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Saturday, 30 August 2014 15:08

Trade Between Russia and Africa Below Expectation

RussWithLoveBy Kester Kenn Klomegah

ASTANA, Kazakhstan, August 30, 2014 (Buziness Africa) -- Interestingly, there are few Russian traders in Africa and African exporters are not trading in Russia's market due to multiple reasons including inadequate knowledge of trade procedures, rules and regulations as well as the existing market conditions. In May 2014, Russian Foreign Minister Sergei Lavrov wrote in his article: "we attach special significance to deepening our trade and investment cooperation with the African States. Russia provides African countries with extensive preferences in trade."

Lavrov wrote:"At the same time, it is evident that the significant potential of our 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. The creation of a mechanism for the provision of public support to business interaction between Russian companies and the African continent is on the agenda."

 

Reports showed that Russia has started strengthening its economic cooperation by opening trade missions with the responsibility of providing sustainable business services and plans to facilitate import-export trade in a number of African countries. But, these Russian trade centers can also embark on "Doing Business in Africa" campaign to encourage Russian businesses to take advantage of growing trade and investment opportunities, to promote trade fairs and business-to-business matchmaking in key spheres in Africa.

 

Statistics on Africa's trade with foreign countries vary largely. For example, the total U.S. two-way trade in Africa has actually fallen off in recent years, to about $60 billion in 2013, far eclipsed by the European Union with over $200 billion and China, whose more than $200 billion is a huge increase from $10 billion in 2000, according to a recent Africa in Focus post by the Brookings Institution.

 

Reports available show that between 2002 and 2010, Russia's total trade with Africa increased by 16 percent, while imports and exports increased 19 percent and 14 percent respectively. For some time, Russia has been concerned with China's growing presence in Africa. And that points to the fact that Moscow has to step up its activities, whether between governments or private enterprises, more strategically in African countries. For many Russian and African analysts and policy observers, they believe that public-private partnership (participation) strategy in promoting trade will help significantly to polish part of the soft power image both in Russia and Africa.

 

According to the African Development Bank, Africa's economies are growing faster than those of any other continent. Nearly half of Africa's countries are now classified as middle income countries, the numbers of Africans living below the poverty line fell to 39 per cent in 2012 as compared to 51 per cent in 2005, and around 350 million of Africa's one billion people are now earning good incomes – rising consumerism - that makes trade profitable.

 

As far back June 2009, Namibian President Hifikepunye Pohamba suggested to Dmitri Medvedev to consider opening Russia's market for African produce and services, a proposal that has still not been raised for serious public discussion. On the other hand, Medvedev said Russia would also like to see "a considerable share of Russian companies on the African market," and that many foreign companies, particularly from the U.S. and China are currently operating in Africa.

 

Of course, there are various ways to open the burgeoning market for Africa. One surest way is to use the existing rules and regulations. The preferential tariffs for agricultural products exist but only few African exporters use them, mainly from South Africa, Kenya, Morocco and Egypt. Russian authorities should make it possibible for more individual African countries to negotiate for their products to enter the market. The African regional economic blocs can be useful instruments for facilitating trade between Africa and Russia.

 

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.

 

Most of the experts interviewed for this story are sceptical about the trade benefits and wondered if Russia is really prepared to open the market for Africa, while others still believe strongly that Russian authorities have to provide trade incentives. An academic researcher at the African Studies Institute in Moscow believes that the trade preferential for only traditional African goods would really not promote a large scale trade, unfortunately Russia's trade with Africa is mostly concentrated in weaponry and military hard-wares.

 

"I think there is a narrow sphere for African traditional products. There is some interest in African culture in Russia. But still, I think that art and crafts trading cannot promote reciprocal trade radically. As to tea and coffee trade, it would face keen competition from other global brands. For example, cocoa is needed by our chocolate processing plants. So, I do not think that it will be a significant promotion in trade," Oleg Kavykin, a Research Fellow at the Center for Civilisation and Regional Studies of the African Studies Institute in Moscow, quoted by Inter Press Service.

 

"It is worth saying that Russia (as China and India are currently doing) should embark on trade facilitation measures, which would have to include simplification of import-export procedures (customs, warehousing and transportation) to encourage trade with African countries," according to Professor Kavykin.

 

Some say it's probably both a mix of negative perception and inadequate knowledge about the emerging business potentials that might have an impact on trade development between Russia and Africa. But, Peter Osei-Adjei, an Expert on Financial Valuation and Ligation in Dallas, Texas, says assertively that Russia can facilitate trade with Africa. Trade facilitation focuses on lowering the cost of doing business by minimizing regulations and procedures required to move goods and services across borders.

 

"Russia can change the equation, if it plans to do so. Russian authorities can even shift focus and transfer their technology to agriculture, and oil and gas in Africa which is booming these days. But, do you think they will give up their competitive advantage in arms and deal with agriculture or agricultural products?," he asked rhetorically.

 

"The fact is that, Russia's two main export products are natural resources and military hardware. And that's what matters to them, for real! As we are aware already, in Africa we only need their arms or the military equipment for the numerous conflicts going on in the region. Russia has never being a partner in Africa when it comes trading agricultural products, and this is not just about Africa, rather, it's the same trend even in the Middle East and Asia," Osei-Adjei told Buziness Africa.

 

Peter Osei-Adjei is not the only expert with similar views that Russia's market is attracting new export partners especially those in Latin America and Asia, and are hoping to capitalize on Russia's ban on importing food from the from Europe, the U.S., Australia, Canada and Norway. The experts believe that new trade alliances are emerging and have "great potential for growth" amid the economic sanctions.

 

Maxim Matusevich, an Associate Professor and Director, Russian and East European Studies Program at the Seton Hall University, told me in an interview discussion that "in the past decade there was some revival of economic ties between Africa and Russia - mostly limited to arms trade and oil/gas exploration and extraction. Russia's presence in Africa and within African markets continues to be marginal and I think that Russia has often failed to capitalize on the historical connection between Moscow and those African elites who had been educated in the Soviet Union."

 

"It is possible that the ongoing crisis in the relations between Russia and the West will stimulate Russia's leadership to look for new markets for new sources of agricultural produce. But again, it is not clear if Africa could be their choice – many African nations possess abundant natural resources and have little interest in Russia's gas and oil. As it was during the Soviet times, Russia can only offer few manufactured goods that would successfully compete with Western-made products. African nations will probably continue to acquire Russian-made arms, but otherwise, I see only few prospects for a diversification of cooperation in the near future," added Maxim Matusevich.

 

Jeff Sahadeo, Director, Russia & Eurasia Studies at Carleton University in Canada, told me that with the current conflict between the United States and members of the European Union on one side and Russia on the other side, Russia and African countries could now use the chance to strengthen their trade relations. "Everything is quite fluid now with the tension between the West and Russia, Africa may be able to offer more food sales in the wake of the embargo President Vladimir Putin has slapped on several Western countries," Sahadeo noted firmly in his email discussion.

 

Philip Kobina Baidoo Jnr, a Policy Researcher and Analyst noted in an email interview to Buziness Africa that Russia has been slow in expanding trade into the region compared to Brazil, India and China of the BRIC bloc that are rather aggressive about deepening economic cooperation with Africa, but one major advantage is that Russia has huge oil reserves and natural resources, and is better placed to use a small part of the revenues to drive its foreign policies globally.

 

He, however, recalled that back in 2008 when Russia announced a preferential tariff regime for developing countries which granted duty-free access for African products, but 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 which 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. Russia exports little except oil and has (roughly 2/3 of exports), steel and metals (which is either not cost effective to sell in Africa, or again is the same as Africa is selling) and military weapons.

 

Keir Giles, an Associate Fellow of the Royal Institute of International Affairs (Chatham House) in London and a regular contributor to research projects on Russia in both the UK and Europe, told Buziness Africa in an email 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 doesn't 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 hasn't 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. 

 

Experts, who have researched Russia's foreign policy in Africa, at the Russian Academy of Sciences' 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. As a reputable institute during the Soviet era, it has played a considerable part in the development of African studies in the Russian Federation.

 

"The situation in Russian-African foreign trade will change for the better, if Russian industry undergoes 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 the views of Professor Aleksei Vasiliev, the Director of the RAS Institute for African Studies and full member of the Russian Academy of Sciences, and Evgeny Korendyasov, an Expert at the RAS Institute for African Studies.

 

*Kester Kenn Klomegah is a keen foreign policy observer and an independent researcher on China’s and Russia’s policy in Africa. In 2004 and 2009, he won the Golden Word Prize for series of analytical articles highlighting Russia’s economic cooperation with African countries.  (Source: Buziness Africa)

 

 
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