Connect with us

Economy

Explainer: Why Russia’s Trade Still Stagnating With African Countries

Avatar photo

Published

on

Russian Foreign Minister Sergey Lavrov said at his annual press conference held January 18 that Russia and Africa would hold a summit in July this year and a number of documents, including new instruments of trade and investment cooperation, were being prepared to readjust methods of interaction amid the environment of sanctions, and in the context of geopolitical changes.

“As you know, we are planning the second summit in St. Petersburg, and we are preparing a whole series of activities for it. Documents are being prepared on the readjustment of interaction mechanisms in conditions and sanctions and threats, new instruments of trade and investment cooperation, supply chain systems and payments. The transition to payments in national currencies is underway. This is not a quick process but it is progressing and gaining momentum,” the Foreign Minister said.

Ahead of the forthcoming African leaders gathering, the South African Institute of International Affairs has put into circulation its latest policy report on Russia-African relations. In the introductory chapter, Steven Gruzd, Samuel Ramani and Cayley Clifford – have summarized various aspects of the developments between between Russia and Africa over the past few years and finally questioned the impact of Russia’s policy on Africa.

According to Steven Gruzd, Samuel Ramani and Cayley Clifford, this special far-reaching policy report includes academic research from leading Russian, African and international scholars. It addresses the dimensions of Russian power projection in Africa, new frontiers of Russian influence and provides a roadmap towards understanding how Russia is perceived in Africa.

The report highlights narratives about anti-colonialism and describes how these sources of solidarity are transmitted by Russian elites to their African public. For seeking long-term influence, Russian elites have oftentimes used elements of anti-colonialism as part of the current policy to control the perceptions of Africans and primarily as new tactics for power projection in Africa.

While it has made thousands of investment promises and signed several bilateral agreements, Russia is largely invisible in economic sectors, keeps a remote distance from participating in building critical infrastructures, investing in industrial spheres and in the newly created single market. Moscow simply builds relations on illusions and lacks the capacity and overwhelming power to realize its policy goals in Africa.

That report says Russia’s expanding influence in Africa are compelling, but a closer examination further reveals a murkier picture. Despite Putin’s lofty trade targets, Russia’s trade with Africa stands at just $20 billion, which is lower than that of India or Turkey.

Over the previous years, similar observations on the stagnation in Russia-Africa economic and trade relations were also noted by politicians and academic researchers. In a publication headlined “Russian Business in Africa: Missed Opportunities and Prospects” appeared in the foreign policy journal Russia in Global Affairs, where Professor Alexei Vasilyev, former Special Representative of the Russian Federation to African Countries, wrote in that article that Russian companies are pursuing their diverse interests in Africa.

The main reason is that Africa remains an enormous and large market for technology and manufacturing of consumer goods due to increasing population and the growing middle class. Until recently, Russians have been looking at mining industry, and economic cooperation is steadily expanding. But, Africa still accounts for just 1.5% of Russia’s investment which is a drop in the ocean. It must be admitted that Russia’s economic policy grossly lacks dynamism in Africa.

“In fact, African countries have been waiting for us for far too long, we lost our positions in post-apartheid Africa and have largely missed new opportunities. Currently, Russia lags behind leading foreign countries in most economic parameters in this region,” he pointed out in the article.

In another Russian media headlined: “West seeks to dissuade African states from participating in Russia-Africa summit” that was published last December, Federation Council Deputy Speaker Konstantin Kosachev explicitly noted that the first Russia-Africa summit held three years ago was successful, “but, in many respects, its results remained within the dimension of politics” and were not translated into additional projects in trade, economic, scientific or humanitarian cooperation.

Russia’s increasing political dialogues have not been transformed into economic capabilities. Returning as a strategic player, Russia’s business initiatives have inconsistently been followed across the Africa. Senator Kosachev quoting trade figures to illustrate his argument, he said that “the trade turnover speaks for itself. Roughly, the European Union’s trade with Africa stands at around $300 billion, China’s – at around $150 billion, the United States – approximately $50-60 billion. Despite the tendency to grow, our current turnover is around $20 billion.”

Back in 2019, Foreign Affairs Minister Sergey Lavrov said that trade between Russia and Africa would grow as more and more African partners continued to show interest in having Russians in the economic sectors in Africa. 

“Our African partners are interested in Russian business working more actively there. This provides greater competition between the companies from Western countries, China, and Russia. With competition for developing mineral resources in Africa, it is easier and cheaper for our African colleagues to choose partners,” said at Moscow State Institute of International Affairs early September.

“Overall, we are, of course, far from the absolute figures characterizing trade and investment cooperation between the African countries which stood at $20 billion,” he informed the fully-packed auditorium. 

In May 2014, Lavrov said in a speech posted to the official website: “We attach special significance to deepening our trade and investment cooperation with the African States. Russia provides African countries with extensive preferences in trade. At the same time, it is evident that the significant potential of the economic cooperation is far from being exhausted and much remains to be done so that Russian and African partners know more about each other’s capacities and needs.”

As far back in October 2007, Russian Foreign Affairs Ministry posted an official report on its website that traditional products from least developed countries (including Africa) would be exempted from import tariffs. The legislation stipulates that the traditional goods are eligible for preferential customs and tariffs treatment.

While Russia announced this preferential tariff regime for developing countries, which also granted duty-free access for African products, potential African exporters either failed to take advantage of it or were unaware of the advantageous terms for boosting trade.

Analyzing the present market landscape of Africa, Russia can export its technology and compete on equal terms with China, India and other prominent players. On the other hand, Russia lacks the competitive advantage in terms of finished industrial (manufactured) products that African consumers obtain from Asian countries such as China, India, Japan and South Korea.

Charles Robertson, Global Chief Economist at Renaissance Capital, thinks that the major problem is incentives. China has two major incentives to invest in Africa. First, China needs to buy resources, while Russia does not. Second, Chinese exports are suitable for Africa – whether it is textiles or iPads, goods made in China can be sold in Africa. 

Keir Giles, an Associate Fellow of the Royal Institute of International Affairs (Chatham House) in London, told me that “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. A large part of African exports to China by value is made up of oil, which Russia does not need to import. And a large part of China’s exports to Africa are consumer goods, which Russia doesn’t really produce.”

He explains further that trade in foodstuffs in both directions suffers similar challenges, which are unlikely to be affected by the current politically-motivated Russian ban on foods from the European Union, the United States and Australia. In effect, in sharp contrast to China, the make-up of Russian exports has not really developed since the end of the Soviet Union and still consists mostly of oil, gas, arms and raw materials. For as long as that continues, the scope for ongoing trading with most African nations is going to be severely limited.

Academic experts, who have researched Russia’s foreign policy in Africa, at the Moscow-based Institute for African Studies, have reiterated that Russia’s exports to Africa can be possible only after the country’s industrial based experiences a more qualitative change and introducing tariff preferences for trade with African partners.

“The situation in Russian-African foreign trade will change for the better, if Russian industry undergoes rapid technological modernization, the state provides Russian businessmen systematic and meaningful support, and small and medium businesses receive wider access to foreign economic cooperation with Africa,” according to Professor Alexei Vasilyev, former Special Representative of the Russian Federation to African Countries.

Quite recently, Dr. Gideon Shoo, Media Business Consultant based in Kilimanjaro Region in Tanzania, explained in an interview discussion with me that Russian companies need to prove their superiority in the business spheres and African governments have to make it easier for Russian companies to set up and operate in their countries.

“Russian financial institutions can offer credit support that will allow them to localize their production in Africa’s industrial zones, especially southern and eastern African regions that show some stability and have good investment and business incentives. In order to operate more effectively, Russians have to risk by investing, recognize the importance of cooperation on key investment issues and to work closely on the challenges and opportunities on the continent,” he added.

On the other hand, Dr. Shoo noted that Russia is, so far, a closed market to many African countries. It is difficult to access the Russian market. However, African countries have to look to new emerging markets for export products, make efforts to negotiate for access to these markets. This can be another aspect of the economic cooperation and great business opportunity for both regions. 

Extending trade preferences, for example, tax exceptions or reduction among other measures, are considered as an integral part of strengthening bilateral economic and trade cooperation with Africa. But then, down the years Russia has never honoured its promise of extending these trade preferences, in practical terms, to African countries.

Nearly all the experts have acknowledged here that import and export trade have been slow due to multiple reasons including inadequate knowledge of trade procedures, complicated certification procedures, expensive logistics, security and guarantee issues, rules and regulations as well as the existing market conditions. 

By looking at and revising the rules and regulations, the situation about Russia’s presence in Africa and Africa’s presence in Russia could change. All that is necessary here is for Russia and Africa to make consistent efforts to look for new ways, practical efforts at removing existing obstacles that have impeded trade over the years.

According to the African Development Bank, Africa’s economy is growing faster than those of any other regions. Nearly half of Africa’s countries are now classified as middle income countries, and around 380 million of Africa’s 1.3 billion people are now earning good incomes – rising consumerism – that makes trade profitable in Africa.

For decades, Russia has been looking for effective ways to promote multifaceted ties and new strategies for cooperation in economic areas in Africa. Now, Kremlin will hold the second Russia-Africa Summit for July 26-29 in St. Petersburg with high hopes of enhancing multifaceted ties, trying to reshape the existing relationships and significantly roll out ways to increase effectiveness of cooperation between Russia and Africa. The first Russia-Africa summit and economic forum were held in October 2019 in Sochi.

For more information, look for the latest Geopolitical Handbook titled “Putin’s African Dream and The New Dawn” (Part 2) devoted to the second Russia-Africa Summit 2023.

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

Continue Reading
Comments

Economy

The suffocating economy of Iran

Published

on

Iran’s economy is on a roller coaster. The past year saw a dramatic rise in inflation rates and a historic fall in the value of the rial. The protests which followed the death of a 22-yar old Kurdish woman Mahsa Amini have magnified the creaks in the country’s economy.

On  January 22, The Iranian rial was selling at an exchange rate of 450,000 against the greenback, an all-time low. The rial has lost 29% of its value since the time the protest started. Iran’s statistical agency reported an inflation rate of 48.5% in December 2022, the highest level since 1995. November data recorded food inflation of above 70% in 12 provinces of the country.

Reports from the country suggest that more than half of the population is living below the poverty line due to spiraling prices. As per the latest forecast, the World Bank predicts a GDP growth of 2.9% for Iran in 2022 which will slow down to 2.2% in 2023 and 1.9% in 2024 owing to “slower growth in key trading partners and new export competition from discounted Russian oil”. However, the government’s response to the bleak economic indicators so far had been subtle and unperturbed.

Causes

The unilateral withdrawal of the US from the nuclear deal in 2018 and the sanctions that followed on oil exports and international banking has put heavy stress on the country’s economy.

 The country’s government debt-to-GDP ratio rose to 45% in 2020. According to World Bank, Iran’s unemployment rate reached 12.2% in 2020 before narrowly dipping to 11.5% in 2021. Iranian daily Etemad had reported that at least 23 workers have committed suicide since March 2022 in the country due to reasons like dismissal, punishment, or threats.

The government lifted import subsidies for essential goods in April 2022, to ease the pressure off the strained government budget, which subsequently triggered rapid spikes in food prices during May-June.

The Federal Reserve in November tightened its control over Iraqi commercial banks to restrict the illegal siphoning of dollars to Iran and other Middle-East countries. The new regulations blocked a huge chunk of daily dollar wire transfers to Iran. The Taliban takeover in 2021 had previously blocked access to hard currency to Iran via the Afghan route.

Amid the uprising, European Parliament approved a resolution designating the Iranian militia, Islamic Revolutionary Guard Corps (IRGC) a ‘terrorist’ organization. It also called for sanctions on Supreme Leader Ayatollah Ali Khamenei, President Ebrahim Raisi, and others. The US and UK too imposed fresh sanctions on Iran.

Response

Iran retaliated on January 25th by imposing sanctions on 34 British and European individuals and entities.

Former Central Bank of Iran governor Ali Salehabai had been sacked in December due to failure to control the rapid depreciation of the rial. According to analysts in the region, the Central Bank is injecting dollars into the market to thwart further depreciation.

In late January, the Central Bank decided to raise the maximum amount of currency that can be sold to individuals annually from 2000 euros to 5000 euros, to instill confidence and ward off fears about the availability of currency. The cap was initially introduced to stabilize the currency after the US pull-out of the nuclear deal in 2018.

Iran has not resorted to austerity to tide over the crisis. Instead, President Ebrahim Raisi presented a noticeably enlarged national budget in January to boost growth. Valuing 21,640 trillion rials, the budget is 40% larger than the previous one. The Islamic Revolutionary Guards Corps (IRGC) was allocated $3 billion registering a 28% rise over the last year, in a taunting message to the west.

Recently, Iran introduced gold coin certificates in the stock market to raise cash and mitigate inflation. The government is desperate to raise cash as the government budget is posting a deficit of $9.75 billion. Critics point out unrealistic revenue estimates riding on oil sales and over-optimistic tax collection figures.

To raise revenue, Iran has increased its oil exports to China to more than 1.2 million barrels per day over the past three months. The sanctions have in effect caused Iran to warm up to western rivals like China and Russia. Iran and Russia are reportedly in talks over the introduction of a stablecoin, backed by gold, to bypass western sanctions in cross-border transactions.

Iran’s response to the looming economic crisis was devoid of any extreme desperation. The government took all necessary steps to keep the dread within bounds. The present security situation in the country could go haywire if the economy collapses.

It remains to be seen how fast the government can ensure reliable alternate arrangements in place to sustain the economy. If not immediately, chances are high that the country may drift to panic mode.

Continue Reading

Economy

Prospects of Vietnam’s Economic Growth in 2023

Avatar photo

Published

on

The ongoing  war in Ukraine and increasing commodity prices across the world have impacted the developing countries. Countries in Asia which were recovering from the COVID-19 impact on their economies have to rework their recovery process by looking for alternate supply chains and reducing their financial responsibilities towards social sector through budgetary management. Among the developing economies in Asia , Vietnam showed an economic growth of nearly 3 per cent  even when many of the countries were witnessing  recession and reduced production because of adverse impact of COVID-19 .The stimulus packages that the governments across the world have to give to the manufacturing sector to accelerate production and meet the demands of the people. In a report released by World Bank in August last year it was stated that the Vietnamese economy is likely to grow by nearly 7.2 per cent in 2023 and it is going to sustain itself in 2024 with a likely growth projection of 6.7 per cent. These are encouraging signs .Few of the sectors which might be accelerating the growth process would be in the field of footwear and electronics. Vietnam itself has been undertaking strong anti corruption measures so as to facilitate stronger economic fundamentals and recovery from the COVID-19 impact.

The economic growth of Vietnam has been accelerating and the agricultural sector has been productive in ensuring food security for Vietnamese citizens. As per one of the estimates this sector contributed more than 14 per cent in national gross domestic product and has engaged more than 35 per cent of youth in the year 2020. This sector also earned valuable foreign exchange of more than U.S. dollar 48 billion. One of the interesting achievements of Vietnam has been increasing life expectancy, and its universal health coverage which covers more than 87 per cent of the population.

As per the plan of action which has been envisaged  for Vietnamese economy by its leadership it aspires to become a high income country by the year 2045. It is expected that with the sound economic fundamentals and more than 5.5 annual average per capita growth for the next 2 and a half decades it can reach that milestone. Vietnamese population is also young and is adapting itself for digital economy and building core fundamentals for its membership in different regional economic organisations such as RCEP and CPTPP.The bilateral free trade agreement with EU is also facilitating its growth in several sectors.

There have been significant structural improvements ushered through policy documents in terms of improving financial architecture, accepting global norms related to climate and environment, comprehensive security for population against poverty , and extensive investment in infrastructure development both in rural and urban areas.

In one of the articles written  in Bloomberg it has acknowledged that Vietnam is  now is one of the Asia’s  fastest growing economies which has grown to 8.02% last year and it even surpassed  government assessment of 6 to 6.5 per cent growth. The article also acknowledged the fact that manufacturing has been growing to near 10 per cent mark in comparison to last year and there is strong development in the services sector as well. Among the economies Vietnam’s  inward foreign direct investment has also been doing quite well and it has received nearly US  $27.72 billion last year .Asian Development Bank has forecasted that Vietnam is going to grow at the rate of 6.3% in the year 2023. Also the unemployment rate has reduced and with inflation clearly under 5 per cent , showcases that the long term decisions which we have taken with the initiation of Doi Moi(economic liberalisation process )  in 1986 has been bearing fruits.

In terms of sectoral assessment, the real estate as well as construction  sector ,the growth was about 7.78 per cent last year and the services sector growth was closer to 10 per cent. There have  been increase in exports last year as well and an increase of 10.6% was noticed. One of the core arguments which have been given with regard to Vietnam’s impressive growth has been related to trade liberalization, increased deregulation and improvement in the ease of doing business, investment in human resources and stable government were seen as critical attributes for this impressive growth in Vietnamese economy.

Major companies in footwear, electronics, and mobile production have invested in Vietnamese economy and few of the companies have shifted base from China to Vietnam. Improved  congenial economic environment has been appreciated by companies such as Adidas, Nike and Samsung to list few.

Owing to the development of new kind of digital technologies and better consumer awareness Vietnam is preparing itself for a major impetus in the E- commerce sector and therefore has been making extensive changes in digital based economy and more stress on science and technology development. Vietnam has acknowledged the fact that with the changes in sectoral composition of the economy, it is pertinent to develop necessary skill power and human resources which can seamlessly integrate Vietnam into global value chains and also help the services sector in exploring new markets.

Continue Reading

Economy

The Crippled Economy

Published

on

Lack of money is the root of all evils. Facts do not seize to exist because they’re ignored.

Lack of money is what Pakistan is experiencing and dealing with every now and then for the major part, since it came into existence either due to incompetence of our political leaders, their corruption, fighting wars of someone else or due to lack of long-term vision. Pakistan is currently in the middle of a turmoil trying to recover from devastating floods of 2022, facing the after effects of the withdrawal of USA from Afghanistan in the form of resurgence of terrorism, dealing with the political chaos created by the politicians who claim to be leaders of the state. Another yet most important, severe and devastating challenge that Pakistan is facing is its economic downfall. In one sense the lack of money is the root cause of all the problems mentioned above except the political chaos.

The economy of Pakistan, like a battle-hardened warrior has built resilience battling several challenges over the course of seventy years and is trained to survive but the recent political turmoil and the difficulty caused by nature (Floods), the burden of debts repayment, the threat of resurgence of terrorism and international indicators pointing towards an economic recession in 2023 has almost crushed the backbone of Pakistan’s economy.  

World bank has recently released its latest report forecasting Pakistan’s Gross domestic product (GDP) to grow at only 1.7% for the fiscal year (FY) 2023 that is less than the half of what it predicted to during last June (4%). It has also predicted a near to recession economic situation of the world economy characterized with high inflation, increasing interest rates and the circumstances caused by the Russian Invasion of Ukraine.

Pakistan must reportedly payback 73$ Billion in the next three years till the end of FY2025 and central bank of the country also known as State Bank of Pakistan currently has Foreign exchange reserves of about only 5.6$ billion. This debt repayment is the key challenge for Pakistan’s economic survival and other challenges such as ever-increasing inflation, high interest rate, the growing unemployment, the decrease in imports are all byproducts of the main challenge. The threat of a possible default is becoming evident and is looming over fiscal horizon.

Monsoon on Steroids, a phenomenon directly linked with climate change played havoc with Pakistan. These floods added a profound risk to the country’s economic outlook. The country lost infrastructure worth of billions of dollars and floods effected 33$ million people and 1700 people lost their lives. According to Ministry of Planning and development of Pakistan, Pakistan has faed the loses of more than an estimation of 10$ billion. The catastrophe of floods also played with agroeconomics as crops were destroyed causing destruction of agriculture sector which makes up to 24% of country’s GDP. A comprehensive recovery policy is needed and with the helped promised by international community at Geneva, government has passed one hurdle but to make the sustainable recovery abundance of resources, capacity and transparency is needed.

The policy uncertainty has been a major cause in creating a mistrust among investors and has almost ceased foreign direct investment in Pakistan. This policy uncertainty is due to lack of will of national leaders to take tough decisions. For Example, former prime minister of Pakistan rolled out of International Monetary Fund’s (IMF) program fearing his ousting and to gain public support he reduced prices of commodities such as Petrol & Gas and took country almost on the verge of default.

The policy uncertainty is caused by Political uncertainty which in turn lead towards economic uncertainty. Economic stability can only be achieved by political stability and there’s no other way around. Political stability can be achieved through free and fair elections and elimination of the role of establishment in political process of Pakistan. And if a government takes long-term policy goals into account while formulating a policy rather than short-term goals to gain public support and trying to keep hold on the reins of Government. The selfish politicians have to play selfless and put Pakistan’s benefit before their own benefit to get Pakistan out of this political and economic turmoil.

The only solution in sight for Pakistan is to carry on with the 6$ billion IMF program and to try for rescheduling of depts repayment as it owes more than 70$ billion to be paid by the end of 2025 that is currently not possible. Another step from international community can also help Pakistan that is if a country makes an investment of 10-20$ billion directly rather than in the form of loans as happened in CPEC. Moreover, help from rich friendly Muslim countries can also provide an array of hope for Pakistan.

But these steps won’t address the clear underlying malaise of the economy and the fact that something fundamentally will need to change, in terms of how much the economy produces versus how much it spends, to avoid default down the road. But none of Pakistan’s political parties seem to have the political will or ability to bring about such change. Priorities needs to be shifted from personal interest of political elite to national interest. They must be ready to sacrifice their political image and interest for the greater good and to save the country from default down the road.

Continue Reading

Publications

Latest

Trending