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Russia In Africa: An Alternative To China's Investment Monopoly?

The Soviet Union once held vast political and economic influence in Africa. Today, Russians see major opportunities there, but some fear that China may have already won the race to conquer the continent's vast natural resources and economic poten

Gold is just one of Africa's natural resources that grabs investor attention (Grassroots Group)
Gold is just one of Africa's natural resources that grabs investor attention (Grassroots Group)

ADDIS ABABA -- The Soviet Union was once a major economic and political power in Africa. But when the empire fell, so did Moscow's political and economic influence on the continent. Today, the region is growing, but is increasingly dominated by Chinese companies, businessmen and, some worry, Chinese interests.

Africans are looking to Russia for an alternative, in an attempt to divide their eggs into at least two baskets. A Russia-Africa business forum, which opened last week, in Addis Ababa, was a first step toward a major new initiative of Russian investment across the continent.

"In the 1990s, Russia gave up practically all of its interests, freeing up the territory for the United States, the European Union and China," said Mikhail Margelov, a Russian presidential representative. "In 1992, Russia closed nine embassies in Sub-Saharan Africa. The new economy led to strategic losses, and now we need to make up for them."

The idea to gather Russian and African businessmen in Africa's diplomatic capital (Addis Ababa is home to both the United Nation's economic commission and the African Union headquarters) came from Ethiopian Prime Minister, Meles Zenawi, who suggested the idea to Margelov at the statehood ceremony for South Sudan last June.

In total, Addis Ababa managed to gather 250 African businessmen, as well as governmental representatives from Ethiopia, Zimbabwe, Sudan, Niger and Mali. From Russia, among those present were representatives from Gasprombank, Lukoil and the Russian Railroad Company.

At the beginning of the forum, Margelov announced that Russia plans to return to Africa in full force. Specifically, Margelov discussed the need to strengthen Russia's involvement in the construction of infrastructure, both for gas and oil exploration, as well as in projects such as train and road development. He stressed that Russia could outdo competitors in terms of quality-to-price ratios. He particularly brought attention to the Russian Railroad Companies' role in the construction of a Trans-Kalahari railroad (which is meant to connect the minefields of Botswana with the ports in Namibia), and the Central African Railroad (which would connect Congo, Chad, Niger, and the Central African Republic, providing a way to bring raw materials to ports).

Margelov also said that Russia's new involvement in Africa should include a role in the exploitation of the region's rich raw material reserves: not only in gas and oil, but in minerals lacking in Russia, such as vanadium, chromium, cobalt and uranium. Margelov stressed that Russians would acquire African minerals for fair, reasonable prices.

In spite of the wide interest in African projects, when we spoke with various members of the Russian delegation, they admitted it was premature to speak of a vast Russian expansion into Africa. The first barrier, the businessmen said, are the high political risks.

A "useless' fight

The freshest, and most painful, memory for the Russian Railroad Company, for example, is the railroad that they were supposed to build between Benghazi and Sirte in Libya - a $2.2 billion project that appears now to be lost due to the civil war. A source close to the railroad company said that now that there is in-fighting between the groups that toppled Libyan leader Muammar Gaddafi, it is not even clear with whom to negotiate.

It is possible to manage some of the political risks with insurance, but even if a company is protected by insurance, it frequently takes several months for claims to be processed and evaluated. There is also the problem with finding appropriate credit.

"In natural resource mining, it is possible to recoup costs relatively quickly, but for equipment exports we need a longer credit line, which often presents a problem," said one representative at the forum.

But the most important problem that the Russians discussed was the competition with China. "It is useless to fight with the Chinese," said a Russian diplomat working in Africa. "They give Africa colossal amounts of credit on very good terms, and at the end of an important contract, they always give a gift - free construction of schools and hospitals," he continued.

The truth in his words was evident right there in Addis Ababa : China is building a new headquarters for the African Union as a gift, and the Sheraton Hotel, where the forum was held, was built by Chinese businessmen. China did $126.9 billion worth of business in Africa last year, while Russia did only $3.7 billion.

On the other hand, Africa's dependance on China could also wind up being Russia's advantage. Many of the continent's countries are already talking about Chinese "colonialism," and are looking for partners from other countries to decrease their dependence on Beijing.

That may be why the countries that sent representatives to the forum are also those countries where China is the only source of financing for major projects. For example, Niger's mining minister tried to get Russians interested in the country's gas mines, where up to now the Chinese have invested heavily. Many African participants in the forum said, over and over again, that they are looking forward to Russian investment, because Russia does not have a colonial history, and they are not "like the Chinese." But they declined to share their name or the company they work for: As much as the Chinese might be unloved, they are still the most important clients and the main source of credit for these African businesses.

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