Russia is bemoaning the passing of Libyan dictator Muammar Qadhafi, an old friend and client of the Soviet Union and a reliable customer for Russian arms sales. But Qadhafi belongs to the 20th century. In the 21st, Russia has new interests in Africa, and the Libyan strongman’s passing will not derail them for long. Russia is creating a new economic platform that will allow cross-investment between its members: Brazil, Russia, India, China and South Africa (BRICS).
The Wall Street Journal reports that exchanges from Brazil, Russia, India, Hong Kong, and South Africa will unveil a product-sharing agreement to leverage interest in their emerging markets. At the beginning of next year, seven exchanges will cross-list their stock indexes, creating an enormous equity market. The combined market capitalization rate will total more than $9 trillion—almost three-quarters the value of the New York Stock Exchange, which is by far the world’s largest stock exchange.
This new capital market will provide yet another avenue for the Russian government and business community to pursue growing interests in Africa. The Kremlin is aggressively investing in its relationships from the Cape of Good Hope to the Mediterranean. When pursuing business, Russian (and Chinese) companies do not pay much attention to the U.S. Foreign Corrupt Practices Act, which ties the hands of American competitors.
However, there is a stark contrast between the effects of a Cold War strategy and today’s: While policymakers in the U.S. and Europe are involved in counterterrorism and human rights problems in Africa, Moscow and Beijing are strengthening their economic hold on the region.
One clear-cut example of this strengthening bond is the formation of the South Africa–Russia Business Council in 2006. Created with the goal of reaching $1 billion in trade, this year’s meeting of the Business Council was attended by roughly100 companies, 30 Russian and 70 South African. In 2010, trade between the two nations was $300 million, but as indicated by Russia’s Natural Resources and Ecology Minister Andrei Trutnev, trade could reach $600 million to $700 million by the end of this year.
Though trade between the United States and South Africa totals more than $13 billion, it is growing only at half the rate of Russia’s. Moreover, in 2010, the U.S. traded at a deficit of almost $3 billion with South Africa. At the same time, China has overtaken the U.S. as the African continent’s largest trading partner, with a turnover well over $100 billion.
South Africa’s acceptance into the BRIC countries came as a surprise to many, as there are far more developed and wealthier nations that would have qualified, such as Mexico, Turkey, and South Korea. South Africa’s nomination was due in large part to its representing the African continent, with which the BRIC countries want to strengthen economic ties. Yet, as The Heritage Foundation pointed out, South Africa’s path to prosperity lies through strengthening markets, the rule of law, and economic freedom.
Unlike the Cold War, when the USSR competed with the U.S. for political influence, Russia now has an economic interest in developing the resource-rich African continent. Russia is a world leader in production of raw materials, especially hydrocarbons. However, domestic political risk is high for the Russian oligarchs, and they want to invest outside their government’s reach. Also, Russian businessmen understand extractive industries: This is where their competitive advantage lies.
Their government is opening doors for them. In 2009, President Dmitry Medvedev led a delegation of 100 businessmen from his country on the largest tour of Africa. This was the largest such group a Russian leader brought there since the fall of the Soviet Union.
Africa has huge volumes of proven natural reserves, including high-grade gold ore, rare earths, oil and gas. Some African countries have adequate infrastructure available, and that combined with cheap labor ensures high profitability of mineral production.
Another area where Russia has maintained a competitive advantage internationally is the construction of nuclear power plants. These power plants run on uranium, and Russia does not have enough of it, while Africa does. Therefore it is obviously interested in uranium production abroad, especially in Africa.
With Russia following China to Africa, Western leaders better take notice. While human rights, disaster relief, economic development, and counterterrorism are important, so is access to Africa’s resources and emerging markets. Nigeria and Angola are some of the U.S.’s largest oil suppliers, with exports totaling roughly 1.2 million barrels of crude oil per day. However, Russia’s Gazprom is interested in moving ahead with a natural gas joint venture with Nigeria signed in 2008.
Finally, Africa’s future is influenced by the state of world trade negotiations and the elimination of trade barriers, where the U.S. and Europe call the shots. The West, despite its higher environmental and labor standards, should not let Moscow (and Beijing) outcompete in Africa’s business development.