The Challenges Russian Business Face in Africa

By Kester Kenn Klomegah

Undoubtedly,
a number of Russian companies have largely underperformed in Africa, experts
described was primarily due to multiple reasons. Most often, Russian investors
strike important investment niches that still require long-term strategies and
adequate country study. Grappling with reality, there are many investment
challenges including official bureaucracy in Africa.

In order
to ensure business safety and consequently realize the target goals, it is
necessary to attain some level of understanding the priorities of the country,
investment legislations, comply with terms of agreement and a careful study of
policy changes, particularly when there is a sudden change in government.

The
Russian Foreign Ministry published on its official website the text speech of
Deputy Foreign Minister, Mikhail Bogdanov, in which he highlighted the
challenges and problems facing the development of effective Russia-African
economic ties. It was at a special business session of the Urals-Africa
economic forum in Yekaterinburg.

Admittedly,
Bogdanov pointed to the practical span and nature of Russian companies’
business operations in Africa. And of course, he underscored the fact that one
key obstacle has been insufficient knowledge of the economic potential on the
part of Russian entrepreneurs, needs and opportunities of the African region.

“Poor
knowledge of the African market structure, the investment climate and the
characteristics of African customers by the Russian business community remains
an undeniable fact. Africans, in their turn, are insufficiently informed on the
capabilities of potential Russian partners,” Bogdanov said.

Over the
past few years, many corporate Russian companies have shown interests in
investing in the region but feared, in practical terms, to move into action.
Russians observe lots of business theories. Those corporate Russian companies
that managed, at least, to make inroads there, a few have already exited citing
“technical” reasons. An investment review and a business survey
recently by AfBusiness Dialogue & Consultancy show there is more beyond
“the technical and operational” reasons.

In Dec
2018, Russia’s Nornickel terminated its deal with Botswana’s BCL Group.
According to Itar-Tass News Agency, quoting the media release, Russia’s Norilsk
Nickel has terminated its agreement to sell African assets to Botswana’s BCL
Group, including a 50% stake in the Nkomati joint venture.

It said
that the Russian company would continue to seek damages from the BCL Group for
the losses it suffered due to BCL’s failure to meet the terms of the agreement.
The termination of the agreement would also enable Norilsk Nickel to pursue its
own strategy for the African assets, Michael Marriott, Norilsk Nickel Africa’s
Chief Executive, said as quoted by the press service.

“We
will continue to pursue our claims against the BCL Group and the Botswana
Government to recover the significant loss we have suffered as a result of
their unlawful breaches,” Michael Marriott stressed.

In East
Africa, Russia’s RT-Global Resources and Rosneft quitted Ugandan President
Yoweri Museveni’s oil refinery project and many major infrastructure deals.
Russia had pledged US$4 billion but later disagreements over terms and
frustration over in-fighting, intrigue and lobbying forced them to pull out of
the country. The Ugandan government team noted that the Russian consortium
exhibited inadequate assurance and availability of preferred alternative
foreign contractors with comparatively high bidding terms.

Museveni,
at first, favored the Russians because, apart from considering access to
weapons, the Ugandan leadership was also counting on Russia’s world superiority
as a counterweight to both western powers; mainly America, and China. With
Russians and the South Koreans out of the negotiations, Uganda appeared
somewhat desperate, that was back in 2014.

Similar
five years ago, Rosneft also abandoned its interest in the southern Africa oil
pipeline construction, soon after its delegation in Angola had discussed the
possible participation of the Kremlin-controlled company in exploration and
development projects there. That project never appeared despite that fact that
Russia has excellent relations with Angola, Mozambique, South Africa and
Zimbabwe. From both business and political perspectives, the region is
considered as unipolar and a regional power all together with South Africa.

In
addition, Lukoil, one of the Russia’s biggest oil companies, like many Russian
companies, has had a long history, going forth and back with declaration of
business intentions or mere interests in tapping into oil and gas resources in
Africa.

Besides
technical and geographical hitches, Lukoil noted explicitly in an official
report that “the African leadership and government policies always pose
serious problems to operations in the region.” It said that the company
has been ready to observe strictly all of its obligations as a foreign investor
in Africa.

In
August 2015, Lukoil pulled out of the oil and gas exploration and drilling
project that it began in Sierra Leone. According to Interfax, a local Russian
News Agency, the company did not currently have any projects and has backed
away due to poor exploration results in Sierra Leone.

It was
reported that drilling in West Africa, including in Ghana, Côte d’Ivoire and
Sierra Leone, did not bring Lukoil the expected results, as preliminary
technical results did not demonstrated commercial hydrocarbon reserves.
According to official reports, Vice-President Leonid Fedun did not rule out
that Lukoil could withdraw from almost all of the projects in West Africa.

Over the
years, Russian trade experts and business consultants have been discussing ways
to improve overall economic cooperation with Africa. For instance, Andrey
Efimenko, an Expert at the Russian Chamber of Commerce and Industry (CCI) said
in an exclusive interview with me that the Russian Chamber of Commerce and
Trade has closely monitored the activities and performance of Russian companies
in Africa.

“Unfortunately,”
Efimenko regrettably pointed out, “some large Russian companies operating
in Africa, has managed to establish itself negatively in a number of countries
there. This is primarily due to ignorance of cultural peculiarities of the
region, lack of social responsibility, failure to completely fulfill
contractual obligations. These cases damage the image of Russia and Russian
companies with further entering the African market.”

All of
these developments, more or less, have degraded Russia’s image of Doing
Business in Africa. On Dec 19, 2018, the Valdai Discussion Club hosted an
expert discussion on Africa. Oleg Barabanov, Program Director of the Valdai
Discussion Club, highlighted the investment prospects and their influence there
by foreign players, and further analyzed the existing perspectives and
challenges for potential Russian investors.

In her
contribution, Nataliya Zaiser, Chairperson of the Board of the African Business
Initiative (ABI) – a Moscow based business NGO, stressed that economic
cooperation with African countries is not only a Russian initiative, but also a
response to request from partners. Despite this mutual interest and potentially
fruitful projects, Nataliya Zaiser said that there were still few really
successful cases on the continent.

Andrei
Maslov, Coordinator of the work/project on the Russia Africa Shared Vision 2030
report, Integration Expertise Analytical Center, said that in comparison with
the situation a decade ago, today Africa is not only the main initiator of
dialogue with Russia, but also it is much more ready for it. If earlier the
economic landscape of the continent was determined by Western companies with
their colonial approaches, now Africa is ready to become an equal partner,
according to the Valdai report.

However,
there are problems: Maslov echoed Nataliya Zaiser by saying that about 90% of
the projects end in failure. In order to overcome this discord, the
coordinating role of the state is needed, which, together with the private
business, should prepare a roadmap and set targets for the development of
various industries. The driver of economic cooperation, according to Maslov,
can be private, rather than top-down initiatives.

“For
us, Africa is not a terra incognita: the USSR actively worked there, having
diplomatic relations with 35 countries. In general, there are no turns,
reversals or zigzags in our policy. There is a consistent development of
relations with African countries,” according to Oleg Ozerov, Deputy
Director of the Africa Department at the Ministry of Foreign Affairs of the
Russian Federation.

Signing agreements is not absolutely the best ultimate guarantee to the success of investment, however it provides legal basis. As the situation develops and interest continues to rise, Russian investors have to make part of the financial budget also for private consultancy services, as many foreign players do, and prepare to learn more about investing in Africa.

Kester Kenn Klomegah writes frequently on Russia, Africa and the BRICS.

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