14 Apr 2024
African Think Tank

Association For Strategic Culture and Research Foundation

African Think Tank
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From Trade Gateway to Risk Guarantees: What Russian Businesses Can Offer Africa
2021-10-29 12:49:06
From Trade Gateway to Risk Guarantees: What Russian Businesses Can Offer Africa
Africa today is one of the most attractive markets and promising regions for long-term investment. The continent shows the world's highest consumption growth rates. Russia has recently joined business activities in the region. The first-ever Russia-Africa summit, held in Sochi in 2019, was a powerful impetus for this. The second one is due in 2022. Both sides expect a considerable increase in the number of contracts that will be concluded.

What spheres of the economy are most promising for Russian businesses, what guarantees can they count on in Africa, and what have African countries been doing to bring about a more lucrative investment climate in the region? The head of Afreximbank, one of Africa's key financial development institutions, Professor Benedict Oramah provided answers to these and many other questions in an interview with TASS News Agency.

Africa today is one of the most attractive markets and promising regions for long-term investment. The continent shows the world's highest consumption growth rates. Russia has recently joined business activities in the region. The first-ever Russia-Africa summit, held in Sochi in 2019, was a powerful impetus for this. The second one is due in 2022. Both sides expect a considerable increase in the number of contracts that will be concluded.

Oramah said trade between African countries and Russia saw considerable progress lately. "Just six years ago you were talking about exports of some $8 bln from Russia and imports from Africa of $2 bln or less. Today you are talking about exports of $11-12-14 bln a year and import of about $5 bln. That brings you to that about $20 bln," he said.

Russian and African businesses show considerable interest towards each other. The first Russia-Africa summit was a good occasion for establishing relations. The value of contracts concluded there (which do not constitute a commercial secret) rose to above $12 billion. Afreximbank's president predicts that deals clinched at the next forum may exceed $20 billion.

Windows of opportunity for Russian businesses

Oramah believes that Russian companies have a number of advantages over their competitors in Africa in a number of fields, such as the construction of railways.

"Africa because of the AfCFTA is building its railway network. Sometimes it is difficult to understand why the Russians are not taking advantage of it? Because today you have the Chinese, you have the Americans, you have the Germans who are in all these projects…That is a very, very promising area," Oramah said.

He sees Russian companies' great potential in mining, information technologies and medicine. Vast opportunities exist in industry as well. Oramah said Africa in the near future would be moving towards value addition and this will require investments in processing facilities.

"The era of commodities is disappearing. Everywhere you go engineering services are required, Africa is building its infrastructure. It is very much behind and it’s trying to catch up," Oramah said.

In this connection, he stressed, Russian businesses may enjoy the benefits of the Russian industrial zone, which the Russian Export Center is creating on the Suez Canal in Egypt. It is a special territory with lax taxation for Russian resident enterprises, which will be entitled to preferential lease terms and tariffs and business sites ready for operation.

Oramah said one of Russia's major advantages was goodwill. He remarked that even young people in Africa knew how Russia helped African people fight for independence. "So an emotional link is there," he said.

 "Also, you have the political will demonstrated through the actions of HE Vladimir Putin. And, of course, our relationship that EXIAR (the Russian Agency for Export Credit and Investment Insurance - TASS) has with Afreximbank. Afreximbank is a key player on the African market. That's a big advantage for Russia," Oramah stressed.

On cooperation with EXIAR

Afreximbank's president believes that cooperation with the Russian Agency for Export Credit and Investments Insurance (EXIAR) may prove a major factor that will let Russia gain a firmer foothold in Africa.

In January 2022, a staff exchange program will begin to be implemented. It is to help the participating parties to better understand each other's mode of operation and to establish contacts between Russian and African businesses that wish to do business together.

Afreximbank is going to let EXIAR access its digital platform Africa Trade Gateway, due to be launched next year.

Oramah described the platform as an ecosystem of digital products, such as a customer due diligence system, a trade information portal meant for the search for supply chains, and a portal of trade regulations that contains all banking, trade and investment regulations from 55 African countries. Other integral components of Africa Trade Gateway is a pan-African payment system and protocol, used for making payments around the world.

The sole resource yet to be commissioned is a trade information portal. Potential exporters can use it to search for information about all African companies in different countries that have ever imported goods of interest to them.

"All those services will be integrated into Africa Trade Gateway platform. It is the only marketplace that will be made for AfCFTA. This is the only platform that has all the information (crucial to doing business in Africa)," Oramah said.

Guarantees for foreign businesses in Africa

One of the biggest challenges for the Russian companies looking to enter the African market is the lack of financial mechanisms to support and guarantee their investments.

“We did discuss it with EXIAR. We have what is called AFGAP – Afreximbank Guarantees. We provide country risk guarantees, we provide investment guarantees and we provide other forms of guarantees that investors need: for example, completion risk guarantees, market availability guarantees. But the key ones are country risk and investment guarantees,” Benedict Oramah said.

According to him, Afreximbank is also offering such services for many African companies. For Russian companies that are coming the bank is sharing the risk 50%/50% with EXIAR. Meanwhile, as the professor notes, Afreximbank is ready for cooperation with other Russian financial and credit organizations.

“We are working already with some Russian banks – VTB, we continue to work with them. VEB – we are in discussions with them. Our lines of credit are open for a number of Russian banks,” Oramah said.

A game-changer for the entire continent’s economy

Important steps have been made lately in the African countries for creating better conditions for business development and shaping attractive investment climate. The biggest thing that happened in Africa is signature and coming into force of the AfCFTA. That is a huge game-changer.

“The reason Africa has been behind economically is that is it a continent divided into 55 small countries. They are too small and didn’t have the capacity to make big deals. What the AfCFTA has done is remove those barriers, at least politically that have happened. It integrates the entire continent of about 1.2-1.3bln people that will be up to 2bln people by 2050,” Oramah stressed.

According to him, AfCFTA creates an economy of 2.5-2.6 trillion dollars. AfCFTA removes tariffs on 90% of goods produced and traded within the African continent. And based on that there is a drive by the African Union to move forward the value chains for textiles, for garments, and for automotive industry. This is a major thing that happened on the continent.

This article first published by Russia TASS News Agency.
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