demand.

The fourth problem is competition from the United States, China and India as more developed countries with more advanced technological solutions, and from the European countries as the former “patrons” of African countries. However, these barriers can be gradually removed by constant open dialogue between African governments and Russia, as well as directly between interested companies of the two countries. For cooperation with Russia is necessary to develop competitive solutions in terms of infrastructure development and proposals for the supply of consumer goods, as well as the removal of bureaucratic barriers. African countries need not only steps on the path to economic growth, but also political decision-making directed at improving living standards and increasing the stability of the political and economic systems of African countries which could significantly reduce risks for investing in African projects.

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

Social Mobility and Stronger Private Sector Role are Keys to Growth in the Arab World

MD Staff

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In spite of unprecedented improvements in technological readiness, the Arab World continues to struggle to innovate and create broad-based opportunities for its youth. Government-led investment alone will not suffice to channel the energies of society toward more private sector initiative, better education and ultimately more productive jobs and increased social mobility. The Arab World Competitiveness Report 2018 published by the World Economic Forum and the World Bank Group outlines recommendations for the Arab countries to prepare for a new economic context.

The gap between the competitiveness of the Gulf Cooperation Council (GCC) and of the other economies of the region, especially the ones affected by conflict and violence, has further increased over the last decade. However, similarities exist as the drop in oil prices of the past few years has forced even the most affluent countries in the region to question their existing social and economic models. Across the entire region, education is currently not rewarded with better opportunities to the point where the more educated the Arab youth is, the more likely they are to remain unemployed. Financial resources, while available through banks, are rarely distributed out of a small circle of large and established companies; and a complex legal system limits access to resources locked in place and distorts private initiative.

At the same time, a number of countries in the region are trying out new solutions to previously existing barriers to competitiveness.

  • In ten years, Morocco has nearly halved its average import tariff from 18.9 to 10.5 percent, facilitated trade and investment and benefited from sustained growth.
  • The United Arab Emirates has increased equity investment in technology firms from 100 million to 1.7 billion USD in just two years.
  • Bahrain is piloting a new flexi-permit for foreign workers to go beyond the usual sponsorship system that has segmented and created inefficiencies in the labour market of most GCC countries.
  • Saudi Arabia has committed to significant changes to its economy and society as part of its Vision 2030 reform plan, and Algeria has tripled internet access among its population in just five years.

“We hope that the 2018 Arab World Competitiveness Report will stimulate discussions resulting in government reforms that could unlock the entrepreneurial potential of the region and its youth,” said Philippe Le Houérou, IFC’s CEO. “We must accelerate progress toward an innovation-driven economic model that creates productive jobs and widespread opportunities.”

“The world is adapting to unprecedented technological changes, shifts in income distribution and the need for more sustainable pathways to economic growth, “added Mirek Dusek, Deputy Head of Geopolitical and Regional Affairs at the World Economic Forum. “Diversification and entrepreneurship are important in generating opportunities for the Arab youth and preparing their countries for the Fourth Industrial Revolution.”

With a few exceptions, such as Jordan, Tunisia and Lebanon, most Arab countries have much less diversified economies than countries in other regions with a similar level of income. For all of them, the way toward less oil-dependent economies is through robust macroeconomic policies that facilitate investment and trade, promotion of exports, improvements in education and initiatives to increase innovation and technological adoption among firms.

Entrepreneurship and broad-based private sector initiative must be a key ingredient to any diversification recipe.

The Arab Competitiveness Report 2018 also features country profiles, available here: Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Morocco, Oman, Qatar, Saudi Arabia, Tunisia, United Arab Emirates.

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The impact of labour market trainings on unemployment process in the global labour economy

Gunel Abdullayeva

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Since the 1990s, the persistence of high unemployment has been followed by two downturns, which affected an economic life over the world across the nation-states. The overt consequences cost unpleasantly social and economic outcomes for the states as well as societies. Henceforth, activation turn has observed once more shifting passive employment policies within the active policy actions of countries upon labour market at the beginning of a new millennium. It was supposed that the activation of jobless people through keeping employees occupied, job-search assistance, job creation and work experience programs, training and invest in up skilling, is an open way to fight against high unemployment and secure economic growth as well. Hereby, the idea of an active labour market policy (ALMP) became again pivotal tool in the domestic policy agendas of states in order to engage in new challenges of labour markets. Since the 1950s,it is an apparent fact that in Europe and the Nordic countries that the effectiveness of ALMPs engenders diminution in a structural and long-term unemployment and leads to increase net income together with the employment ratio of targeted groups in national economies.

With the XXI century’s new technological vicissitudes and industrialization, the active employment policies have been designed to support people with monetary (income) and non-monetary (education) incentives in order to reduce inequality, keep the balance of social inclusion, and stimulate market beyond to decrease unemployment. Consequently, labour market training grew into to become an important measure of ALMP strategies in the background of “welfare to workfare policy approach” to create better-skilled workforce as well as to surge adequate match between skilled manpower and needs of progressive demand in labour markets.

In fact, the scholarly studies state significant impacts of training and vocational programs in the activation of the workforce. For example, the 1950-1960s – Post War Era characterized with the rapid economic growth and labour supply shortage in the European industry. And as a solution, national employment policies started to focus on labour trainings. So that Sweden with its successful retraining system has been the pioneer of ALMP idea in the history. On the other hand, Germany with 1969`s Employment Promotion Act considered training as a principal component of active employment policies to upskill workforce in terms of new industrial needs by market demand.

The UN 2009 reports that education is considered one of the main indicators of poverty reduction: education and human resource investments contribute to an economic development of nation-states and societies. Higher educated people or up-skilled workforce boost up productivity and react the positively to technological changes. Some scholars and interlocutors claim that in long-term perspectives ALMPs should have to aim to develop an education and training system that enhances the productivity and employability of a labour force. Because of the fact that the skilled manpower is one of the cornerstones of the higher employment, developed economy, higher net income and well-being of the whole society.

Many types of research have been carried out to identify the prominence of labour market training, however, the Katz`s study (1993) shows the significant point of job market training as turning “unskilled labour” into “skilled labour”. Perceptibly, the unemployment problem is more common among less skilled individuals and new entrants to the market. Shifting in demand against unskilled labour force causes an unemployment among those people. In contrast to unskilled force reservation wage and labour demand is high for skilled manpower in the market. Here, the training policy helps turn out unskilled to a skilled workforce and to increase total employment in order to decrease unskilled unemployment. Research argues that training policy extends the skilled labour force and close the gap between the unskilled and skilled workers. Caruana and Theuma (2012) refer to Katz (1993) argue that in order to push jobless people towards work, some trainings improve the qualification of those workers who are already in the market. Hence, Katz (1993) emphasizes the importance of labour market training in reducing the unemployment rate of unskilled labour by transferring more workers to the skilled labour pool. They also underline the significant role of a training policy in improving the skills of employees and increasing, the supply of skilled manpower in the economy. The following figure “Development of Unskilled Labour Force” visualizes Katz`s statement andshows how training measure affects the job market in both ways. The points where demand curves intersect supply curves, which are given wages for skilled and unskilled labour respectively. As the author explains, the wages represent the remuneration of foregone opportunity costs that, logically, is higher for skilled labour than for unskilled one. Since labour demand for the skilled labour is stronger than that of unskilled labour, thus, the demand curve for the former one is more elastic. As the figure illustrates, after the implementation of training, part of unskilled labour is moving up to the skilled.

At the same time, scholar states that wage setting regulation, training, and education systems affect differently net income and employment perspectives. Consequently, education and labour training policies create an equal distribution of skills and able to reduce supply and demand shifting on wages and employment. Another study by Calmfors et al., (2001) argue that training programs increase the reservation wage of attendees. However, salary growth and employment perspectives are possible by time after long run participation in the program.

To sum up, the training policy is considered as a main supply-side policy tool of activation to tackle unemployment. Scholars argue that training programs are useful to prevent the long run unemployment and to keep unemployed active in the market via participation. However, ex-post evaluation of training programs is controversial. Country case studies show that training programs are more effective in the background of vocational education reforms and collaboration with demand-side active labour market policies.

Reference list:

  • , Forslund A., &Hemstrom M., (2001), Does Active Labour Market Policy Work? Lessons from Swedish experiences, Swedish Economy Policy Review, 85, 61-124
  • Caruana C. &Theuma M., (2012), The next leap – From Labour Market Programmes to Active Labour Market Policy.
  • Katz, F.L., (1993), Active Labor Market Policies to Expand Employment and Opportunity.
  • United Nations, (2009), Rethinking Poverty: Report on the World Social Situation 2010, Retrieved from http://www.un.org/esa/socdev/rwss/docs/2010/fullreport.pdf
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Paid and well-designed internships work

Shane Niall O’Higgins

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“Before, they would ask for your diploma and maybe your grades. Now, when you are entering the labour market, you are asked for multiple internships and work experience here and there so I feel the pressure to intern so as to be better prepared for the labour market.”

That was what secondary school student, Georgia, told me while I was carrying out some focus group research last year for an ILO survey on youth aspirations.

Her frustration and worry are typical these days of many young people entering the labour market. They face the daunting task of finding a decent job and then keeping it when they do.

Unemployment and the proportion of young people not in employment, education or training are high, and new and emerging forms of ‘non-standard’ employment such as temporary, part-time and gig work are rapidly expanding.

These types of ‘non-standard’ jobs now dominate young people’s early labour market experiences, along with internships, which are becoming ever more common – not only in high income countries where they originated but also in low and middle income countries.

The idea is that internships help break that Catch 22 that many young jobseekers face – not having enough experience to get a job and not being able to get the experience needed because of not having a job.

But, just how effective are internships as a means of promoting the long term job prospects of young people like Georgia?

The fact is, there hasn’t been much solid research. Above-all, very little at all is known about the impact of so-called ‘open-market’ internships which are not undertaken as part of either an educational course or as part of an active labour market programme. In many – if not most- countries, these remain under-studied and under-regulated

This is the question that my colleague Luis Pinedo and I set out to answer in a new ILO working paper,  “Interns and outcomes: Just how effective are internships as a bridge to stable employment?”, which reviews existing studies and analyses primary data using surveys of interns undertaken by the European Commission and the Fair Internship Initiative (FII), an intern advocacy coalition.

We came to three main conclusions:

Not all internships improve career prospects

The impact of internships on the longer term integration of youth into work appears to be modest. Internships are, on average, less effective than either student jobs or apprenticeships as a means to bridge the gap between education and regular employment.

Paying interns pays off

It is clear, however, that paid internships offer better job prospects for youth in the long run than unpaid ones and that paid interns are more likely to find a job than those who were not remunerated. This may be because the payment itself may be linked to other positive features of a well-designed internship programme. These include the presence of a mentor; similar working conditions as regular employees; access to health insurance, and internships that are long enough for the young person to acquire and improve their skills. In addition, formal certification of the completed internship and/or undertaking the internship in a big firm both influence employment prospects and can also have a positive long-term impact.  However, the likelihood of finding a job does not increase in relation to the amount paid to the intern.

More and better research is needed

As yet, far too few studies have been carried out and those that do exist rarely make a serious attempt at identifying the causal links between internship programme features and post-internship labour market outcomes. Moreover, analyses of open market internships are even rarer. The task is clearly made more complicated by the fact that there is no agreement about what precisely is an internship. However, the lack of analysis is particularly worrisome not least because it is precisely open market internships which are least covered by existing forms of regulation. This paper, along with its two companion papers listed below mark a first step by the ILO to rectifying this information gap.

See the two other working papers that are part of the series:

Employment working paper no. 240: The regulation of internships: A comparative study Andrew Stewart, Rosemary Owens, Anne Hewitt and Irene Nikoloudakis

Employment working paper no. 242: Does work-based learning facilitate transitions to decent work? Laura Brewer and Paul Comyn

ILO

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