RSPP NEWS A.Shokhin . From the Arctic to Cape of Good

The shore became very boring Of elements hostile and crashing, And there, in surges of midday, Below the African sunrays I will recall the gloomy Russia

Alexander Pushkin

FROM THE ARCTIC

TO CAPE OF GOOD HOPE: Alexander Shokhin, President, Russian Union of Industrialists and Entrepreneurs (RSPP)

COLLABORATION OPPORTUNITIES FOR RUSSIA AND ITS EAEU PARTNERS WITH AFRICA

www.рспп.рф

For a long time, the fates of Russia and Africa have been closely intertwined with one another. Culture, politics, economics, history – there is no field where we don’t have a common past and present. The black continent has attracted millions of our compatriots at all times. Epochs have changed, however, there has always been genuine interest, the desire to know, feel and understand Africa, to develop friendly relations. But if Africa was more of a mystery for the Russian Empire existing in the poems of Pushkin and Gumilyov, for the Soviet Union Africa became the most important political and partly economic partner in the struggle for a better future. Our country has helped in the fight for independence and the development of dozens of African partners. But with the collapse of the USSR, the relations of the former Soviet republics with African states (and Russia is no exception) significantly weakened, and in some areas virtually came down to nothing. Partly it was due to a rethinking of foreign policy and overstretched the capacity, largely due to the massive support of partners from developing countries. Partly – the economic decline in the post-Soviet space and the deteriorating situation in Africa, with the escalation of armed conflict and the poverty of the population.

However the situation is gradually changing. Rising commodity prices related to the next phase of the commodity super-cycle, as well as certain political stabilization have led to a significant improvement of the situation in the economies of many African states. At the same time, in the politics and economy of the Black Continent began to replace the former USSR with the new centers of power, primarily China and India, as well as our former Cold War rivals from Western countries.

In 1995, turnover with Russia, accounted only for 0.48% of trade in Africa or $ 922 million, according to UNCTAD (table 1). By 2000, the situation has slightly improved: trade with our country grew to 0.49% ($ 1.451 million). For example, from 1995 to 2000, China increased its share in African trade from 1.32% ($ 2.555 million) to 3.6% ($ 10.562 million). At that time the largest trading partners of African countries were the USA, France, and Germany. So, in 1995 and 2000 the United States accounted for 10.7% and 13.1% of African trade.

However, in the course of the next two decades, the situation has altered fundamentally. China and India came to the fore, becoming the largest trading partners of Africa at the end of 2018 African trade with key partners (million US dollars)

1995 2000 2005 2010 2015 2018

China 2 555 10 562 39 665 126 876 178 575 210 575

France 25 778 29 347 47 389 66 423 57 274 60 483

Germany 14 453 20 659 35 457 49 070 46 158 52 715

India 3 065 7 618 15 121 49 361 61 106 69 256

Great Britain 7 798 17 999 27 553 35 688 28 800 30 818

USA 20 884 38 599 83 410 115 813 53 409 62 888

Russia 922 1 451 3 406 6 409 8 973 19 456

EAEU 977 1 652 3 620 7 138 10 011 20 660

World 193 962 294 831 578 704 1 031 247 1 023 751 1 161 502

Source: calculations of the Center for Multilateral Cooperation and Eurasian Integration, RSPP according to UNCTAD Stat

(18.13% and 5.97%, respectively). Furthermore, the share of the former US leader fell to 5.41%. There is a similar situation in African trade in France, Germany and the UK. The growth of physical volumes of trade between these countries with African partners lagged behind the dynamics of African trade with other countries.

And what about Russia? At the end of 2018, our country accounted for 1.68% of African trade. On the one hand, this is little compared to the successes of China or India. But on the other hand, Russia had closed the gap in the share of African trade with partners from developed countries. While in 1995 the volume of trade between Russia and Africa was 21 times less than the trade of Africa and the USA, in 2018 it was only 3 times less. And if we compare the statistics of export deliveries to Africa, it turns out that our country’s position is even better. In 2018, Russian exports to Africa exceeded $ 17.4 billion (2.94% of world exports to Africa). Compared to US exports to Africa, the advantage in favor of America is less than 1.5 times, despite an enormous difference in the size of the economies of Russia and the US.

According to the results of 2018 (UNCTAD Stat data), the structure of Russian exports was dominated by raw and unclassified goods ($ 5.3 billion), food, animals and grain ($ 4.1 billion), fuel, lubricants and related products ($ 3 billion), industrial products ($ 2 billion), engineering products and transportation equipment ($ 944 million). It must be pointed out that the existing commodity structure of Russian export deliveries to Africa is becoming an important factor that stimulates the development of highly productive export-oriented sectors of the Russian economy. Russia's interest in building the trade with Africa is also confirmed by the acquisition of a stake in Afreximbank by Russian Export Center JSC (REC) at the end of 2017. As a result of the transaction, REC became the third largest shareholder of the bank among nonAfrican financial institutions and organizations. This decision creates new opportunities for Russian exporters to enter African markets through cooperation with a large and reputable financial institution with extensive and highquality expertise.

As for investment cooperation with Africa, although Russia concedes by volume of foreign direct investment (FDI) in the region to such countries as France (64 billion US dollars of accumulated FDI in 2017), the Netherlands (63 billion dollars), the United States ($ 50 billion), Great Britain ($ 46 billion), China ($ 43 billion), the volume is still essential for Russia to be considered a major player. The accumulated Russian investments in the region reach $ 17 billion, according to estimates by the African Institute of the Russian Academy of Sciences. Russian business is an important player in many African countries, including Egypt, Guinea, South Africa, Zimbabwe, Congo, Ghana and many others. With a number of African states (with Angola, Algeria, Egypt, Zimbabwe, Namibia, Nigeria, South Africa, Equatorial Guinea) our country has concluded agreements on the promotion and protection of investments that create favorable conditions for investment. But what do we see behind dry figures? It is really important that Russian

companies not only create working places, pay taxes and develop the economic growth of African states, but they also aim to contribute to the sustainable development of the region. For example before the Tokyo Summit of B20 in March, 2019 a brochure was prepared containing projects and practices of international business which promoted the Sustainable Development Goals (SDGs). The brochure presented the activities of Russian business including the sustainable development projects in such African countries as Guinea, Burkina Faso, Sudan, Zimbabwe, Tunisia, Kenya, Nigeria, the Republic of South Africa, Lesotho, Togo, Malawi, San Tome and Príncipe. Russian business is concerned not only with profits but also with the development of the local societies including housing improvements, soil enrichment, health development and struggle against mass diseases. Thus the efforts of Russian companies create the conditions for serious progress in the implementation of SDGs in the region which desperately needs international support.

However regardless of apparent success there is no way for us to stop in the development of cooperation with the African partners. Today Africa is a promising economic space; following the Asian-Pacific region it is the point of flashy economic growth with about 40% of the world minerals reserves in its situ. Besides Africa is strengthening its positions not only as a source of raw materials, but also as a promising target market for the end products due to the increase in the financially reliable population. These positions are supposed to be improved also by the African Continental Free Trade Area (AfCFTA) created in 2019. It is an important step towards the formation of a market with 1.2 billion people and total GDP of member-states amounting to $2.5 trillion.

However one should remember that African economic growth has a fickle disposition still strongly depending from the mineral markets environment. On the one hand it fuels the interest of African countries to establish on their territory the capacities with high added value with the aim to cope with the “resource curse”, and on the other hand it stimulated the diversification of external partnerships and sustainable delivery chains with reliable foreign partners. This context created new opportunities for deeper collaboration with Africa both bilaterally and multilaterally. For Russia it implies collaboration opportunities with its EAEU partners.

Today the EAEU potential in Africa is not exploited to the full in most cases. As the above mentioned calculations show Russia dominates in the trade of EAEU with Africa: in 2018 our country accounted for 94% of the EAEU trade with the region. However other Union member-states are also getting noticed by African states: the export of Belarus to Africa has gone up one-and-a-half times in the last 8 years, Kazakhstan –2.4 times.

Among promising cooperation areas between the EAEU and Africa are agriculture, chemical and metal industry, engineering, energy, transport, trade, digital technologies, education. EAEU provides African countries with wide opportunities within the Generalized System of Trade Preferences once created with active participation of the USSR. Most part of import from Africa to EAEU enjoys preferential customs rates thus boosting the African export to EAEU.

In this respect the authorities and business see their key tasks as follows:

to create necessary conditions (political, legal, economic, information) for a more active interaction of EAEU companies and African partners and to raise their awareness of the available opportunities; to work out new formats of interaction in order to reduce transaction and (in the future) production expenses.

Within the business program of the Economic Forum “Russia-Africa” RSPP together with the Africa Institute of RAS held a panel session “Business in Africa: opportunities, conditions and risks”, October 23, 2019

Africa is a perfect ground for new joint projects which would be free from restrictive policies executed by a number of foreign countries. Here worth mentioning is the RussianEgyptian contract on the supply of 1.3 thousand coaches of different classes. The contract implies their assembly at the Hungarian factory Dunakeszi Jarmujavito Kft from the component parts produced at the Tver coachbuilding plant, part of JSC “Transmashholding”. Transmashholding is going to be the leading developer while the Hungarian party – Hungarian ExportImport Bank – will act as a production and financial partner. Such approach of “collaboration on the third countries’ markets” could also be practiced in EAEU policy.

An important part of the work on expanding the presence of EAEU in Africa is stimulation of the “integration of integration” through concluding the agreements on free trade. This process has already been launched: in early 2019 discussions began about the agreement on free trade between EAEU and Egypt –the key trade partner of the Union in Africa. However, perhaps even stronger effect could be achieved in case of a complex multilateral agreement on free trade between EAEU and the members of African Union (AU), the largest organization of the countries of African continent uniting 54 states. Today the AU’s goal is more than ambitious: to create a common internal market without barriers for free movement of the four production factors as well as a full-fledged monetary and economic union with an in-home central bank and single currency. AU could promote the united platform for multilateral trade negotiations with the participation of separate African states and EAEU. The creation of such FTA would remove or at least facilitate tariff restrictions of the Eurasian export to Africa and would drive the production cooperation of EAEU countries. These negotiations could also remove nontariff barriers which often undermine the trade even worse than the tariff rates.

The first step towards this goal has also been made: at the Summit and Economic Forum “Russia – Africa” in October, 2019 a Memorandum of understanding and cooperation between the Eurasian Economic Commission (EEC) and the African Union Commission (AUC) was signed. The MOU creates the basis for institutional collaboration between EAEU and AU. As the former Chairman of the EEC Board Tigran Sargsyan noted: “We are interested in the African Union because it is a dynamic economic market with population of 1.3 billion people. The growth rate evidence that in the nearest future Africa will become a serious economic actor of a world scale”. Apparently it would be odd not to take this chance.

The interaction between not only authorities but also business unions could also contribute to the cooperation and solve the problem of information deficit among businesses of Eurasia and Africa. To implement this idea we could create under the auspices of AU a Business Council including the main business associations from the AU member-states. And its vis-à-vis could be the EAEU Business Council which unites the key business associations of the Union memberstates. Russia’s interests in the Council are represented by the Russian Union of Industrialists and Entrepreneurs (RSPP). In conclusion we would like to go back to where we started the article. The important positive factors of the collaboration development between EAEU and Russia are the Russian language, common history and cooperation experience. Many representatives of African elites used to study in the USSR and EAEU states, they know and love our countries, act as objects and providers of our “soft power”. Very often this fact alone can open the door to new markets of this challenging but important region. And today when Africa has a chance to become the continent of the future it is crucial to catch the great opportunities for collaboration which are opening for us. Companies-members to RSPP are prepared for this.

NORTH EAST ASIA

BUSINESS ASSOCIATION: RUSSIAN ENTREPRENEURS TURN EAST

Sergey Krasilnikov, Vice-President – Managing Director, International Cooperation and Integration, RSPP

Sergey Mikhnevich, Director, Center of Multilateral Cooperation and Eurasian Integration, RSPP, PhD in Politics

Trade and economic cooperation with AsiaPacific Region in general and with NorthEast Asia in particular is a priority for the Russian foreign policy. The valid Foreign Policy Concept of the Russian Federation approved by the President of the Russian Federation V.Putin on November 30, 2016 says that “today we can see scattered world potential of power and development, its shift to APR”. The document underlines that “Russia considers its stronger position in APR and more active relations with the countries of the region as a strategic area of its foreign policy… Russia is interested in active participation in the integration processes in APR, in taking advantage of its possibilities when implementing the programs of social and economic development of Siberia and the Far East”. With complicated relations with the Western countries the importance of APR for Russia grows.

In 2018 the APEC economies accounted for 32.3% of the Russian foreign trade in comparison to 30.5% in 2017. It’s worth mention

ing that in 2017 there was trade deficit with APEC economies which amounted to $5.98 billion while in 2018 the trade surpluses reached $19.289 billion. Six years ago 23% of Russian foreign trade and 17% of export accounted for APEC. However, only 4.14% stocks of the Russian FDI were directed to the APEC countries ($14.252 billion) as of the beginning of 2019. Whereby half of the Russian investments to the APEC economies accounted for the USA ($7.227 billion). To put this in perspective: stocks of the Russian FDI in China amounted only to $254 million. As for the incoming FDI from APEC to our economy in 2018 they have dropped nearly twice: from 6.49% to 3.89% (from $28.634 billion to $15.84 billion).

According to the Central Bank of the Russian Federation the largest investor to our country is Singapore with stocks of FDI to Russia amounting to $3.874 billion as at the beginning of 2019. Considerably lower level of FDI comes from the Republic of Korea –