Russia's Economic engagement with Africa

1. The African Development Bank Group
Chief Economist Complex
Africa Economic Brief
Volume 2, Issue 7 Russia’s Economic Engagement with Africa1
11 May, 2011
1 . Introduction and CIS borders and to enhance their
In the aftermath of the collapse of the political and commercial ties with
Soviet Union in 1991, the Russian African countries and other emerging
Federation, an ideological friend and ally markets.
of many African countries during the
Contents: Cold War period, started to disengage This brief will examine Russia’s
from Africa and other developing economic reengagement with African
countries, and to develop closer relations countries by quantifying trade
1. Introduction with the Western countries. between the two regions, analyzing
2. Russia-Africa Trade the investment flows of Russian
Relations As Russia’s economic strength started to companies into Africa, and assessing
reinvigorate in the late 1990s, the Russian the potentials of Russia’s energy
3. Growing Interest of foreign policy objective of reestablishing expertise for Africa’s resource-rich
Russian Investors its geopolitical stature led to a renewal of countries.
its relations with Africa. This was driven
4. Prospects of not only by political ambitions but also
Russia’s 2. Russia–Africa Trade Relations
by economic and commercial
Reengagement with motivations. The African continent, The importance of Russia as a trading
Africa enriched by vast natural resources and partner to African countries is quite
with burgeoning consumer markets, has minimal when compared to other
5. Conclusion
become a very attractive destination for developed countries and emerging
Russian investment. The post-2000 markets such as the European Union,
Russian economic stability, which the United States, China, India, and
resulted in strong economic growth Brazil. Bilateral trade between Russia
(yearly average GDP growth rate of 6.9 and Africa reached its peak of US$ 7.3
percent), increasing demand for Russian billion in 2008. Although this is close
exports (mostly oil and other natural to a tenfold increase from the very low
Mthuli Ncube
resources) and higher foreign exchange trade volume of US$ 740 million in
m.ncube@afdb.org reserves (world’s third largest reserve). 1994, it is not significant enough to
+216 7110 2062
guarantee Russian companies a
Charles Leyeka Lufumpa This presented an opportunity for the bargaining edge when engaging with
c.lufumpa@afdb.org
+216 7110 2175 Russian government and business elites African countries. To improve its
to expand their influence beyond Russian political and commercial ties with
Desire Vencatachellum
d.vencatachellum@afdb.org
+216 7110 2076 1
Prepared by the following staff: Habiba Ben Barka, Senior Planning Economist (SAEC), under the
supervision of Kupukile Mlambo , Advisor & Lead Economist (ECON).
Disclaimer: The views and interpretations in this brief are those of the author and not necessarily those of the African
Development Bank. The figures in the tables and in other parts of the document have been collected from different sources and
may differ from the official figures of Government of Russia due to accounting period and other reasons.

2. Russia’s Economic Engagement with Africa Page 2
Africa and facilitate market access to its firms, the Russian government embraced a
new foreign policy toward Africa, undertook high official visits to some African
countries, and advocated for conflict resolution, humanitarian assistance, and debt
relief for Africa.
“Russian imports from
Africa rose overall from
US$ 350 million in 2000
to US$ 1.6 billion in
2009 while exports grew
from US$ 947 million to
US$ 4 billion over the
same period.”
Source: UN COMTRADE, AfDB
Since 2000, Russia’s trade with Africa started to rise but with imports of African
products increasing at a slower pace than Russian exports to the Africa continent.
“Russia has Imports from Africa rose overall from US$ 350 million in 2000 to US$ 1.6 billion in
maintained a trade 2009 while exports grew from US$ 947 million to US$ 4 billion over the same
surplus with Africa, period. Both exports and imports grew steadily from 2000 to 2008, after which they
which stood at US$ slightly decreased because of the impacts of the world financial and economic crisis.
597 million in 2000, Russia has maintained a trade surplus with Africa, which stood at US$ 597 million
rising to US$ 3.3 in 2000, rising to US$ 3.3 billion in 2008 and falling to US$ 2.3 billion in 2009.
billion in 2008 and
falling to US$ 2.3
billion in 2009.”
Source: UN COMTRADE, AfDB

3. Russia’s Economic Engagement with Africa Page 3
Russian imports from Africa are also and more than three-fourths of its
concentrated in a few countries, namely oil and gas exports went to Europe.
Algeria, Egypt, Morocco, Guinea, Côte Oil and gas account for 30 percent
d’Ivoire and South Africa – jointly these of Russia’s GDP, and constitute
account for about 80 percent of Africa’s more than 40 percent of government
“Russia’s renewed exports to Russia. The exports from revenues. While the recent high oil
interest in Africa has Africa are slightly more diverse and prices are projected to keep the
been fueled by the include ores, uranium, iron, and other current account in surplus (peaking
crucial need to access concentrates of base metal, fruits and nuts, at US$ 103.7 billion in 2008),
foreign energy reserves cocoa, tobacco, and inorganic chemical falling Russian oil reserves may
as Russia runs the risk elements. Although the import of African slow down the strong economic
of exhausting its oil products increased at a compounded growth experienced over the past
annual growth rate (CAGR) of 19 percent ten years (6.9 percent increase on
reserves should the
between 2000 and 2009, Africa still average per year).
current scale of
national exploitation accounts for only 1 percent of Russia’s
remain constant.” world trade.
3. Growing Interest of Russian
This marginalized position of Africa vis- Investors
à-vis trade with Russia may reflect the
country’s long withdrawal from the Africa’s vast natural reserves make
continent following the end of the Cold the continent an increasingly
War. It is unlikely to reverse because of attractive investment destination for
Russia’s growing interest to modernize its Russia’s energy and other natural
trade network by expanding its trade of resource industries. On account of
machinery and equipment, and other its strong economic growth, large
technologies. At the current stage of its external assets (US$ 480 billion in
“Russia’s outward development and given the limited foreign exchange reserves),
investment is dominated dynamics of its export base, Africa may increasing outward direct
by large resource-based not be in a position to meet Russia’s trade investment stock (from US$ 3
corporations that seek to interests. billion in 1995 to US$ 249 billion in
gain greater access to the 2009), and politico-strategic
African market of fuel.” Nevertheless, it is worth mentioning that ambitions, Russia represents a major
Russia’s renewed interests in Africa has potential investor in African
been fueled by the crucial need to access countries. At the same time,
foreign energy reserves as Russia runs the Russia’s outward investment is
risk of exhausting its oil reserves should dominated by large resource-based
the current scale of national exploitation corporations that seek to gain
remain constant. Africa’s rich untapped greater access to the African market
oil and natural gas reserves provide an of fuel, energy and metallurgy, and
opportunity for Russia’s outbound expand Russian investment flows to
exploration drive and strategic goal of Africa, which peaked at US$ 20
remaining the world’s largest exporter of billion in 2008. The table below
oil (second to Saudi Arabia) and natural illustrates some of the major
gas, and maintaining Europe’s Russian investment operations in
dependence on its export of natural gas. African countries.
In 2009 oil, fuel and gas accounted for
67.4 percent of total exports from Russia,

4. Russia’s Economic Engagement with Africa Page 4
Major Investments of Russian Companies in Africa
Russian Host Industry Type of Value Year
Investor Country/ Investment
Company
Norilsk South Africa Gold mining M&A (acquired US$1.16 2004
Nickel Gold Fields and 30% of Gold billion
processing Fields)
Norilsk Botswana Nickel mining M&A (acquisition US$2.5 2007
Nickel Tati Nickel and of Canada Lion Ore billion
processing Mining gave it 85%
stake in Tati Nickel
Sintez South Africa, Oil, gas, ‘Greenfield’ US$10- 2006
Namibia, diamonds and Investment 50
Angola copper million
exploration
Lukoil Côte d’Ivoire, Oil M&A (acquired US$900 2010
Ghana exploration interest in 10,500 million
km² deep water
“Oil, gas and other blocks)
natural resources Rusal Nigeria Aluminum M&A (acquired US$250
sectors have been the ALSCON refining majority stake in million
major contributors to Aluminum Smelter
Company -
the Russian economic
ALSCON of
boom and increasingly, Nigeria)
they dominate Russian Severstal Liberia Iron ore M&A (acquired US$40 2008
outward investment.” control of iron ore million
deposit in Putu
Range area of
Liberia
Gazpro Algeria Natural gas Joint exploration US$4.7 2006
m Sonatrach exploration and development billion
projects by debt and
write-off agreement US$7.5
and arms deal billion
Alrosa Angola, Diamond Greenfield US$300- 1992
Namibia, mining, and Investment 400
DRC hydro- million
electricity
Rosatom Egypt Nuclear Ongoing US$1.8 2010
power negotiations to billion
build Egypt’s first
nuclear power plant
Sources: various media sources; Russian company websites.
As mentioned above, oil, gas and multinationals such as Lukoil,
other natural resources sectors have Gazprom, Norilsk Nickel, Alrosa,
been the major contributors to the Rusal and Severstal invest in oil,
Russian economic boom and gas, diamond, aluminum, iron ore
increasingly, they dominate Russian and other metal products in many
outward investment. Therefore, it is African countries including Algeria,
not surprising to see large Russian Angola, Botswana, Côte d’Ivoire,

5. Russia’s Economic Engagement with Africa Page 5
Egypt, Gabon, Guinea, Namibia, accessing Russia’s reserves of
Nigeria, and South Africa. diamonds, uranium, gold, copper, nickel
and other metals and their reduced
The motivation behind Russian economic viability given the volatility
business expansion in Africa is of these products’ world prices, have
also driven by the depletion of the encouraged Russian firms to turn to
resources base in Russia (see table Africa as an alternative source of
below). The absence of new supply, as the costs of exploration and
discoveries and technological production are much lower there. In
advancement, which are fact, Africa’s underexploited mineral
weakening Russia’s domestic reserves, which account for about 30
energy, together with the lack of percent of global resources, will be
easy access to the remaining strategic complementarities to Russia’s
“Africa’s underexploited underground mineral deposits in depleting natural resource base,
mineral reserves, which Russia, are some of the factors including zinc, diamond, gold, uranium,
account for about 30 leading Russian Africa’s oil, copper, nickel, manganese, bauxite,
percent of global considerable natural resources. and coal. Moreover countries such as
resources, will be While Africa’s share of global Algeria, Angola, Botswana, DRC,
strategic energy production is about 12 Egypt, Gabon, Ghana, Guinea,
complementarities to percent and increasing, its share of Morocco, Sierra Leone, South Africa,
Russia’s depleting global commercial energy Tanzania, and Zambia, which dominate
natural resource base, consumption is only 3 percent, the African mining industry, will
including zinc, diamond, which represents a significant potentially attract an increasing number
gold, uranium, oil, supply for Russia’s growing oil of Russian business elites.
copper, nickel, demand. The high costs of
manganese, bauxite, Depletion Timeline of Russia’s Mineral Reserves
and coal.”
Year Economically Viable Reserves All Reserves
2011 Zinc
2013 Chromium Ores; Diamonds; Quartz
Quartz
2015 Tin; Uranium; Gold; Oil
2016 Copper; Nickel; Tungsten
2018 Platinum; Graphite
Beyond Coal; Phosphate; Potash; Zinc; Chromium Ores; Diamond;
2025 Bauxite; Iron Ores; Natural Tin; Uranium; Gold; Oil; Copper;
Gas; Vanadium; Fluorspar; Salt Nickel; Tungsten; Platinum;
Graphite; Coal; Phosphate;
Potash; Bauxite; Iron Ores;
Natural Gas; Vanadium;
Fluorspar; Salt
Source: Russian Federation; US Geological Survey (USGS)
Cold War period, largely driven
4. Prospect for Russia’s by the Kremlin’s search for
geostrategic advantage. After
Reengagement with Africa the Cold War, leading up to the
Russia’s involvement in Africa is 1990s, Russian foreign policy
not new; it heightened during the resulted in withdrawal from

6. Russia’s Economic Engagement with Africa Page 6
Africa and other developing
Africa and Russia Supply of World Major Energy strong attraction for Russian
exerting a
countries. As Russia begun to return
energy companies. The African
to African countries in the early
continent currently accounts for about
2000s, its pursuit of Africa’s high
9.7 percent of the world proven oil
Oil concentrations of strategic minerals
reserves of 1.2 trillion barrels and its oil
Share of world production and significant deposits of petroleum
1973 2009 reserves are growing at an annual rate of
and uranium emerged as a key driver
Africa 10.1 12.4 3.2 percent. With regard to natural gas,
Russia 15.0 16.7 of its increasing commercial
Africa’s share of the global gas deposits
engagement with the continent.
of 181.46 trillion cubic meters is
Russia’s geopolitical goal to extend
estimated at 7.8 percent. As Africa’s
Europe’s dependence on the import
comparative advantage in the scope and
Gas of its energy also inspired its quest
Share of world production frequency of new discoveries is being
for Africa’s natural resources.
1973 2009 courted by global energy consumption
Africa 0.8 6.5 countries such as Russia, precautionary
Russia 19.7 24.8 Although self-sufficient in fuels and
measures should be put in place to
power generation, Russia’s energy-
ensure that sustainable economic and
dependence (primary source of hard
social benefits accrue from natural
currency and revenues) and the
Coal resources exploitation.
plummeting reserves of oil and gas
Share of world production
1973 2009 could negatively affect its recent
Increasing Russian investments in
Africa 3.0 14.6 economic growth and drive to
Russia 22.8 6.3
Africa could have both positive and
become a world-leading energy
negative outcomes. On the one hand,
producer. Under the Soviet system,
while such investments might represent
Russian energy pricing and
significant economic opportunities for
consumption policies called for
Hydro resource-rich African countries, there is
subsidized prices far below world
Share of world production a risk that, coupled with limited
1973 2009 market prices and higher output
Africa 2.2 3.0
domestic policies, they might generate
volumes without conservation
Russia 9.4 7.3 negative social and environmental
measures, which resulted in excessive
outcomes for Africa. On the other hand,
consumption of energy, increased
Russia’s well-established expertise in
exports of natural gas and oil, and,
extracting energy resources and
Nuclear
more recently, in plummeting energy
advanced nuclear know-how presents a
Share of world production reserves. With the current proven oil
1973 2009
value-added opportunity for Africa. It is
reserves of 60 billion barrels, Russia
Africa 0.0 0.0 worth noting that Russia is participating
will have to rely on new discoveries
Russia 5.9 9.7 in tenders for the construction of the
of oil in order to meet the growing
first nuclear power plants in Egypt and
global demand for energy. Similarly,
Source: International Energy Agency Statistics 2010
Nigeria, which have significant uranium
Europe’s increasing consumption of
reserves.
energy and dependence on oil and gas
imports from Russia puts pressure on
Also, Russia’s own experience with the
the Kremlin to seek alternative
problems that plagued its energy sector
sources of energy.
during the 1990s and its ability and
knowledge to restructure the sector for
Africa, with its rich endowment of improved management and higher
crude oil reserves, natural gas productivity, could provide a salutary
deposits, and other minerals, is lesson to be learned by African
countries.

7. Russia’s Economic Engagement with Africa Page 7
Furthermore, Russia’s membership in the
G8 and its development commitments, 5. Conclusion
offer African countries additional
economic opportunities through opening Every reengagement effort since 2000
its market, writing off African debt, and has reinforced the Kremlin’s relations
advocating for more debt reduction, with African governments and boosted
especially for resource-rich African economic and commercial partnerships
countries. To date, Russia has written off between Russia and the continent.
over US$ 20 billion of Africa debt, and, Although the current volume of trade
“To date, Russia has between Russia and Africa is relatively
like other G8 members, has pledged to
written off over US$ low (considering the former Soviet
double its ODA to African countries. In
20 billion of Africa Union’s total trade volume with the
addition to negotiating debt reliefs,
debt, and, like other world), the growing trend of commercial
Russia could contribute to promoting
G8 members, has African regional cooperation by making activities between the two regions has
pledged to double its debt reliefs conditional upon African reasserted Moscow’s geo-economic
ODA to African nations’ demonstrated commitment to strategic ambitions. Moreover, Russian
countries…” regional energy sector cooperation (i.e. firms seeking greater access to African
policy harmonization, transborder natural resource fields are playing a key
projects, free trade agreements, and role in renewing and expanding Russia’s
integrated pipeline and transmission sphere of influence in Africa.
networks on the continent).
While Russia’s search for alternative
Resource-based firms in both developed sources of energy provided the impulse
and emerging countries have been for its new engagement with Africa, the
playing a central role in generating Kremlin’s goal of remaining the world’s
revenues for the national economies of largest energy exporter propelled
“To date, Russia has
oil- and resource-rich countries in Africa. Russian corporations into the continent.
written off over US$
However, those revenues do not always Russia’s pursuit of strategic natural
20 billion of Africa
translate into long-term sustainable resources will benefit African countries;
debt, and, like other
growth, nor do the revenues generated not only from a revenue-generating point
G8 members, has of view, but also because of the catalytic
pledged to double its from natural resources production always
contribute to human capital and social role the increased investments will have
ODA to African on socioeconomic growth and
countries…” infrastructure development in African
countries. Foreign investment companies development.
should be called upon to create incentives
or adopt measures to generate sustainable Russia’s expertise in energy exploration
and shared benefits for resource- and production, and its membership in
producing countries in Africa. For the G8 present an opportunity for
instance, Russian resource-based firms African governments to work jointly
should negotiate exploration and with Russian companies and
extraction agreements with the provision international organizations such as the
that a percentage of the investment African Development Bank in order to
should be earmarked for socioeconomic ensure a strong and constructive linkage
development, i.e. a trust fund to be set up between Russia’s energy interests and
to support agro-business, education, sustained economic growth in the
health, and other forms of social welfare. continent.