Russia and its involvement in Africa

Despite the fact that Russia-Africa trade hovered near USD8 bn in 2008 and 2009, we sit at a new threshold of Russia-Africa relations, no longer ideologically defined but motivated by economic incentives, propelled by private capital and unshackled by an improved domestic macroeconomic environment.

Recall that Russia has benefited from high commodity prices, which has enabled it to restore some macroeconomic respectability and stability to the nation’s balance sheet since 2001.

For instance, despite taking somewhat of a hammering in the financial crisis, Russia’s reserves of USD480 bn are still the world’s 3rd largest. The vast liquidity has already made Russia the world’s 14th largest outward investor; with a foreign direct investment (FDI) stock of near USD400 bn.

Russia’s outward FDI is led by large multinationals, which we know are national champions of Russia’s foreign policy. The largest operate in oil and gas and a smaller group, but with foreign assets growing most rapidly, operates in metals’ processing.

Africa is a low hanging fruit for cash-flush Russian resource companies. However, in terms of infrastructure, Russia is still to genuinely flex its muscles in Africa and we expect this to change over the next few years – especially in transport-related infrastructure.

Already, Alrosa, one of the world’s biggest mining companies, is expected to invest USD500 mn to build homes, schools and dams in Angola over the next few years. Alrosa operates two mines in Angola and is also set to explore for oil and gas in the country with Angola’s state-owned Sonangol.

Should the much-anticipated Trans-Sahara Gas Pipeline project linking Nigeria’s gas fields with Algeria for eventual export into southern Europe manifest itself, expect a substantial increase in support from the Russian government, much of which will be in terms of the financing of the critical infrastructure component of the operation.

This article is an edited extract of a Standard Bank research report titled “BRIC and Africa: New partnerships poised to grow Africa’s commercial infrastructure”.