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Africa: Russia’s strategy and global competitors

Kester Kenn Klomegah

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Undoubtedly, Africa’s fast economic growth and development, at least during the past decade, has attracted external countries including the United Kingdom, Netherlands, India, Canada, South Africa, China, the United States, Germany, and France.

Russia is steadily making efforts to penetrate African countries. But experts have argued that while focusing on building positive and genuine economic relationships, Russia has to cooperate on or compete for investment projects with foreign players in Africa.

And as Africa’s emerging and frontier markets gather pace, what other implications and opportunities this present for foreign countries looking for possible investment in the sub-Saharan African region?

Cooperation or Competition

David Shinn, an adjunct professor in the Elliott School of International Affairs and a former U.S. Ambassador to Ethiopia, explains that most business interaction usually involves competition, the private sector is proportionally much more important in India, Brazil, and South Africa than is the case in China and Russia.

At the same time, companies from two different BRICS’ member countries can team up in their effort to win a contract or start a business in Africa. The area where there is more likely to be cooperation is foreign aid. China and Brazil have been cooperating on agricultural research in Africa. Theoretically, all BRICS’ members, including Russia, could cooperate on a development project financed by two or more BRICS’ members.

Shinn believes that the BRICS have strategic differences that will complicate a unified approach in Africa. Each BRICS’ member country has its own interests in Africa. Each one has a different development model and political system.

Keir Giles, an associate fellow on the Russia and Eurasia Program at Chatham House (Royal Institute for International Affairs) in London, says that in many ways, Russia seems like the odd man out in the BRICS group. But with this emphasis from Moscow on finding alliances and alternative political fora, it’s very much in Russia’s interests to foster those relationships and present BRICS as a cohesive bloc.

In terms of interests in Africa, Russia is handicapped by having been absent from the game during the two decades when China has forged ahead with investments and presence. China has been a lot more proactive than Russia, driven in part by China’s requirement for resources. However, natural resources are just the tip of the iceberg, and Chinese companies have strategically embraced Africa as a real market in retail business, construction, consumer goods and many other sectors. The increasing number of foreign players has spurred keen competition.

“The problem remains that there are whole sectors of the economy where Russia is simply irrelevant – to take the most obvious example, consumer goods – and so their engagement will always be dwarfed by China,” Giles observes in his comment to a recent media query. “There are some more fundamental problems which Russia would need to overcome to boost its trade turnover with the region. The majority of this vast amount of trade with China simply cannot be competed with by Russia.”

Ian Taylor, a professor from University of St. Andrews in Scotland, says that Russia has minimal interest in Africa. Russia’s outward investment is dominated by large resource-based corporations that seek to gain greater access to the African market of fuel, energy and metallurgy, and expand Russian investment flows to Africa but despite a slight upsurge in interest in trade with Africa, it might be said that still, Russia has no concrete foreign policy toward the continent and is outpaced by the other BRICS states.

“Moreover, I don’t see BRICS as a cohesive group beyond the summits and so it is difficult to think of them working together for specific policies in Africa. The various companies and corporations from the BRICS countries compete individually against each other,” according to Taylor.

Prioritizing Strategies or Taking Risks

Africa, which consists of 54 states, to many experts and investors, is the last frontier. It is the last frontier because it has a huge natural resources still untapped, all kinds of emerging business opportunities and constantly growing consumer market due to the increasing population. It has currently become a new business field for global players.

But, Russia craving to be a powerhouse is comparatively missing out! “The most conspicuous aspect of Russia’s involvement in Africa is its absence,” says John Endres, chief executive officer of Good Governance Africa from South Africa, adding that “whereas the Soviet Union was quite extensively engaged in Africa, Russia has almost entirely abandoned the field to other foreign players during the past two decades.”

Besides other factors hindering Russia’s move to Africa, Maxim Matusevich, director of the Russian and East European Studies program at Seton Hall University in New Jersey, says it seems that there are few areas of mutual economic interest between the Russian Federation and sub-Saharan African states. Ironically, many African nations suffer from the same affliction that has negatively impacted western investments in Russia: unfriendly investment climate/s/, unpredictable and capricious regimes, rapacious elites and a lack of rule of law.

Notwithstanding some of the pessimistic and critical positions of experts, a number of foreign players have admirable success stories. Brazil, India and China are very visible on the continent, but can they also have a meaningful unified BRICS foreign policy in Africa? Foreign players have their individual interests and varying investment directions.

Some experts still argue that it is never too late for Russia to enter the business game but what it requires is to move away from old Soviet stereotypes, prioritize corporate projects and adopt a new policy strategy for the continent – a market of some 350 million middle-class Africans.

Of course, Russia has to risk by investing and recognizing the importance of cooperation on key potential investment issues and to work closely with African leaders on the challenges and opportunities on the continent, Andy Kwawukume, an independent policy expert told me from London, noting that Russians have been trying to re-stage a come-back over the past few years, which was a commendable step forward.

Kwawukume, a Norwagian trained graduate, pointed out that “there is enough room and gaps in Africa for Russians to fill too, in a meaningful way, which could benefit all parties involved. The poor and low level of infrastructural development in Africa constitutes a huge business for Russian construction companies to step in. Energy is another sector Russians could help in developing.”

Over the past few years, business summits have become increasingly common and interactive platform for dialoguing, that Russian officials should consider using its Russian trained African graduates as bridges to stimulate business cooperation. Really, what Russia needs is a multi-layered agenda for Africa.

Institutional Approach

Russia and others in the BRICS would like to see larger power centers emerge to offer an alternative to that Western dominated construct, and that is reasonable enough. “As a unified BRICS approach to Africa, especially terms of investment and business? I doubt it. I suspect the only unified stance would be one supporting non-interference in its domestic affairs. This means that individual BRICS member states would prefer to identify and negotiate for business taking into cognisance of its own interests,” according to Charles Robertson, chief economist at Renaissance Capital, an investment company.

Dr. Igho Natufe, a research professor at the Center for Studies of Russian-African Relations and Foreign Policy of African Countries, whose book “Russian Foreign Policy in Search of Lost Influence” published recently, explained that for foreign players or investors, for example China or India, there must be a clear understanding regarding the scope of such a cooperation. Until then, there would be more competition than cooperation among these potential foreign investors for development infrastructure projects and business spheres in Africa.

“Even between China and South Africa, both members of BRICS, we have observed fierce competition on consumer goods market in South Africa. It is doubtful if Russia is able to compete with China or India in Africa, given Russia’s ill-defined strategy on business relations with Africa and its current economic changes,” Natufe told me in an interview comment by email.

Arguably, he pointed out that, China has established the benchmark on how to construct business relations in Africa. The annual China-Africa summit at the heads of state level is unrivalled among member-states of BRICS. This is demonstrated by the frequent business and political meetings between Chinese leaders and their African counterparts. No other member of BRICS, including Russia, has been able to replicate China’s institutional structures in dealing with Africa. In fact, it can be argued that China gives BRICS a level of respectability in Africa.

Ojijo Al Pascal, an Ugandan lawyer and business consultant based in Dar es Salaam, Tanzania in East Africa suggested that “Russia needs to have its own projects, in fact, mega or corporate projects. And it should have them in strategic areas, and strategically.” Russia, in essence, could use it’s history of electrifying the Soviet rural areas to help Africa. And it could promote the establishment of manufacturing hubs, mega projects, for its technologies and mutually beneficial spheres cooperating with other countries in Africa.

Al Pascal says that India is already in Africa, so is China. And South Africa is in car manufacturing industry, energy, agriculture and telecommunications. He also says that Russia needs to go alone as a new frontier for its ideological show of might against the West and European Union. Vladimir Putin needs to visit Africa, and engage the African youth and business community, like U.S. President Barack Obama and a few other leaders have done during the past few years.

Role of Financial Institutions

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

Dmitry Golovanov, chairman of the Management Board of Eximbank of Russia, advocates for an increased partnership between Russia and African countries, reaffirms the desire to continue developing business dialogue with interested companies in efforts to pursue active involvement in international programmes and projects for Africa.

Besides, the bank is ready for joint implementation of projects in the area of infrastructural development and that will positively influence development of contracts between Russian and African companies.

In a nutshell, nearly all the experts interviewed for this article have unreservedly acknowledged that most African governments, in recent years, have continously been introducing adequate measures, including legislation, healthy for investment and business. Information on all these are available, in any form, from government network sources.

In addition, they explained that many foreign countries, notably, the United States, European Union members, China, India and Japan, have effectively used their institutional structures, have regularly made financial commitments and have adopted strategies in pursuit of their key economic policy goals and interests in Africa. Thus, to cooperate or compete depends on the choice of individual external country looking to the next frontier to pursue business opportunities and invest in infrastructure development across 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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Africa

Economic and investment potential of Gambia

Kester Kenn Klomegah

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The Gambia is a small country in West Africa and is entirely surrounded by Senegal except for its coastline on the Atlantic Ocean. English language is the official language. The Gambia’s economy is dominated by farming, fishing and has excellent natural spots for tourism. Previously, the United Kingdom and many EU countries constituted its major domestic export markets. However, in recent years, the United States, China and Japan have become significant trade partners of The Gambia. Despite that, The Gambia looks forward to developing a strong economic partnership with Russia and former Soviet republics.

In this interview, Alieu Secka, the CEO of The Gambia Chamber of Commerce and Industry, (who is also an accomplished corporate governance expert, industry leader, entrepreneur and business practitioner), recently shares his thoughts about opportunities available for potential foreign investors in his country with Kester Kenn Klomegah, an independent researcher and policy consultant on African affairs in the Russian Federation and Eurasian Union.

In your objective assessment, what can you say are the current achievements or gains in the economic sphere under President Adama Barrow? 

Since last year, The Gambia’s economy has begun to rebound. Firstly, the foreign exchange rates have been steady throughout. Secondly, inflation is contained, and most importantly, The Gambia’s export cover has risen from 1 month to over 4 months. Economic growth is expected to continue to rise up to 4% in the coming year.

How has your organization promoted the country’s business and investment potentials abroad, especially towards Russia and Eurasia (for example, Kazakhstan, Belarus) direction? 

The Gambia Chamber of Commerce is the private sector partner to the government. It has direct links with many Chambers of Commerce worldwide and is member of the International Chamber of Commerce, and receive enquiries throughout the globe. We have attended various state missions and business forums with the both President Adama Barrow to Belgium, France and Turkey, as well as with Ministers elsewhere. We share stories of business opportunities, plus our work with partners and give interviews to media houses throughout. Last year, we signed an MOU with Belarus Chamber of Commerce and hope we can expand to Russia and other Eurasian countries.

Can you discuss the main economic sectors that are currently attracting foreign investors to The Gambia?  

The Gambia has tremendous potential for businesses from Russia and Eurasia in many sectors such as infrastructure, agribusiness, health services, tourism and education. As The Gambia prepares to host the next Organization of Islamic Countries (OIC) in 2019, foreign direct investment is expected to peak including the Airport, Gambia Ports Authority, industries for agri-processing and packaging, and new luxury hotels to be built.

I should also mention that tourism is one of the biggest foreign exchange in The Gambia contributing some 18% of our Gross Domestic Product (GDP), and we have tried to work with some Russian travel companies to bring Russians to come enjoy the beautiful sandy beaches on the Atlantic Ocean and tropical weather year-round, build resorts to Russian taste etc. Cement production also has huge potentials as we see building construction expansion expanding each year.

What challenges still remain in order to make way for optimizing foreign involvement in various economic sectors? 

Air access is still a challenge for many entrepreneurs, even though we have regular schedule flights on Brussels airlines 4 times weekly and on Royal Air Maroc daily, and some 50 flights weekly from our tourism source markets. Unfortunately, these tourist flights mainly from England, Holland and Spain are seasonal, and therefore I believe this further provides an opportunity to invest for direct flights to Banjul.

What investment incentives and kinds of business support have been made available for foreign investors in the country?

The Gambia offers an attractive package to FDIs including tax holidays from 5 to 8 years, duty-free on equipment, access to land and affordable labour, 500 hectares of arable land for agriculture. Both The Gambia Chamber of Commerce and Industry, and Gambia Investment Promotion Agency, plus many other ministries and agencies will support investors to achieve their target goals including business registration and permits within 24 hours.

Over the past few years, which external countries have been active in The Gambia? Can you also discuss the kind of economic spheres there are engaged in and possible reasons why?

The traditional investors in The Gambia have been the British, Lebanese and Indians. Increasingly, more Turkish and Chinese companies are showing interest and investing in The Gambia. Many foreign businesses are in the real estate, tourism services and hotels, infrastructure development, renewable energy, fisheries, trading in essential commodities like rice, sugar, oil, building materials etc. Many products are imported from Asia, South America and re-exported or transited to neighbouring countries, making The Gambia the supermarket of southern Senegal, Guinea Conakry, Bissau, Mali and others in ECOWAS.

Do you see Russians as potential investors and/or partners for business and investment in your country? As the CEO of the Chamber of Commerce and Industry, would you advocate for a broader economic cooperation between Russia and The Gambia?

The Gambia and Russia have recently opened an embassy and consulate respectively, meaning that there is political will to strengthen relations between the two countries. It is now for Russian businesses to come and enjoy the sun, peace and paradise that The Gambia offers in all sectors of the economy as we have seen them invest in Turkey and elsewhere.

There are good reasons why there are so many British tourists flock to The Gambia, and 1 out every 3 return many times. Also, there is a new free economic zone being developed that can yield tremendous returns for processing and imports to the region with a market of more than 300 million, despite our small population of 2million. The Gambia is also presently considering applications in the oil industry.

At Gambia Chamber of Commerce, it is our obligation to support all businesses and where necessary to introduce local partners. We will welcome the strengthening of economic cooperation between Russia and The Gambia, and will work with the embassies to facilitate and receive business leaders so that they can experience the warmth and benefit from our unique location known as the “smiling coast of Africa.” As CEO, I look forward to the first delegation of Russian entrepreneurs, as we had welcomed Russian travel agents and media to The Gambia, when I was Chairman of The Gambia Hotel Association.

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Africa

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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