The challenges Russian business face in Africa

Undoubtedly, a number of Russian companies have largely underperformed in Africa, experts described was primarily due to multiple reasons. Most often, Russian investors strike important investment niches that still require long-term strategies and adequate country study. Grappling with reality, there are many investment challenges including official bureaucracy in Africa.

In order to ensure business safety and consequently realize the target goals, it is necessary to attain some level of understanding the priorities of the country, investment legislations, comply with terms of agreement and a careful study of policy changes, particularly when there is a sudden change in government.

The Russian Foreign Ministry published on its official website the text speech of Deputy Foreign Minister, Mikhail Bogdanov, in which he highlighted the challenges and problems facing the development of effective Russia-African economic ties. It was at a special business session of the Urals-Africa economic forum in Yekaterinburg.

Admittedly, Bogdanov pointed to the practical span and nature of Russian companies' business operations in Africa. And of course, he underscored the fact that one key obstacle has been insufficient knowledge of the economic potential on the part of Russian entrepreneurs, needs and opportunities of the African region.
"Poor knowledge of the African market structure, the investment climate and the characteristics of African customers by the Russian business community remains an undeniable fact. Africans, in their turn, are insufficiently informed on the capabilities of potential Russian partners," Bogdanov said.

Over the past few years, many corporate Russian companies have shown interests in investing in the region but feared, in practical terms, to move into action. Russians observe lots of business theories. Those corporate Russian companies that managed, at least, to make inroads there, a few have already exited citing "technical" reasons. An investment review and a business survey recently by AfBusiness Dialogue & Consultancy show there is more beyond "the technical and operational" reasons.
In Dec 2018, Russia's Nornickel terminated its deal with Botswana's BCL Group. According to Itar-Tass News Agency, quoting the media release, Russia's Norilsk Nickel has terminated its agreement to sell African assets to Botswana's BCL Group, including a 50% stake in the Nkomati joint venture.

It said that the Russian company would continue to seek damages from the BCL Group for the losses it suffered due to BCL's failure to meet the terms of the agreement. The termination of the agreement would also enable Norilsk Nickel to pursue its own strategy for the African assets, Michael Marriott, Norilsk Nickel Africa's Chief Executive, said as quoted by the press service.

"We will continue to pursue our claims against the BCL Group and the Botswana Government to recover the significant loss we have suffered as a result of their unlawful breaches," Michael Marriott stressed.

In East Africa, Russia's RT-Global Resources and Rosneft quitted Ugandan President Yoweri Museveni's oil refinery project and many major infrastructure deals. Russia had pledged US$4 billion but later disagreements over terms and frustration over in-fighting, intrigue and lobbying forced them to pull out of the country. The Ugandan government team noted that the Russian consortium exhibited inadequate assurance and availability of preferred alternative foreign contractors with comparatively high bidding terms.

Museveni, at first, favored the Russians because, apart from considering access to weapons, the Ugandan leadership was also counting on Russia's world superiority as a counterweight to both western powers; mainly America, and China. With Russians and the South Koreans out of the negotiations, Uganda appeared somewhat desperate, that was back in 2014.

Similar five years ago, Rosneft also abandoned its interest in the southern Africa oil pipeline construction, soon after its delegation in Angola had discussed the possible participation of the Kremlin-controlled company in exploration and development projects there. That project never appeared despite that fact that Russia has excellent relations with Angola, Mozambique, South Africa and Zimbabwe. From both business and political perspectives, the region is considered as unipolar and a regional power all together with South Africa.

In addition, Lukoil, one of the Russia's biggest oil companies, like many Russian companies, has had a long history, going forth and back with declaration of business intentions or mere interests in tapping into oil and gas resources in Africa.

Besides technical and geographical hitches, Lukoil noted explicitly in an official report that "the African leadership and government policies always pose serious problems to operations in the region." It said that the company has been ready to observe strictly all of its obligations as a foreign investor in Africa.

In August 2015, Lukoil pulled out of the oil and gas exploration and drilling project that it began in Sierra Leone. According to Interfax, a local Russian News Agency, the company did not currently have any projects and has backed away due to poor exploration results in Sierra Leone.
It, however, was reported that drilling in West Africa, including in Ghana, Côte d'Ivoire and Sierra Leone, did not bring Lukoil the expected results, as preliminary technical results did not demonstrated commercial hydrocarbon reserves. According to official reports, Vice-President Leonid Fedun did not rule out that Lukoil could withdraw from almost all of the projects in West Africa.

Over the years, Russian trade experts and business consultants have been discussing ways to improve overall economic cooperation with Africa. For instance, Andrey Efimenko, an Expert at the Russian Chamber of Commerce and Industry (CCI) said in an exclusive interview with me that the Russian Chamber of Commerce and Trade has closely monitored the activities and performance of Russian companies in Africa.

"Unfortunately," Efimenko regrettably pointed out, "some large Russian companies operating in Africa, has managed to establish itself negatively in a number of countries there. This is primarily due to ignorance of cultural peculiarities of the region, lack of social responsibility, failure to completely fulfill contractual obligations. These cases damage the image of Russia and Russian companies with further entering the African market."

All of these developments, more or less, have degraded Russia's image of Doing Business in Africa. On Dec 19, 2018, the Valdai Discussion Club hosted an expert discussion on Africa. Oleg Barabanov, Program Director of the Valdai Discussion Club, highlighted the investment prospects and their influence there by foreign players, and further analyzed the existing perspectives and challenges for potential Russian investors.

In her contribution, Nataliya Zaiser, Chairperson of the Board of the African Business Initiative (ABI) – a Moscow based business NGO, stressed that economic cooperation with African countries is not only a Russian initiative, but also a response to request from partners. Despite this mutual interest and potentially fruitful projects, Nataliya Zaiser said that there were still few really successful cases on the continent.

Andrei Maslov, Coordinator of the work/project on the Russia Africa Shared Vision 2030 report, Integration Expertise Analytical Center, said that in comparison with the situation a decade ago, today Africa is not only the main initiator of dialogue with Russia, but also it is much more ready for it. If earlier the economic landscape of the continent was determined by Western companies with their colonial approaches, now Africa is ready to become an equal partner, according to the Valdai report.

However, there are problems: Maslov echoed Nataliya Zaiser by saying that about 90% of the projects end in failure. In order to overcome this discord, the coordinating role of the state is needed, which, together with the private business, should prepare a roadmap and set targets for the development of various industries. The driver of economic cooperation, according to Maslov, can be private, rather than top-down initiatives.

"For us, Africa is not a terra incognita: the USSR actively worked there, having diplomatic relations with 35 countries. In general, there are no turns, reversals or zigzags in our policy. There is a consistent development of relations with African countries," according to Oleg Ozerov, Deputy Director of the Africa Department at the Ministry of Foreign Affairs of the Russian Federation.

Here is an expert note of caution: Signing agreements is not absolutely the best ultimate guarantee to the success of investment, however it provides legal basis. As the situation develops and interest continues to rise, Russian investors have to make part of the financial budget also for private consultancy services, as many foreign players do, and prepare to learn more about investing in Africa.