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The Russian Bear Visits Old Friends
Last Updated: 2014-01-15 16:36 | Frontier Advisory
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By Hannah Edinger and Simon Schaefer

In comparison with Chinese, Indian and Brazilian activities in Africa, giant Russia currently still seems rather like the little brother. Yet the country's interest has been revived - and is growing.

During his visit to Russia in 2010, South African President Jacob Zuma described Russia as an old friend of the people of South Africa", referring to the role the former Soviet Union played during the liberation struggle of the African National Congress (ANC) against the apartheid regime. In the Cold War era, Moscow provided both military and economic support to a number of African states and liberation movements. For many young nations on the African continent which were emerging from colonial rule, the Soviet Union's assistance was a welcome alternative to the assistance from the West, which was often labeled imperialistic. However, countries such as Angola, Ethiopia, Mozambique and Zaire (now the Democratic Republic of the Congo) found themselves as the pawns of the competing superpowers of that time - the United States of America and the Soviet Union - and became the scenes of bloody proxy wars. In the course of the anti-imperialist struggle propagated by the Soviet Union, many Africans - including future political leaders such as South Africa's Thabo Mbeki, Angola's Jose Eduardo dos Santos, and Egypt's Hosni Mubarak - received both military and civilian training in the Soviet Union.

Rediscovered Interest in Africa

With the collapse of the Soviet Union and the end of the Cold War, Moscow's interest in Africa faded. By the turn of the millennium, the Russian government under Boris Yeltsin (1991-1999) was paying Africa little attention. As such, Russia's relations with Africa during the 1990s are often described as a lost decade. Strong economic growth following turmoil in the Russian financial market at the end of the 20th century and the upswing in international commodity markets revitalized Russian foreign trade and led to an increase of Russian investment abroad.

This reinvigoration of foreign trade can also be seen in the growth of the movement of goods between Russia and Africa. While between 1995 and 2000, trade flows between Africa and Russia ranged from USD 1 to USD 1.5 billion, Russian-African trade has grown to USD 9.3 billion in the last ten years. Although the trade figures of the other BRICS countries dwarf Russia's trade f lows with Africa and these f lows only account for not more than 1.1% of Russian foreign trade, the rapid increase in two-way trade reflects Russia's rising interest in Africa.

Narrow Focus

This strong upward movement should not obscure the fact that Russia's trade with Africa is concentrated among a handful of countries and products. On an annual basis, Russia reports a trade surplus of approximately USD 5.5 billion with Africa. In 2012, Egypt, South Africa, Morocco, Cote d'Ivoire and Kenya were among Russia's major export partners on the African continent and were responsible for more than two thirds of African exports to Russia. These exports primarily consist of agricultural products such as nuts, fruits, cocoa and tobacco. Africa's imports from Russia are even more heavily concentrated and, in 2012, primarily went to Algeria, Egypt, Morocco, Tunisia and South Africa. These five nations received close to 82% of all Russian exports that reached the continent. Africa predominantly imports cereals, timber and fuels from Russia. Similar export profiles dominated by raw materials limit trading opportunities between Africa and Russia.

Investment in Oil and Gas: Geo-strategic Interests

Parallel to the expansion in trade, the number and volume of Russian investments in the continent has also increased over the past ten years. In its investment activities, Russia frequently attempts to revive relationships from the Cold War. As in other regions, primarily large Russian companies focusing on resource extraction are investing in Africa.

For example, Styoytransgaz, Lukoil and Rusneft have each invested more than USD 3 billion in crude oil and natural gas projects in Algeria, Nigeria, Angola and Egypt. Gazprom has signed deals worth billions of dollars in Algeria and Nigeria, providing the Russian gas giant access to gas fields. In addition, Gazprom is negotiating with both countries the construction of a gas pipeline connecting the natural gas fields of Nigeria with Algeria's Mediterranean coast, which will ultimately provide Nigerian gas access to Europe.

Taking into account that Russia is one of the largest producers of oil and gas, it may seem at a first glance surprising that Russian oil and gas companies increasingly seek access to oil and gas fields in Africa. However, according to a number of Western commentators, Russia's ambitions in Africa are mainly driven by geo-strategic interests. While Russia and the United States used to be the only superpowers during the Cold War, Russia's influence in the global arena has dwindled since the fall of the Iron Curtain and the country's economic problems that came with it. In recent years, the domestic economy has stabilized and, with state coffers filling up rapidly thanks to rising revenues from commodity exports, Russia has been able to establish its geopolitical strength. Greater access to and control over gas reserves in Africa would strengthen Russia's status as a key supplier of gas to Europe. Moscow - and this is the fear - would then soon be in a position to leverage its control over gas supply to Europe for its political interests. In this context, the President of the European Commission, Jose Manuel Barroso, has spoken of a looming energy dependence crisis". It is understandable that such a scenario is viewed with concern in Brussels and European capitals; however, it must not be ignored that European companies play a much more significant role in Africa's oil and gas sector and that Europe meets a large share of its energy requirements from Norwegian, British and Dutch gas production.

Africa's Mineral Resources to be Increasingly Attractive in Future

In addition to this investment in natural gas and crude oil, Russian mining companies such as Rusal, Renova Group, Alrosa and Norilsk Nickel are also becoming more and more interested in Africa's nickel, diamond, copper, iron ore, manganese, uranium and palladium deposits. In 2004, for example, Norilsk Nickel - the world's biggest nickel and palladium producer - acquired 30% of Gold Fields (the South African mining company) for USD 1.6 billion. In addition, Norilsk Nickel spent USD 5.2 billion in 2007 on the acquisition of Canadian mine operator Lion Ore. This transaction gave the Russian mining giant control of 85% of Botswanan firm Tati Nickel and 50% of South African Nkomati Nickel, thereby consolidating its position as the world's leading producer of nickel. This trend is set to continue and will escalate as soon as Russian deposits of raw materials are depleted or can only be exploited at great technical and financial expense.

Other Activities: Financial Services and Technology

Aside from Russia's commodity investments, a small number of Russian companies are active in the financial services and technology sectors in Africa. Renaissance Capital, a leading Russian investment bank specialized in emerging markets, as well as VTB Bank are among the most prominent and most active Russian financial service providers in Africa. Renaissance Capital has been operating in the investment banking sector in Africa since 2006 and is now a serious player in the real estate sector, having provided several billion dollars for real estate projects in Nigeria, Ghana, the Democratic Republic of the Congo, Zambia and Kenya.

In one of the biggest takeovers of the recent past within the mobile telecommunication industry, Russia's VimpelCom gained control of Egypt's Orascom in 2011.

Compared to other BRICS Countries: Diversification Necessary

Despite all efforts, such as state visits to strategically important countries and the provision of substantial debt relief (in 2008, Russia canceled approximately USD 16 billion of Africa's Soviet-era debt and another USD 20 billion in 2012), Russia appears to be trailing substantially behind its BRICS partners in the scramble' for Africa. Whether and when Russia can catch up with its allies will depend on Russia's efforts to diversify. The faster and more seriously Russia relaxes its focus on energy investments and turns its attention to other sectors, the sooner it will be able to bolster its position on the African continent.

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