russia and africa: long-term trade and economic …...the russia and africa: longterm trade and...

Moscow, October 2019

Prepared specially for Economic forum Russia—Africa

Information and analytical digest

Russia and Africa: Long-Term Trade and Economic Partnership

THE RUSSIA AND AFRICA: LONG-TERM TRADE AND ECONOMIC PARTNERSHIP 1

AFRICA

In this report, the term «Africa» denotes 54 countries located at the African continent and grouped into five regions as given in the official UN statistics . The countries and regions are listed in the Appendix to the report.

NorthernAfrica

EasternAfrica

SouthernAfrica

CentralAfrica

WesternAfrica

GUINEA

MOROCCO

ALGERIA

TUNISIA

LIBYA EGYPT

CAPE VERDE MAURITANIA MALINIGER

CHAD SUDAN ERITREA

ETHIOPIA

DJIBOUTI

SOM

ALIA

SENEGALTHE GAMBIA

BURKINAFASOGUINEA-

BISSAU

SIERRA LEONE

LIBERIA

CÔTED'IVOIRE

GHANATOGO

BENIN

NIGERIA

CAMEROON

CENTRALAFRICAN REPUBLIC

UGANDAKENYA

SAO TOMEAND PRINCIPE

EQUATORIALGUINEA

GABON

REP

. O

F TH

E C

ON

GO

DEMOCRATIC

REPUBLIC OF THE

CONGO

RWANDA

TANZANIA

BURUNDI

ANGOLA

ZAMBIAMALAWI

MO

ZAMBIQ

UE

NAMIBIA

BOTSWANA

ZIMBABWE

SOUTH

AFRICA

ESWATINI

LESOTHO

MAD

AGAS

CAR

COMOROS

MAURITIUS

(undetermined status)

WesternSahara

SOUTHSUDAN

Mayotte(admin by Fr.)

Reunion(Fr.)

Saint Helena(U.K.)

Ascension(U.K.)

The Canary Islands(Sp.)

Madeira(Port.)

THE RUSSIA AND AFRICA: LONG-TERM TRADE AND ECONOMIC PARTNERSHIP2

ABBREVIATIONS AND ACRONYMS:

CA – Central Africa

EA – Eastern Africa

EAEU – The Eurasian Economic Union

FCS – The Federal Customs Service of Russia

FDI – foreign direct investments

GDP – gross domestic product

ITC – The International Trade Centre

NA – Northern Africa

SA – Southern Africa

UN – The United Nations

WA – Western Africa

WTO – The World Trade Organization

The Russia and Africa: Long-Term Trade and Economic Partnership report gives an overview of Africa’s role in global economy, the current state of Russian–African relations, and main trajectories of their development.

The economic analysis in the report is done on three levels. To present Africa as a continent with its unique economic features, the report provides aggregate data for all African countries. To highlight the specifics of Africa’s regions, some data is given on a regional scale. Finally, to focus the readers’ attention on the specific aspects of individual African economies, the report supplies quantitative or qualitative data for individual African countries.


CONTENTS

Summary 4

Preface 5

1. Africa in Global Economy 6

1.1. Economic Policy of Africa 6

1.2. Macroeconomic Indicators 6

1.3. Business Environment 8

1.4. Foreign Direct Investments 9

1.5. Africa in Global Trade 12

1.6. Africa’s Economic Integration 14

2. Trade Relations Between Russia and Africa 15

2.1. Analysis of Mutual Trade 15

2.2. Russia: Export of Goods 16

2.3. Russia: Export of Services 21

2.4. Russia: Import of Goods 23

2.5. Importance of the Russian Market for Africa 26

2.6. Russia’s Economic Integration with African States 27

Conclusion 29

Appendix. List of states and regions of Africa 30


SUMMARY

1. Africa continues to build up its appeal in trade and investment. The countries of the region are getting increasingly involved in international trade and integration processes, are scaling up their GDPs and carrying out regulatory reforms that improve the business environment. Despite the fact that the growth of GDP and FDI in Africa is slowing down, the rates of growth are expected to remain higher than those in other developing countries or emerging economies.

2. NA is the leading African region both in terms of export and import and in terms of FDI. The lowest export figures are found in EA, and the lowest import figures in CA. In Russian–African trade, the greatest growth in absolute terms in 2018 compared to 2014 was observed in NA for export from Russia to Africa and in CA for import to Russia.

3. The trade turnover between Russia and Africa is currently dominated by Russian exports (85.6%) which continue to grow. The pace of growth outstrips the average growth rate among all Africa’s trade partners. If this trend continues, Russia might soon increase its share in Africa’s total imports. Today, it is rather small, standing at approximately 3%.

4. The greatest export growth is found in such commodity groups as cereals, fuels, and ships. Other groups that show potential for growth are mechanical equipment and machinery, computers, electrical appliances and communications equipment, and motor vehicles. The commodity structure of Russia’s exports to Africa, revealed as a result of the calculations done in this report, becomes a driver of the development of high productivity export-oriented sectors of Russia’s economy.

5. Russia’s exports to Africa are insufficiently diversified. For example, in the case with Morocco, the third largest importer of Russian goods, two main commodity groups account for 80% of all Russia’s exports to this country. Africa chiefly imports non-commodity products. The share of such products in the imports from Russia is currently smaller than that in Africa’s total imports from all countries. The share of upstream products imported from Russia differs from the global average even more strikingly.

6. In the service sector, export of education services appears to be the most promising segment, particularly since Africa is currently demonstrating an increased interest in this area.

7. Russia’s imports from Africa account for a much smaller percentage of the total trade turnover (14.4%) but, as in the case with exports, the pace of import growth outstrips average growth rates among all Africa’s trade partners. The greatest growth is seen in Russia’s import of ores and inorganic chemicals. Precious metals and stones, as well as copper, can also be considered promising commodity groups.

8. For African countries, Russia is one of the key target markets, and its importance continues to grow. At the same time, African exports to Russia are insufficiently developed compared to exports to a number of other countries. However, the growth rate of Russia’s imports from Africa remains higher than the average rate for all Africa’s trade partners.

9. Russia must increase its FDIs to Africa because its share is currently the smallest among the BRICS states. The rates of GDP growth and the business environment in individual African states can serve as indicators for making investment decisions. The largest proportion of all global FDIs in Africa is formed by the telecommunications, media, and technologies sector, as well as FMCG, retail, and transportation services.

10. For Russia as an EAEU member state, the free trade agreement between EAEU and Egypt (in case the negotiations are successfully completed) will open up Egypt’s market, make it possible to expand and diversify the trade, and will also unlock the markets of other countries which currently have trade agreements with Egypt. In addition to that, Russia and Egypt are actively communicating in the area of industrial cooperation. This experience can be extended to potential negotiations on trade liberalization and industrial integration with other countries.


PREFACE

1 https://www.afdb.org/en/documents/african-economic-outlook-aeo-2019-english-version2 https://roscongress.org/en/news/russian-president-sends-message-to-participants-in-first-russiaafrica-economic-forum/

The role of Africa in global economy keeps growing from year to year. According to the calculations done by the African Development Bank, the growth rate of aggregate real GDP of the African countries will reach 4.0% in 2019 and 4.1% in 2020. Though these growth rates will remain lower than those in China and India, they will nevertheless exceed the average growth rate in other developing countries and emerging economies1.

To reach their objectives, African states will have to continue taking systematic step-by-step measures aimed at solving the currently existing problems in the region’s economy, trade, and the social sphere. The main challenges still faced by the African society today are hunger, diseases, low education, underdeveloped infrastructure, dependence on resource exports, and the influence of foreign monopolies.

Strengthening trade and economic ties with other countries is an instrument for overcoming these difficulties – and, consequently, a driver for African economies. This is the underlying cause for the growing efforts of African governments to build long-term relationships with foreign partners in trade and economy.

The Russian Federation, in its turn, has been demonstrating a noticeably growing interest in the African continent in recent years. In his address to the participants of the first Russia–Africa Economic Forum which is to take place this October in Sochi, President of the Russian Federation Vladimir Putin stressed the importance of achieving progress in the collaboration between the countries and remarked on the positive experience with implementing joint projects2.

When working towards strengthening the economic ties with African countries, Russia, like all other partners, must bear in mind all the newest trends in Africa’s development which include delegation of authority to supranational organizations (the African Union and other regional associations), ecologically sustainable development of human capital and the infrastructure, formation of the ICT market, development of Big Data and AI, and other equally important processes.


1. AFRICA IN GLOBAL ECONOMY

1.1. ECONOMIC POLICY OF AFRICA

3 https://www.afdb.org/en/high5s4 https://www.afdb.org/en/about-us/mission-strategy/afdbs-strategy5 https://www.afdb.org/en/documents/african-economic-outlook-aeo-2019-english-version6 https://data.worldbank.org/indicator/ny.gdp.mktp.cd

In 2015, the African Development Bank, the principal pan-African development institution which members are all African countries and whose mission is to promote economic development and industrialization of African countries, set down five priorities for Africa’s development3 (High 5s) up to 2025.

The priority development areas were identified based on the Bank’s Ten Year Strategy for 2013–20224, reflect the intentions of the entire African continent and include the power industry, agroindustry, industrialization, integration, and improving the quality of life of Africa’s population. In these areas, African authorities, businesses, and the society must reach or get as close as possible to the stated objectives which include providing extra 150 million people with adequate nourishment, generating 162 GW of electricity, building regional infrastructure, providing access to water and sanitation, improving healthcare, etc.

1.2. MACROECONOMIC INDICATORS

Due to the relatively high inflation in Africa (average rate of inflation was 10.9% in 20185), it is more reasonable to estimate economic growth through changes in real GDP. According to the World Bank data6, in 2018, the growth in real GDP in the region (in 2010 prices) was approximately 3.2%, which roughly corresponds to the figure for 2017 (3.1%) and exceeds the 2016 figure (1.7%).

Fig. 1 Real GDP growth (in 2010 prices) in Africa by region, 2014–2018, %

0

1

2

3

4

5

6

7

3.2Africa

as a whole

3.2Africa

as a whole

7.0

3.7

3.6

0.9

0.7

WA

NA

EA

CA

SA

2014 2015 2016 2017 2018

Source: built by ITI based on World Bank data


According to the World Bank, the countries with the largest real GDP are still Nigeria (USD 469.4 bn in 2018), South Africa (USD 429.9 bn), and Egypt (USD 286.1 bn), while the best regions are NA (31.8% of total real GDP of Africa) and WA (27.0%)7.

The highest rates of GDP growth in 2018 were found in Rwanda (8.7%), Guinea (8.7%), Libya (7.8%), and Côte d’Ivoire (7.4%). The slowest growth in the period under analysis was demonstrated by Equatorial Guinea, Sudan, Angola, and Namibia. Among other things, the GDP growth rates affect the opportunities for attracting FDIs. This issue will be considered below.

Real GDP per capita (in 2010 prices) was lower than the global average (USD 13,665) in all the African countries except the Seychelles. The leaders here were the above-mentioned Seychelles (USD 14,385), Equatorial Guinea (USD 10,602), Mauritius (USD 10,579), and Gabon (USD 9,077). To compare, the corresponding figure for Russia is USD 11,729.

While the majority of African economies remain resource-based, the leading African development institutions are striving to increase the contribution of manufacturing to GDP. For example, the African Development Bank, as part of its mission of industrializing African countries, has set an objective of increasing the share of manufacturing in GDP by 130% by 2025 (compared to 2015)8.

7 Djibouti, Somalia, Eritrea, and South Sudan (all of which belong to EA) are excluded from the GDP analysis due to absence of data. 8 https://www.afdb.org/en/the-high-5/industrialize-africa


1.3. BUSINESS ENVIRONMENT

9 https://russian.doingbusiness.org/content/dam/doingBusiness/media/Annual-Reports/English/DB2019-report_web-version.pdf10 Sub-Saharan Africa includes all the African regions except NA.

Business conditions in individual countries are assessed by the World Bank based on its ease of doing business ranking which presents quantitative indicators on business regulation and the protection of property rights. To calculate Doing Business scores, the World Bank assesses business regulation related to starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, and other aspects of business activity. Based on the scores, the global Doing Business ranking is compiled.

Table 1. African states with the highest and the lowest positions in the Doing Business 2019 ranking

№ Country Position in the ranking Change in 2019 compared to 2018

1 Mauritius 20 +52 Rwanda 29 +123 Morocco 60 +94 Kenya 61 +195 Tunisia 80 +8 50 DRC 184 -251 South Sudan 185 +252 Libya 186 -153 Eritrea 189 054 Somalia 190 0

Source: built by ITI based on data from the Doing Business 2019 and Doing Business 2018 reports of the World Bank

In 2019, the leading African countries in the Doing Business ranking are Mauritius, Rwanda, and Morocco, all of which have considerably improved their results. To compare, Russia was placed 31st in the 2019 ranking. The most notable improvement was demonstrated by Djibouti, Togo, Kenya, Côte d’Ivoire, and Rwanda9.

One-third of all regulatory reforms (107 reforms) were carried out in Sub-Saharan Africa10 which broke its own record among macroregions set last year (83 reforms). Nevertheless, Sub-Saharan countries still lag behind other countries of the world in all the areas assessed as part of calculating the Doing Business scores. A considerable difference between the African countries and the Doing Business champions is found in the spheres of trading across borders and getting electricity. The greatest gap is seen in the area of resolving insolvency. Regulation on starting a business in Africa was found to be less constraining.

...


1.4. FOREIGN DIRECT INVESTMENTS

11 https://www.ey.com/Publication/vwLUAssets/ey-africa-attractiveness-2019/$FILE/ey-africa-attractiveness-2019.pdf12 https://africainvestmentforum.com/13 https://www.ey.com/Publication/vwLUAssets/ey-africa-attractiveness-2019/$FILE/ey-africa-attractiveness-2019.pdf

According to the data11 by FDI Intelligence and Ernst & Young, the volume of FDI channeled to Africa continues to decrease, falling down to USD 75.5 bn in 2018. As yet, Africa has not managed to restore the FDIs to 2014 level, so the current volume of FDI remains lower than the five-year average. However, considering a weighted average which factors in the number of investment projects, the number of jobs created, and the volume of attracted capital, it can be stated that the level of FDI in the region is generally stable. On the positive side, the number of jobs created as a result of attracting FDI reached a five-year high of 170 thousand.

In the long-term, the current downward trend in capital attraction poses a problem as FDIs are a crucial factor in accelerating industrialization and achieving sustainable development. To reverse this trend, the African Development Bank has established the African Investment Forum as a platform for facilitating the development of investment projects and their financing. In 2019, the forum will take place in November in the Republic of South Africa12.

Table 2. Largest investors in Africa in 2014–2018

№ Country Investment volumes, USD bn

Number of investment projects

Jobs created, thousand

1 China 72.2 259 1372 France 34.2 329 583 USA 30.9 463 624 UAE 25.3 189 395 UK 17.8 286 416 RSA 10.2 199 217 Germany 6.9 180 328 Switzerland 6.4 143 139 India 5.4 134 3010 Spain 4.4 119 14

Source: built by ITI based on FDI Intelligence data

China, France, and the US are the largest investors in Africa by the volume of invested capital in 2014–18. As for the BRICS countries, their shares in total capital attracted by Africa vary. China and India are characterized by a relatively greater number of investment projects where they participate, while Russia and Brazil currently take part in a smaller number of projects. Of all the investors, the shares of the developed and the developing countries in terms of attracted capital are roughly equivalent (53% and 47% respectively)13.


Fig. 2. Top 10 African states by the volume of attracted FDIs in 2018

Egypt

Algeria

Nigeria

Ethiopia

Zimbabwe

RSA

Morocco

Kenya

Côte d'Ivoire

Mozambique

12

9

8

7

6

5

5

2

2

2

FDI, USD bn91

18

65

29

18

110

71

64

30

15

Number of investment projects


Egypt, Algeria, and Nigeria attracted the largest volumes of FDI in 2018, while the RSA, Egypt, and Morocco were the leaders by the number of investment projects. While the RSA obtained funds for as many as 110 projects, Egypt managed to attract twice as much capital. On a regional scale, the leading region is NA.

Fig. 3. Leading economy sectors in Africa by the number of investment projects, 2018

Telecommunications, media, and technologies

FMCG and retail

Transportation

Manufactured goods

Construction and real estate

Financial services

Bus services

Renewable energy sources

Life sciences

133

125

93

88

66

60

58

19

13



The service sector, including retail, financial services, telecommunications, media and technologies, business services, and entertainment, remains the focus of attention of foreign investors. Despite the fact that the maturity level of technologies in Africa is somewhat lower than the global average, some technological spheres, for example cloud computing, are constantly expanding. Though the total volume of funds invested in the service sector in 2014–2018 was smaller than that invested in manufacturing (USD 92 bn), the number of jobs created (2.5 million) and the number of projects launched (77% of the total number of projects) were greater here14.

The sector of telecommunications, media, and technologies accounts for the greatest proportion of FDI, and its share keeps growing. The other two largest sectors are FMCG/retail and transportation services. By contrast, in the financial services sector, FDI is likely to decrease in the long term due to the deceleration in GDP growth combined with the fact that this sector has already received substantial investments.

To assess the effectiveness of attracted FDIs, Ernst & Young conducted a comparative analysis of the volume of attracted FDIs, the GDP growth, and the World Bank Doing Business rankings for all African countries15.

Firstly, it was found that there is a strong correlation between FDI and GDP growth. Large African economies with decelerating GDP growth (the RSA, Angola, and Nigeria) have much lower FDI figures than large economies which expect a higher GDP growth (Egypt and Morocco). Similar correlation is observed in middle-sized economies. Ethiopia, Kenya, and Côte d’Ivoire which are likely to show relatively high GDP growth surpass other countries in terms of FDI volumes. Mozambique, Rwanda, Côte d’Ivoire, Uganda, Kenya, and Morocco were identified as the countries with the greatest FDIs measured as a percentage of their GDP.

Secondly, FDIs are affected by the business environment in individual African countries. Sudan, Angola, Tanzania, and Nigeria which have low World Bank Doing Business scores attracted much less investment measured as a proportion. Nevertheless, countries with high GDP growth rates, even when they have low Doing Business rankings, continue to attract investments to large projects in extractive industries and some other key economy sectors.

14 https://www.ey.com/Publication/vwLUAssets/ey-africa-attractiveness-2019/$FILE/ey-africa-attractiveness-2019.pdf15 https://www.ey.com/Publication/vwLUAssets/ey-africa-attractiveness-2019/$FILE/ey-africa-attractiveness-2019.pdf


1.5. AFRICA IN GLOBAL TRADE

16 https://www.trademap.org/Index.aspx17 Calculated by ITI based on ITC data.

Africa currently remains a net importer. According to ITC data16, in 2018, the 54 African countries exported goods worth USD 497.2 bn, while their imports were worth USD 573.4 bn.

Table 3. Leading African exporters in 2018

№ Country Export in 2018, USD bn

Change compared to 2017, %

Share in Africa’s total export in 2018, %

1 Republic of South Africa

94.4 7.0 19.0

2 Nigeria 52.9 29.9 10.63 Angola 42.0 20.7 8.54 Algeria 41.6 18.3 8.45 Libya 30.7 57.4 6.26 Egypt 29.4 13.3 5.97 Morocco 29.3 14.5 5.98 Ghana 17.1 19.1 3.49 Tunisia 16.0 12.6 3.210 Côte d’Ivoire 11.8 -5.9 2.4

Source: built by ITI based on ITC data

The leading African exporters in 2018 were the RSA, Nigeria, and Angola. Of the top ten exporting countries, Libya demonstrated the most considerable growth in exports (57.4%). On a regional scale, NA and SA have the highest export figures (USD 151.0 bn and 111.7 bn respectively), while EA has the lowest (USD 44.6 bn).

From the perspective of HS Chapters (two digits), the exports are the greatest in the following groups17:

• of the commodity products: fuels (42.9% of total exports), precious metals and stones (10.6%), ores (4.7%), copper (3.3%), and ferrous metals (1.8%);

• of the non-commodity products: motor vehicles (3.2%), electrical appliances and communications equipment (2.7%), fruits and nuts (2.2%), cocoa and products thereof (1.9%), mechanical equipment and machinery, computers (1.6%).


Table 4. Leading African importers in 2018

№ Country Import in 2018, USD bn

Change compared to 2017, %

Share in Africa’s total import in 2018, %

1 Republic of South Africa

93.4 12.5 16.3

2 Egypt 81.0 22.1 14.13 Morocco 51.3 13.7 8.94 Algeria 48.8 6.0 8.55 Nigeria 36.5 26.1 6.46 Tunisia 20.9 1.2 3.67 Kenya 17.4 4.1 3.08 Angola 16.4 6.0 2.99 Libya 12.8 37.4 2.210 Ghana 11.9 -6.6 2.1


The top ten largest African importers account for 68% of total imports, while the top three countries take nearly 40%. The leading importers are the RSA, Egypt, and Morocco. On a regional scale, NA and WA showed the highest import figures in 2018 (USD 222.7 bn and 114.1 bn, respectively), while CA had the lowest (USD 36.3 bn).

From the perspective of HS Chapters (two digits), Africa’s imports mainly belong to the following groups18:

18 Calculated by ITI based on ITC data.19 Non-classified products are neither commodity nor non-commodity products.20 https://www.exportcenter.ru/international_markets/classification/

• of the non-commodity products: mechanical equipment and machinery, computers (10.6% of total imports), electrical appliances and communications equipment (7.7%), motor vehicles (7.3%), plastics and plastic products (3.8%), cereals (3.8%), pharmaceutical products (2.7%), and products of ferrous metals (2.5%);

• of the commodity products: fuels (16.8%), ferrous metals (2.9%);

• non-classified products19 (2.8%).

In addition, the authors of this report estimated the share of non-commodity non-energy products in Africa’s imports from all countries of the world and the processing stages of these products. The calculations were done on the level of HS Subheadings (six digits) using the classification20 of commodity and non-commodity goods based on the methodology of the International Cooperation and Exports national project of Russia and best practices of the Russian Export Center with due regard for Russian and international experience of making such classifications.

It was found that the share of non-commodity non-energy products in Africa’s imports from all countries of the world was 78% in 2018 (compared to 81.7% a year earlier). In these, upstream products accounted for 62.8%, midstream for 22.8%, and downstream for 14.4%. Final calculations show that upstream non-commodity non-energy products take nearly a half (48.9%) of Africa’s total imports.


1.6. AFRICA’S ECONOMIC INTEGRATION

21 https://www.afdb.org/en/the-high-5/integrate-africa22 Hard infrastructure means infrastructure in its traditional sense (buildings, constructions, roads, airports), while soft infrastructure means measures and instruments for liberalization of trade in goods and services.23 http://rtais.wto.org/UI/publicPreDefRepByCountry.aspx

The current degree of integration between African regional markets is relatively low, which was the reason why the African Development Bank included intra-continental trade into its list of Africa’s priority development areas up to 2025. The proportion of internal trade on the African continent in its total trade turnover remains the lowest in the world, measured at approximately 15% (compared with 70% in the European Union and 60% in Asia)21. Moreover, the integration in infrastructure, in particular in the power industry, water supply, and sanitation, is also limited.

When putting forward its initiatives, the African Development Bank emphasizes that they are aimed at improving both hard and soft infrastructure22. Among others, these initiatives include the African Continental Free Trade Area (AfCFTA), the Comprehensive Africa Agriculture Development Programme (CAADP), the Programme for Infrastructure Development in Africa (PIDA), and Action Plan for Boosting Intra-Africa Trade.

Besides these initiatives, there is a number of other major integration associations currently existing on the territory of Africa. These include the Greater Arab Free Trade Area (GAFTA) (the African member states are Algeria, Egypt, Libya, Morocco, Sudan, and Tunisia), the Economic Community of West African States (ECOWAS) (Benin, Burkina Faso, Cape Verde, Côte d’Ivoire, Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Mauritania, Niger, Nigeria, Senegal, Sierra Leone, Togo), Common Market for Eastern and Southern Africa (COMESA) (Angola, Burundi, Comoros, DRC, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Madagascar, Malawi, Mauritius, Namibia, Rwanda, Seychelles, Sudan, Eswatini, Zambia, Zimbabwe), Southern African Customs Union (SACU) (Botswana, Lesotho, Namibia, Eswatini, RSA). These associations vary in the degree of integration but they all pursue a common goal which is to benefit from a simplification of external trade.

According to the WTO23, the African states currently have a total of 52 free trade agreements, including those with the European Union, the European Free Trade Association, and MERCOSUR (the Southern Common Market). By the number of currently standing regional trade agreements, the leading African states are Egypt (9 agreements), Morocco (8), and Tunisia (7).


2. TRADE RELATIONS BETWEEN RUSSIA AND AFRICA

2.1. ANALYSIS OF MUTUAL TRADE

According to FCS, the volume of trade between Russia and Africa increased by 17% in 2018 compared to the previous year and reached USD 20.4 bn. However, the growth has slowed down, falling below 20% for the first time in three years. The deceleration was largely caused by the decrease in the growth rate of Russia’s exports to Africa as Russia remains a net exporter. Russia’s net exports (exports minus imports) increased by USD 10.1 bn over five years – from USD 4.4 bn in 2013 to USD 14.5 bn in 2018. In relative terms, Russia’s exports to Africa are growing as well. In 2018, the share of Russia’s exports in the volume of trade was 85.6% compared to 72.2% in 2013.

Fig. 4. Trade turnover between Russia and Africa in largest commodity groups in 2018, USD million

Non-classified goods

Cereals

Fuels

Ferrous metals

Ships and floating structures

Fruits and nuts

Motor vehicles

Oils and animal fats

Inorganic chemicals

Ores

Export Import

4 486

4 072

3 010

1 358

944

706

474

466

457

413

Total

Source: built by ITI based on FCS data

The main commodity groups in the trade turnover between Russia and Africa are a) non-classified goods, b) cereals, and c) fuels, where Russia is predominantly a net exporter. Of the ten largest commodity groups by the volume of trade, there are only two groups where Russia is a net importer. These are a) fruits and nuts, and b) ores.


2.2. RUSSIA: EXPORT OF GOODS

According to FCS, in 2018, Russia’s exports to Africa were worth USD 17.5 bn. Notably, Russia’s export to Africa in 2018 increased at a slower rate (18.1%) compared to the previous period.

Fig. 5. Russia’s export to Africa over time (2014–2018)

2014 2015 2016 2017 2018

Export, USD bn

9.4 8.8

11.4

14.8

17.5

Growth, %+30.6

-6.2

+29.9 +29.6+18.1


Fig. 6. Structure of Russia’s exports to Africa over time (2014–2018), USD million

Egypt

Algeria

MoroccoNigeriaTunisiaSenegalSudan

Others

2014 2015 2016 2017 2018



Egypt, Algeria, and Morocco (all of which belong to NA) remain the leaders by the total value of goods imported from Russia. These three countries account for 73.7% of Russia’s total exports to Africa, while the seven leading countries, which also include Nigeria, Tunisia, Senegal, and Sudan, take 87.9%. The greatest export growth in absolute terms in 2018 compared to 2014 was found in Algeria (USD 3.9 bn), Egypt (USD 2.2 bn), and Senegal (USD 0.5 bn).

On a regional scale, NA is leading by a wide margin (81.8% of total Russia’s exports to Africa), followed by WA and EA. However, the greatest growth in relative terms in 2018 compared to 2014 was found in WA and CA. SA remains the least attractive destination for Russian exporters, largely due to higher transportation costs caused by the geographical location of this region. In 2018, SA received as little as 1.8% of total Russia’s exports to Africa, while the export growth in 2018 compared to 2014 was as low as 8.2%. In absolute terms, the growth was the highest in NA (USD 6.6 bn).


Fig. 7. Commodity structure of Russia’s exports to Africa over time (2014–2018), USD million


Cereals

Fuels

Ferrous metals


Oils and animal fatsWood and productsof wood processingMotor vehiclesMechanical equipmentand machinery, computersElectrical appliances,communications equipment

Other

2014 2015 2016 2017 2018


In 2018, the primary commodity groups in Russia’s exports to Africa were a) non-classified goods (USD 4.5 bn), b) cereals (USD 4.1 bn), c) fuels (USD 3.0 bn), and e) ferrous metals (USD 1.3 bn). These four groups accounted for 73.6% of Russia’s exports to Africa.


Of the ten commodity groups with the highest value of exports, the greatest growth in absolute terms in 2018 year-on-year was seen in a) cereals (with the greatest contribution made by Egypt), b) fuels (Egypt), and c) ships and floating structures (Algeria). These goods are now much in demand in Africa, so export in these groups can be scaled up further. Negative growth over this period was seen in a) non-classified goods (the greatest decrease found in Algeria), b) motor vehicles (Egypt), c) oils and animal fats (Egypt). These commodity groups should be made the focus of attention in order to identify the cause of the decrease in supplies or, alternatively, to find out whether other African countries which have not been importing these products before are interested in purchasing them.

In addition, the authors of this report have identified commodity groups which show potential for growth in exports from Russia due to the fact that the share they take in Africa’s imports from all countries currently exceeds that in Africa’s imports from Russia. According to ITC data, these groups are: a) mechanical equipment and machinery, computers (10.6% of total imports from all countries), b) electrical appliances and communications equipment (7.7%), c) motor vehicles (7.3%), d) plastics and plastic products (3.8%), e) pharmaceutical products (2.7%), f) ships and floating structures (2%), and g) optical instruments; devices and appliances; medical equipment (1.5%). At the same time, according to FCS data, the ships and floating structures commodity group already demonstrated a 190-fold growth in 2018.

The commodity structure of Russia’s exports to Africa, revealed as a result of our calculations, becomes a driver of the development of high productivity export-oriented sectors of Russia’s economy.

Besides, Africa is becoming a “market of the future” for Russian cereals and agricultural machinery. These segments appear promising due to Africa’s current striving to eradicate hunger and seeking more productive ways to reclaim vast areas of the continent which still remain uncultivated24.

24 https://russiancouncil.ru/en/analytics-and-comments/analytics/what-russia-can-offer-africa/


Fig. 8. Commodity structure of Russia’s exports to Africa as a whole and to Russia’s three main African trade partners in 2018, %

Other goods

Organic chemicals

Electrical appliances, communications equipment

Optical instruments; devices and appliances;medical equipment


Mechanical equipmentand machinery, computers

Ferrous metals

Motor vehicles

Fuels

Ships andfloating structures

100%

Non-classifiedgoodsCereals

Fuels

Ferrous metals



Wood and products of wood processing

Motor vehicles

Mechanical equipment and machinery,computers


Other goods

100%

Non-classifiedgoodsCereals

Fuels

Ferrous metals

Wood and products of wood processing

Copper



Mechanical equipment and machinery, computers

Optical instruments; devices and appliances;medical equipment

Other goods

100% 100%

Total Total

Total Total

Fuels

Inorganic chemicals

Cereals


Fertilizers

Ferrous metals

Paper and cardboard

Plastics and plastic products

Non-ore minerals

Pharmaceutical products

Other goods

Non-classifiedgoods

1.3% 0.8%

25.5%

23.3%

17.2%

7.6%

5.4%

2.7%

2.3%

2.2%

1.9%

1.8%

10.1%

Africa as a whole

28.5%

26.6%

10.7%

10.5%

5.3%

3.7%

3.3%

2.5%

1.6%

1.2%

6.1%

Egypt

47.5%

19.6%

7.5%

6.2%

5.7%

4.2%

3.0%

2.5%

2.1%

0.4%

Algeria

62.0%

18.0%

11.2%

2.1%

2.0%

1.3%

0.7%

0.7%

0.6%

0.6%

Morocco

Source: built by ITI based on FCS dataIt is worth mentioning that Russia’s exports to its three main African partners are poorly diversified. In the case with Morocco, for example, two largest commodity groups take 80% of all Russia’s exports to this country.


Fig. 9. Structure of Africa’s imports from Russia by categories and processing stages, 2018

commodity products

non-commodity energy products

non-classified

non-commodity non-energy products

upstream

midstream70.2 57.5

21.8

17.2

17.2

12.6

3.5

downstream

Source: built by ITI based on ITC data with the use of the classification of commodity and non-commodity goods of the International Cooperation and Exports national project of Russia and with due regard for best practices of the Russian Export Center

The calculations done using the methodology described above demonstrate that the share of non-commodity non-energy products in Russia’s exports to Africa dropped to 57.5% in 2018 compared to 78.6% a year earlier. The decrease was partially caused by the growth in the share of non-classified goods from 3.6% in 2017 to 21.8% in 2018. Of the non-commodity non-energy products taken separately, upstream products accounted for 12.6%, midstream for 17.2%, and downstream for 70.2%. Consequently, the share of Africa’s upstream non-commodity non-energy imports from Russia was as small as 7.2% (compared to 48.9% for total imports from all countries).

2.3. RUSSIA: EXPORT OF SERVICES

It is of fundamental importance for Africa to forge long-term partnerships with countries which are willing to share newest solutions and technologies that can facilitate the development of manufacturing and human capital on the African continent.

Here, Russia has much to offer to its African partners. Russia can offer expertise in the following areas: construction of nuclear power stations, hydroelectric power plants, light industry facilities, agro-processing facilities, and other infrastructure; oil refining technologies and construction of oil pipelines; space industry, in particular launching African satellites; etc.

Among the services exported from Russia, education services stand out as particularly important.


Africa is lagging behind other continents in terms of added value, with its share in global production being as small as 1.9%25. To fulfil their potential, the African states must launch a bold development program based on investment in industrial transformation and human capital development.

Human capital development in Africa is largely achieved by importing education services, or, to put it simply, by educating African students abroad. The number of such students is steadily growing, with 408 thousand African students now studying in foreign countries outside Africa. The volume of the market of higher education services for African students who study outside the African continent is estimated at USD 12.6 bn. France is the leading country by the number of African students (102 thousand), followed by China (50 thousand) and the US (44 thousand).

Russia’s share in the African market of education services (covering all countries of the world including African countries) is 4% by the number of students (approximately 20 thousand) and less than 1.5% in value terms. This is in sharp contrast to the potential capacity of Russian–African collaboration in the sphere of education26.

African people are already showing a growing interest in studying in Russia and learning the Russian language. In 2019, Russian universities received nearly 30 thousand applications from African citizens27.

To scale up its export of education services, Russia needs to solve systemic problems of Russian–African collaboration in the sphere of education which include random process of choosing candidates for Russian scholarship, mismatch between the range of study programs and the present-day needs, insufficient marketing of fee-based education in Russian universities, etc.28

25 https://www.afdb.org/en/the-high-5/industrialize-africa26 http://duma.gov.ru/media/files/e2SgJ0Aq8cFHwxD5zXN8HiQD0ctEiar5.pdf27 http://rs.gov.ru/ru/news/4861028 http://duma.gov.ru/media/files/e2SgJ0Aq8cFHwxD5zXN8HiQD0ctEiar5.pdf


2.4. RUSSIA: IMPORT OF GOODS

According to FCS, in 2018, Russia’s imports from Africa were worth USD 2.9 bn. Import growth has stabilized, and although it is still slower than the growth rate of Russia’s export to Africa, in 2018 it exceeded 10% for the second year in a row.

Fig. 10. Russia’s import from Africa over time (2014–2018)

2.8

2.3 2.42.6

2.9

2014 2015 2016 2017 2018

Import, USD bn

Growth, %

+2.0

-16.8

+0.8

+12.1 +11.1


Fig. 11. Structure of Russia’s import from Africa over time (2014–2018), USD million

RSA

Morocco

Egypt

Côte d'IvoireTunisiaKenyaGabon

Others

2014 2015 2016 2017 2018



In 2018, the leading African countries by the value of their imports to Russia were the RSA, Morocco, and Egypt. They accounted for 63.2% of total Russian imports, while the top seven African importers, which also include Côte d’Ivoire, Tunisia, Kenya, and Gabon, took 82.4%. The greatest import growth in absolute terms in 2018 compared to 2014 was found in Gabon, the RSA, and Guinea, each of which saw a growth of around USD 0.1 bn.

On a regional scale, NA is leading in terms of the volume of exports to Russia. In 2018, this region accounted for 41.6% of all Russia’s imports from Africa. Interestingly, the second leading region is SA with 26.8% in total imports. CA stands out among other regions. While other regions saw an insignificant or even a negative growth in relative terms in 2018 compared to 2014, in CA the growth was more than 15-fold. In absolute terms, CA was the leader too, with a growth of USD 0.14 bn. Next comes SA with a growth of USD 0.09 bn.

Fig. 12. Commodity structure of Russia’s imports from Africa over time (2014–2018), USD million

Fruits and nuts

Ores

Vegetables, root vegetables,and legumes

Cocoa and products thereof

Inorganic chemicals

TobaccoSewn apparelCoffee, tea, spicesMotor vehiclesElectrical appliances,communications equipment

Other

2014 2015 2016 2017 2018


The main commodity groups in Russia’s imports from Africa in 2018 were a) fruit and nuts (USD 0.7 bn), b) ores (USD 0.4 bn), c) vegetables, root vegetables, and legumes (USD 0.3 bn), d) cocoa and products thereof (USD 0.3 bn), e) inorganic chemicals (USD 0.2 bn), and f) tobacco (USD 0.2 bn). These groups accounted for 69.3% of Russia’s imports from Africa.


In absolute terms, the greatest growth in 2018 was found in the supplies of a) ores (with the greatest contribution made by the RSA), and b) inorganic chemicals (the RSA). There is an increased demand for these products in Russia, which is a fact that African suppliers from other countries should take into account. At the same time, supplies of a) tobacco, and b) vegetables, root vegetables, and legumes from Africa have decreased.

Fig. 13. Commodity structure of Russia’s imports from Africa as a whole and from Russia’s three main African partners in 2018, %.

100%

Fruits and nuts

Ores


Cocoa and products thereof

Inorganic chemicals

Tobacco

Sewn apparel

Coffee, tea, spices

Motor vehicles


Other goods

100%

Ores

Fruits and nuts

Inorganic chemicals

Motor vehicles

Ferrous metals

Water, drinks, alcohol

Fruit and vegetable products

Mechanical equipment and machinery,computers

Other chemical products

Precious metals and stones

Other goods

100%

Fruits and nutsVegetables, root vegetables,and legumes

Sewn apparel

Knitted apparel

Motor vehicles

Footwear


Fish and seafood

Copper


Other goods

100%

Total Total

Total Total

Fruitsand nuts


Electrical appliances,communications equipment

Sewn apparel

Pharmaceutical products

Knitted apparel

Detergents and lubricants

Oil seeds

Non-ore minerals

Textile floor coverings

Other goods

24.0%

12.0%

11.1%

10.3%

6.4%

5.5%

5.0%

3.6%

2.8%

2.0%

17.3%

Africa as a whole

30.6%

29.6%

12.9%

7.4%

4.4%

3.6%

2.8%

2.4%

0.9%

0.7%

4.7%

Republic of South Africa

35.3%

24.5%

14.0%

4.3%

4.0%

3.6%

3.3%

2.2%

2.2%

1.6%

5.0%

Morocco

44.9%

32.5%

4.8%

3.7%

2.9%

1.7%

1.3%

0.8%

0.7%

0.7%

6.0%

Egypt


With the three leading African importers, two largest commodity groups accounted for at least 60% of all their imports to Russia.

In addition, the authors of this report have identified commodity groups with a current import growth and a great potential for further growth due to the fact that the share of these groups in African exports to other countries of the world currently exceeds that in exports to Russia. According to ITC data, these groups are a) precious metals and stones (10.6% of Africa’s exports to all countries), b) copper (3.3%), and c) motor vehicles (3.2%). Meanwhile, according to FCS, Africa’s exports to Russia in 2018 in the commodity groups of a) precious metals and stones, and b) copper already demonstrated a 35-fold and 9-fold growth respectively.


2.5. IMPORTANCE OF THE RUSSIAN MARKET FOR AFRICA

To get an idea of Russia’s importance for Africa as a market, it is necessary to carry out a comparative analysis of Africa’s trade with Russia, on the one hand, and with the rest of the world on the other hand.

Table 5. Africa’s main export destinations in 2018

№ Trade partner Export in 2018, USD bn Share in total export in 2018, %

1 China 72.3 14.52 India 34.6 7.03 Spain 29.8 6.04 France 29.7 6.05 USA 28.3 5.76 Italy 24.2 4.97 UAE 19.7 4.08 Germany 19.6 3.99 Netherlands 17.7 3.610 UK 16.4 3.3 41 Russia* 1.8 0.4


*Data on Russia’s foreign trade may differ between ITC and FCS.

Table 6. Main suppliers of goods to Africa in 2018

№ Trade partner Import in 2018, USD bn Share in total import in 2018, %

1 China 91.4 15.92 France 29.2 5.13 USA 28.2 4.94 Germany 25.8 4.55 India 24.9 4.36 RSA* 24.5 4.37 Italy 22.0 3.88 Spain 21.0 3.79 UAE 19.1 3.310 Saudi Arabia 18.1 3.211 Russia** 16.4 2.9


*According to ITC, the presence of the RSA in this list is due to reimport.

**Data on Russia’s foreign trade may differ between ITC and FCS.

...


In 2018, China, the European countries, and the US accounted for the greatest share of Africa’s trade turnover. These countries received over 60% of Africa’s exports and supplied over 70% of Africa’s imports. Meanwhile, Russia accounted for as little as 0.4% of African exports (41st position among all Africa’s trade partners) and 2.9% of African imports (11th position).

As a positive aspect of the current state of Russian–African trade relations, it must be mentioned that the rates of growth of both Russia’s exports from Africa and Russia’s imports to Africa exceed average growth rates among all other Africa’s trade partners. This has helped Russia move from the 17th place in the list of Africa’s main importers which it took in 2017 to its current 11th place.

Overall, for African countries, Russia is one of the key target markets, and its importance continues to grow. At the same time, African exports to Russia are insufficiently developed compared to exports to a number of other countries. However, the growth rate of Russia’s imports from Africa remains higher than the average rate for all Africa’s trade partners.

29 https://tass.ru/politika/525863130 http://ru.valdaiclub.com/a/highlights/pereosmyslenie-briks-briks-i-briks/31 Calculated by ITI based on FCS data.

2.6. RUSSIA’S ECONOMIC INTEGRATION WITH AFRICAN STATES

To encourage dialog on trade integration, Russia and its African partners can use various platforms and formats. For example, Russia and the African states are actively developing their inter-parliamentary ties now, as evidenced by the Russia–Africa conference held in July 2019.

Russia is also striving to establish active long-term collaboration with the African states in multilateral format. First and foremost, this involves strengthening the ties with the African Union and regional integration associations of the African continent. In June 2018, during his visit to Rwanda, Sergey Lavrov, Russian Minister of Foreign Affairs, stated that “Russia and the African Union are in the process of drafting a political framework agreement which will outline the conceptual basis of cooperation for the coming years”29.

A wider network of partnerships, termed BRICS+ and BRICS++ and formed by uniting BRICS with the African Union and other subregional African groupings, can become a new cooperation format and a new platform for building flexible and multi-faceted collaboration with Africa30. Undoubtedly, Russia, like all other BRICS member states, is interested in partnering with the RSA as this economy is the second largest on the African continent by GDP and the largest by the volumes of export and import. Not only does the RSA possess vast amounts of natural resources, but it also has one of the most advanced financial markets in the world. Currently, trade and economic ties between Russia and the RSA are insufficiently developed compared to bilateral relations of other member states of the bloc. However, the relations between Russia and the RSA today are progressing at a rapid pace, which is evidenced by the fact that Russia’s exports to the RSA grew by 41% in 2018 and Russia’s imports by 25%31.

Other platforms for dialog can include regional and pancontinental integration associations, such as the Economic Community of West African States (ECOWAS), the Southern African Development Community (SADC), etc. Acting through these institutions, Africa can ensure the functioning of regional and continental decision-making systems and devise mechanisms for cross-border law enforcement.


Special mention should be made of the free trade agreement between EAEU and Egypt which is currently in the active stage of negotiations. Both parties acknowledge that the prospective agreement will create new opportunities to expand and diversify the trade for EAEU and Egypt alike. In case the negotiations are successfully completed, Egypt will become the first African state with a free trade area with EAEU. Besides, for EAEU and for Russia in particular, the free trade agreement will unlock new markets as Egypt has a wide network of trade agreements with Arab and African countries, the European Union, and MERCOSUR. As Denis Manturov, Minister of Industry and Trade of the Russian Federation, stated this October, “the free trade zone agreement between the EAEU and Egypt can be signed in mid-2020”32.

Egypt can also be considered a bridge to Africa in the sphere of industrial cooperation. At the moment, industrial infrastructure construction in under way in the economic zone of the Suez Canal. As soon as the development stage is completed, the process of making residency agreements with Russian companies will start. Russian companies are to localize their production facilities in Egypt and supply their products to the Egypt market and further to other African countries33. These companies represent various economy sectors while their areas of activity include, among other things, composite materials, radio engineering and electronics, renewable energy, and industrial engineering.

32 https://tass.ru/ekonomika/698291233 http://www.e-vesti.ru/ru/promyshlennaya-zona-v-egipte-prodvigaetsya-zona-v-latinskoj-amerike-stala-blizhe/


CONCLUSION

Russia and Africa are moving closer to each other in trade, investment, and industrial integration at a rapid pace. This is particularly important in the current context of rising instability in the global economic system, tensions in trade, and growing complexity of forecasting on a global scale.

Increasingly often now, Russia turns its attention to African countries as a target market and is willing to share newest solutions and technologies aimed at developing Africa’s manufacturing and human capital. Africa, in its turn, is demonstrating confidence in its Russian partners and is willing to use the emerging opportunities to meet the challenges currently faced by the states and the society in the region.

Trade and economic relations are strengthened through inter-agency communications, regional and pancontinental integration associations, and regional trade agreements. On the whole, the way the relations between Russia and Africa are developing indicates that the countries are intent on forging a mutually beneficial long-term partnership.


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LLC «ITI»

+7 (495) [email protected]

Team of authors:

Vladimir Salamatov, CSc (Tech.), DSc (Econ.), CEO

Roman Gubenko, Deputy CEO

Maxim Vorobyev, Director of Analytic Research

Alexander Kontorin, Expert

Krisitina Manukyan, Expert

The digest prepared by the Roscongress Foundation in collaboration with the International Trade and Integration Research Center (ITI) specially for the first Russia—Africa Economic Forum gives an overview of Africa’s role in global economy and of the trade relations between Russia and Africa.

The authors express their sincere thanks to Anton Kobya-kov, Adviser to the President of the Russian Federation and Alexander Stuglev, Chairman of the Board, Chief Executive Officer, The Roscongress Foundation.

russia and africa: long-term trade and economic …...the russia and africa: longterm trade and...

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