To Africa with Love

By Asoka Ranaweera

The writer is the founder and CEO of a company that advises investors on structuring investments and developing projects in West, East and Central Africa

Recently, Russia has made a comeback of sorts in Africa. The collapse of the Soviet Union in 1991 ended Russian engagement in Africa for the better part of a decade and a half. Preoccupied as it was with the chaos that followed the collapse of the U.S.S.R., Russia’s retrenchment was rapid.

Beginning in the 1950s and the decades that followed, the Soviet Union actively competed against the United States in Africa arguably with some success. African national liberation movements looked to the Soviet Union as an alternative to the colonial ideologies many of which were centered on free market capitalism.

In the Soviets, Africans found ideological, political, monetary and military support, as fledging states sought to establish their own separate identities and paths to development. For example the Soviet Union provided vital support to the African National Congress (ANC) in its struggle against apartheid in South Africa.

The U.S.S.R played important roles in the independence of Angola and Mozambique. And it forged often fractious relations with countries such as Egypt, Ethiopia and Somalia. In short between 1950 and 1991 the Soviets aimed to extend their influence at every available junction throughout Africa much to the alarm of America and its European allies.

The sudden collapse of the Soviet Union deprived Africans of an alternative to the west, a vacuum that within a decade would be filled by China’s rapid international ascent. In some respects China’s rise globally and in Africa may partially explain Russia’s reengagement with the continent today.

It was not without coincidence that president Medvedev visited Africa in 2009 with a 400 person delegation in tow at a time when much was being said about China’s new found prominence in Africa. Medvedev’s visit was the second such trip for a Russian president since Putin debuted in 2006 when he visited South Africa. To put this in context, prior to this no Soviet or Russian leader had visited Africa since the late 1970s and 1980s.

The Russian biznismen that accompanied Medvedev to Nigeria, Angola, Namibia and Egypt came armed with dollars and agreements to build power stations, set up diamond mines and construct gas pipelines. No doubt part of Russia’s reengagement is rooted both in political and economic competition not just with China but with America and Europe too. It is also in part probably an expression of its view of a multi-polar world post-Iraq and Afghanistan.

But one also gets the impression that a lot of Russia’s recent activities in Africa demonstrate a savvy understanding of the socio-political and economic dynamics that are shaping the future of the continent driven by the rapid urbanization of many societies globally. Africa has what many people want the minerals and natural resources that growing societies need in abundance.

Russia is a country with lots of minerals and natural resources and like in Africa these are often in hard to reach places. And Russian’s are skilled at extracting invaluable resources from geographically forbidding places in their own difficult political environment.

The biznismeni see a good opportunity not unlike the opportunities that greeted many a Russian entrepreneur at the dawn of their country one and a half decades earlier. The logic is surely the earlier you get in the more profit you can make and the more control you can have. No wonder then that companies like Gazprom, Alrosa, Renaissance Capital, Rusal, Severstal and Rosneft, are making their presence known in Africa.

However one need not be alarmed just yet. For example bilateral trade between Russia and Nigeria was only $300 million in 2008 whereas it was $11 billion with China. In fact overall trade with Africa is currently estimated only at a few billion dollars per annum. What’s interesting though is that the stock of overall Russian investment estimated at $5 billion continent wide maybe larger than China’s direct investments in Africa to date. And herein in these investment figures may lie the ultimate opportunity for Africans.

With approximately 400,000 Africans over the years educated in Russian universities, there exists in many African countries a natural constituency that could be put to good use. Their understanding of Russian language and culture means that there is a group of people who could potentially form invaluable partnerships with Russian companies.

In other words many of the Soviet/Russian educated African professionals could partner up with and manage projects and ventures. In contrast China prefers to bring in not only management from the mainland but labourers too, which is a source of growing irritation in Africa.

Whereas Chinese financial involvement is significantly greater than Russia’s, it is the latter and not the former that appears to be making more long term investments in Africa. At least that is the impression. This anomaly arises because Chinese financial involvement in Africa tends to favour concessional loans, which is a debt obligation for the recipient country, whereas Russian companies it appears make direct investments of cash.

For Africans this also has bigger implications. For one the ability to have yet one more choice in an investment partner other than America, Europe and China. But more importantly the ability to seek better choices when analyzing what form and shape the investment should take.

In effect the competition for Africa’s resources should in theory lead to better offers for Africans from America, Europe, China and Russia. In the case of the Chinese it could lead to more inward foreign direct investment. Beijing’s current preference is to use debt financing to fund projects in Africa. If China is to continue winning projects in Africa it may have to offer better terms than Moscow, which in turn should be nothing but good news for Africa.

Therefore, Russia’s reengagement in Africa presents Africans with an opportunity to gain access to new methods of financing their development, better investment and management terms at least in theory, a great deal of technical expertise in complex natural resources projects and diplomatic support globally. As Russia looks to Africa with new found love, Africans should reciprocate these feelings carefully and wisely for they have much to benefit from if they play their cards correctly.