Robbed Of Their Development? – New Questions Surface As Russia Seeks To Strengthen International Co-operation With Africa At Russia-Africa Summit

This past Wednesday and Thursday, Russia hosted the first Russian-African Summit. Over 3000 Russian and African delegates flocked to Sochi, Russia, to discuss strategies to intensify the two partners’ economic relations. The summit was co-chaired by Russian President Vladimir Putin and Egyptian President Abdel Fattah el-Sisi. The agenda covered everything from nuclear energy to arms deals. The Kremlin reported that over $12.5 billion in transactions were negotiated. Although few deals materialized, the summit was the first step to reinvigorating Russia’s presence in African industries.

Historically, Russian-African economic relations have been sporadic. Their connection saw a peak in prosperity during the USSR period but significantly waned with the fall of the Soviet Union. During the early years of the 1990s, states like China and the U.S. took advantage of the Russian downfall to strengthen their influence on the African continent. By the late 1990s, Russian-African relations were on the mend. This week’s summit suggests the continuous upswing in the partners’ economic alliance.

At the summit, among the solidified deals, were the memorandums to finance the construction of an oil refinery and an oil pipeline in Morocco and the Democratic Republic of Congo (DRC), respectively. As well, the Russian geological company, Rosgeo, reached a mining deal with Equatorial Guinea, South Sudan, and Rwanda. There were also talks of the installation of a nuclear power plant in Ethiopia by the state-run Russian nuclear company, Rosatom. Henry Foy, of the Financial Times, mentions that notably absent from these discussions were measures to correct the high imbalance of trade between the two partners. Currently, African exports to Russia account for only 15 percent of bilateral trade between the two.

The African continent is no stranger to foreign investment. Last year, the UN reported that Africa received $46 billion in foreign direct investment (FDI). Foreign investment, particularly the actions of multinational corporations (MNCs), is a source of contention amongst African nations. Although leaders emphasize the mutual gains of international alliances, citizens tend to think that its costs outweigh its benefits.

There has been a long-standing issue involving the unethical behavior of MNCs operating in Africa, particularly those in the mining sector. Take the situation in the DRC, for example. The nation holds some of the world’s most sought-after natural resources, such as cobalt, coltan, copper, oil, and gold. In an article published by the Financial Times, the author addressed how the increase in demand in past years for cobalt (of which two-thirds of world’s supply is concentered in the DRC) led child labourers to become involved in the mineral’s extraction and to the creation of informal mines. Many of these informal mines are under the operation of MNCs, chief among them is Switzerland’s Glencore and China’s China Molybdenum. Foreign investors often take little regulatory action to ensure that extraction methods consider the welfare of domestic workers. In June of this year, 43 informal miners died when a pit collapsed at one of Glencore’s largest mining sites. The decrease in demand for cobalt coupled with external pressures has pushed some MNCs to enforce safety measures and abrogate the use of child labor in their operations.

Malpractice in the mining industry is not singular to the DRC. A report found that several African nations, primarily Ghana, Kenya, Mozambique, Tanzania, and Uganda, have recently been subject to trade misinvoicing. In essence, trade misinvoicing is the overcharge or undercharge for imports or exports to either pay fewer taxes or to receive government assistance. This phenomenon accounts for nearly 80 percent of all revenue that governments of developing countries lose through illicit activity, which equates to $424 billion in loss. Tanzania is most affected by misinvoicing, with an estimated $1.87 billion lost each year. Mining companies are significant contributors to this loss. In Tanzania, through misinvoicing, mining companies were able to avoid $248 million in annual taxes. The majority of this tax evasion is committed by mining companies that come from Switzerland and Singapore. By over-invoicing their imports, these companies increase their operating expenses, and as a consequence, are able to decrease their taxable income in Tanzania.  Foreign investors have managed to reduce their relationship with Africa to a one-sided exchange. They effectively cheat the continent out of their natural resources without contributing to their economic development.

Will these negotiations at the Sochi Summit follow a similar pattern and open African industries to the clout of Russian MNCs? Will the deals outlined at the summit further entrench Africa in the exploitive tendencies of foreign investors, or is Russia genuinely interested in promoting African interests? There is some evidence that confirms the plausibility of the latter. As president Putin mentioned in his address at the summit, Russia has provided over $20 billion in debt relief to the continent. The same cannot be said for China, which has continued to issue loans to the continent, totaling $126 billion, nor the U.S., which under the Trump administration has refused to assuage the debt crisis. Last year, Russia sent $20 billion in exports to Africa; although seemingly a high number, this amount is dwarfed in comparison to Chinese exports to the continent, which reached $205 billion. Although Russia plans to double trade within the next four to five years, its economic involvement in the continent will remain minimal relative to market giants like the U.S. and China.

African nations are also taking measures to deter the exploitative propensities of foreign actors.  In Botswana, an opposing party to the recently re-elected democratic party had promised to take a firm stance on the country’s agreement with the British company, De Beers, the second-largest producer of diamonds in the world. The party advocated for settling on a deal that favoured more equitable terms for Botswana, which provides two-thirds of the company’s diamonds. Despite their loss, their rhetoric shows the growing desire for the operation of MNCs to be performed in a manner that favours African development.

Because of the instability of the African economy, any new agreements which opt for the opening of African industries should be entered with trepidation. In the future, to ensure stable economic development, African governments should be wary of agreements that open their borders to vulturine MNCs. Although international treaties present the opportunity for some to realize financial gains, the welfare of the masses is often disregarded in the process of market liberalization. Some question if the sole purpose of this week’s summit was to serve Russian enrichment, but President Putin seems more sanguine, promising a new sort of economic co-operation, one that ensures growth on both ends. It remains to be seen whether the newly negotiated Russian-African agreements will promote or impede African development.