There is a simple algorithm for successful work in Africa

Africa opens up enormous opportunities for Russian business. The volume of trade between African countries and the Eurasian Economic Union in 2022 amounted to 19 billion US dollars. Over the previous seven years, it increased by 60%, and over the next four years it will double again, analysts at the African Development Bank predict. This is facilitated by Russia’s return to Africa policy, but the success of a specific private initiative depends on its own business strategy.

Senior researcher at the Institute for African Studies, who has 30 years of experience working on the continent, including business consulting, Stanislav Mezentsev told the African Initiative about the key stereotypes and mistakes that hinder the work of Russian business in Africa.

— Russia and Africa have extensive historical experience in relations, but after the collapse of the Soviet Union, many ties were lost. How difficult does this make work today?

— Indeed, this is a key and strategically important issue. It is, of course, impossible to say that ties have been cut off completely and in general. With the collapse of the Soviet Union in 1991, relations between the new Russia and Africa entered a catastrophic failure, on virtually all fronts and with all African countries. I experienced this period when I worked at our embassy in Ethiopia. I remember very well the day when information came from Moscow that the Soviet Union no longer existed and our ambassador had to go to the Prime Minister to represent the new country — Russian Federation. Everything was very interesting and not very clear, but diplomatic relations were resumed.

Russia became the legal successor not only to the entire complex of potentials, but also to the problems and debts of the entire Soviet Union. At the same time, it was Moscow that received all the functions of the main economic integrator with foreign, including African countries. All other former republics of the USSR were almost completely excluded from this process for some time. Of course, the termination of cooperation with Africa, or let’s say its suspension, had enough justifications, including complex processes within Russia itself and much more.

But the problem was precisely that there could be no vacuum in geopolitics and international economics. The Soviet Union was strategically important for more than half of the large countries in Africa in all respects: military-political, and economic. In this context, it is enough to name Angola, Mozambique, Ethiopia, where the Soviet Union built infrastructure, provided military-technical and economic assistance, opened universities, and gave significant quotas to Africans to study in the USSR. When our bilateral cooperation ceased, the Africans, for their part, also could not initiate its restoration. And, as you know, the initiative was seized by China, which was just beginning to enter African markets. Beijing, like a good student, skillfully adopted the experience of the Soviet Union and improved it, having now achieved economic and political dominance on the African continent. Particularly successfully, from my point of view, the PRC adopted the experience of the USSR, when, on the security of economic programs and credit lines allocated “on paper,” in dollars, but actually sold through rubles, and in the case of China — yuan In return, China gains access to mineral resources and controls growing markets in Africa.

In addition, in returning to the continent, Russia was restrained by the position of its Western partners, who conventionally told our leadership: “Don’t meddle in Africa, but focus on the zone of interests closer to you within the CIS. And we, your “partners,” will develop relations with Africa.” In fact, an attempt was made to divide spheres of influence in the world, and until a certain stage Russia complied with the agreements and did not show any serious activity in Africa. However, in recent years, world geopolitics has undergone dramatic changes, and we finally remembered Africa, and the political leadership outlined a trend for Russia to return to the continent. This is a very correct, although, in my opinion, a belated decision. It is good that at this stage there is political and diplomatic momentum.

It’s bad that all these words and reasoning are not followed by a balanced and thoughtful African strategy for Russia, especially in the economy. Politics and general discussions about the importance of Africa for Russia, as well as a constant declaration of the fact that we have never been colonialists and that we are united by the bright past that the Soviet Union created in Africa, — all this is not enough for the practical return of Russia as an equal and strong partner. We must be aware that the African politicians who are now in power, as a rule, for the most part belong to the generation that was born after the era of colonialism. Well, they already remember about the merits of the USSR.

— It is clear that competition is high now, but are there any free niches? Where can Russian business go?

— You should take into account what kind of Russian business we are talking about, because there is a certain segmentation. For example, big business or state corporations — oil, gas, fertilizers, grain, etc. — I think there is no point in wasting time talking about these industries. They are self-sufficient. Here the state, which controls these areas, has its own vision, has its own strategies, knows how and what to do here. In this “high” segment, we remain highly competitive in Africa because we have grain, we have fertilizers, we have petroleum products, and these are exclusive goods that have markets. Africa needs Russian fertilizers and cannot do without our grain and oil products.

It is interesting and important for us to try to ensure that Russian small and medium-sized businesses today can find their markets and gain a foothold in Africa. In conditions of economic stagnation, in conditions that the sanctions policy of the West is increasingly pushing us out of those countries where we have become accustomed to working comfortably over the past 15-20 years, Africa is finally vital and necessary for us. Not us for Africa, but Africa for us. Now the geopolitical background and the realities of the current situation in the world are very favorable for Russia’s return to Africa.

Finally, answering your question about what areas are acceptable for our business, we must definitely dwell on one more important aspect, which greatly hinders us from building a correct policy in Africa. I'm talking about the extremely low level of awareness of our business about the general situation on the continent. There is a lot of talk about political will and the need to move back to Africa, but very little attention is paid to the issues of professionally informing our entrepreneurs about the general situation in Africa. Many still proceed from the fact that: “Children, don’t go for a walk in Africa, there are crocodiles there.” and so on. And in fact, businesses that are promising for working here do not consider Africa as an acceptable platform for themselves, often only because they are objectively misinformed by propaganda. For some, the continent is still seen as a complete horror of “incessant wars, terrible Somali pirates, terrible diseases from which anyone who ends up here will certainly or almost certainly die.” Well, for example, most likely from malaria, but the most advanced ones will also call you “yellow fever”, “amoebic dysentery” and the like.

— Then tell us, what is Africa really like as an investment region?

— I want to calm everyone down right away. Arriving in almost any country in Africa, you will not be attacked by wild lions and crocodiles. They can only be seen in national parks, and even then you will have to travel quite far from African capitals and pay money, but even there, if you do not violate the obvious rules of prudence, you are not afraid of wild animals. The danger of fatal diseases is also exaggerated: there are no more and no less of them here than in other places. For example, the yellow fever vaccination, which is recommended for those visiting some African regions, is also recommended when visiting Asian resorts beloved by Russians, but for some reason few people care about this. Well, one last thing, since we started talking about the epidemiological situation. Infection with amoebic dysentery, or simply, as Africanists call it “amoeba,” can be easily avoided if you simply observe basic hygiene, wash your hands before eating and do not try unwashed fruits at local markets. Well, if something happens, then this disease is not fatal and not even as dangerous as it is called. It is easy and simple to treat, just like malaria. The main thing is not to let the disease progress. In general, of course, there are many nuances, so it is important to talk about Africa as much as possible and tell the truth, doing it objectively. There is no need to downplay the problems, but at the same time it is categorically wrong and misleading.

If we talk about the whole of Africa in a global sense, then the first thing I would advise potential investors and businessmen to pay attention to is — this is agriculture. In most African countries, this sector of the economy is systemically important. A significant part of Africa, despite the desire for industrialization, still remains predominantly agricultural. At the same time, agriculture as a sector of the economy in many African countries is still underdeveloped in terms of the use of new agricultural technologies, the creation of their own feed production capacities, and especially the processing of agricultural products. Three to four harvests a year produce a large amount of fruits and vegetables, but due to the lack of industrial canning and processing facilities, a significant part of this product simply spoils. Currently, Turkey, India and, recently, especially the Middle Eastern countries are investing in this area, including in the interests of ensuring their own food security.

If we talk about country priorities, the popular ones, according to the old Soviet memory, are Ethiopia, Mozambique and Angola. But today our medium and small businesses are already implementing projects in Kenya and South Africa. In West Africa, Russian companies are working or trying to start working in Senegal and Ghana. Recently there has been interest in Uganda, Tanzania, and Zambia. In my opinion, this is a very correct choice. These countries are politically stable and have clear rules for business.

When choosing a country to think through your possible steps, do not be afraid to look at Africa more broadly, including analyzing those countries where, for various reasons, competition is still low, but this means a low barrier to entry into the market. Of course, it is necessary to take into account the specifics and specific risks depending on the characteristics of the projects that you would like to undertake. For example, Somalia, and even more precisely its northern part, the so-called Republic of Somaliland. This is one of my “favorite” ones. African territories. When you talk to someone about work opportunities in this country, Russian interlocutors, as a rule, get scared and answer: “How can I work there? There are only pirates there!” I would like to object and provide counterarguments. Firstly, piracy as a phenomenon of political and economic blackmail or money-making in the Red Sea, namely in the Somali region, has long since come to an end. But here they talk little about it or know nothing at all. We are all afraid of pirates, while other countries are actively developing their business here.

The UAE has invested almost $1.5 billion in the reconstruction and development of port infrastructure and a modern airport near the city of Berebera on the Red Sea coast. Once upon a time, a large base of the USSR Navy and Air Force was stationed here. Two years ago, Emirati investors came to this abandoned Soviet base and, with great economic prospects, built a logistics line here and are now profitably operating it. It includes: a cargo seaport, a duty-free trade zone (for now mainly with Ethiopia) and an airfield receiving transport aircraft from the Emirates. Emirati and other goods are already being supplied through Berebera to neighboring Ethiopia. The UAE has further plans to develop this strategic project. The next stage includes the construction of a railway jointly with Ethiopia, as well as the extension of the logistics corridor to all other adjacent countries in East Africa — region with a population of almost 300 million people. This is a very good market. There are other international investors working in the Republic of Somaliland, in the energy, mining and of course agriculture sectors. Therefore, there is no need to make superficial conclusions about which African countries are promising and which are not, based on biased and outdated information.

Returning to the conversation about other niches that may be promising for our business, we should, of course, note modern information systems and technologies. In this direction, our entrepreneurs already have some success stories in Africa. It is well known that Russian business in this area is quite competitive. But I want to make a reservation that we should not belittle Africans’ own capabilities in this area and underestimate the high competition. Russian entrepreneurs should know and take into account that this market in most countries of the continent is already saturated. The vast majority of African countries have all the necessary infrastructure, high levels of training and good capabilities of local entrepreneurs working in the field of high technology. For example, online banking is at a fairly high level of development even in “exotic and unexpected” situations. for outside observers in corners of Africa. The correct and promising path in such areas — do joint projects with trusted local partners.

— You talked about agriculture, but isn’t China already interested in this agriculture? Or India?

— Yes, you are right, I repeat. We are significantly behind schedule. There are already China, India, and other countries here, as we have already talked about. But, firstly, there is no need to be afraid of them. Africa is too big and there is enough room for everyone. Secondly, if we talk about investments in African agriculture, then it is China that, to a greater extent, and first of all, is engaged in large industrial projects on the continent. The PRC is actively moving its enterprises here, especially harmful ones, and especially intensive ones, which require a large amount of cheap manual labor, because here this labor is still practically free. Plus large infrastructure projects — roads, bridges, ports, airports. This is China's strategic and well-thought-out government policy. Beijing is very correctly developing its global logistics project “One Belt, One Road.”

Basically, everything that China does at the interstate level, the construction of roads and other infrastructure in Africa, everything is implemented “as if on credit.” But in fact, for these loans, China takes mineral resources from Africans and invests them in the development of its own economy. Of course, I am talking about this roughly and schematically, but the schemes of Chinese-African cooperation at the state level work approximately like this. The Chinese adopted most of their experience and strategy in this from the Soviet Union, which worked actively and successfully in Africa.

The common idea is that the USSR helped African countries solely in exchange for ideological influence — not entirely true. Not only. The USSR also implemented projects that were economically beneficial for itself. As an example, I will only mention the supply of domestic equipment to African countries. The famous URAL trucks, which are still so loved and respected for their reliability in Ethiopia, Angola, and Mozambique. Thousands of units of this equipment were delivered to countries of our influence. Yes, such deliveries were often carried out through government lines of credit. But, firstly, it was the countries of Africa that provided the Soviet industry with a market and thereby supported its sustainable development. Secondly, a number of loans for such supplies, including military equipment and weapons, were secured by the opportunity to use mining from rich deposits of gold and gas (as, for example, in Ethiopia) and other mineral resources as payment for Soviet loans. At the same time, our geologists also provided exploration of reserves in these fields. Another thing is that due to the long cycle of these projects, the USSR did not have time to take full advantage of their results, ceasing to exist in the early 90s. But that's another story.

— And these deposits are now forgotten? They weren’t left to us, right?

— Moreover, they will never be ours again, because it was all redistributed long ago by those who won the Cold War. The Soviet Union collapsed along with the regime of Mengistu Haile Mariam in Ethiopia, which we supported and with which we had interstate agreements on all these mineral deposits.

Western “partners”, of course, were happy to “forget and forgive” all the merits of the USSR. Moreover, they were able to convince the leadership of the new Russia to write off the bulk of Africa's debt to the USSR in exchange for obligations that they, in turn, subsequently did not fulfill to Russia. This topic is complex, and, of course, now it’s too late to remember all this and look for those to blame. We need to move on and create new economically viable projects in Africa.

We settled on the idea that we need to go into agriculture, because China is doing exactly what the Soviet Union was doing. And, probably, we are still able to compete with China in this area. Although I’ll make a reservation once again, China is already very firmly established in Africa. In addition to the huge volume of bilateral trade, Beijing has already cultivated a galaxy of local lobbyists in almost all African countries — African leaders at various levels who received a good specialized education in China and maintain the closest business and other ties with this country.

In agriculture, what did the Chinese often do in Africa? For example, they rented land here, poisoned it all with harmful and dangerous chemicals, and grew huge crops for sale domestically and for export. Such Chinese “projects” there have been many in the recent past. But Africa is also a fast learner. This practice has now been stopped and is strictly punished, as is, indeed, uncivilized mining, which Asians also sinned with and earned huge amounts of money, also evading payment of any types of taxes to local budgets. Now everything looks different. Nowadays, most African countries have introduced strict rules for quality control of foreign projects, especially in the food and agricultural fields. A strict licensing system has been introduced. For example, in Uganda, a Chinese-Malaysian holding company is currently working with the task of localizing the production of mineral fertilizers in the country. The project was opened as a charity and interstate project, but for two years now it has not been able to obtain certification. The local Ministry of Agriculture, generally interested in obtaining fertilizers, is in no hurry. They check, study, evaluate productivity, quality, and environmental friendliness. Africans are becoming more selective about what they are fed and what is poured into the ground as fertilizer. Therefore, Russian business is welcome here, but they will make demands for which you also need to be prepared.

— What are your top tips for anyone starting out in Africa?

— Africa — a very promising and attractive region for a Russian entrepreneur, but this is a region that is absolutely different from what a conventional Russian entrepreneur, who has never been here himself, is used to. Therefore, the strictest and very first requirement, not advice, but precisely the requirement: do not rush “into the pool” and not believe first impressions from the Internet. Moreover, no general information about the continent, nor especially those “chain letters” that could fly into your corporate mailbox from a mysterious African friend. A friend who, at your last exhibition (presentation, catalog, your advertising, etc.) really liked the product (equipment, consumables, products) that your wonderful company produces.

The mysterious African in his first letter will describe himself from the best side, probably casually mentioning his family or, at least, personal connections in the “top” of the country. of your country. Already here I would like to disappoint you. Don't waste your time, don't respond, and don't put yourself at risk. But if suddenly it somehow miraculously coincided, and you already know that your product seems to actually be in demand in Africa, write a response. In your response, thank and ask the potential partner to send you his company registration card and a formal LOI (request) for analysis and decision on the advisability of further conversations/negotiations. Any discussion without these two documents from your online customer at your disposal will lead nowhere. And then wait, there is a high probability that you simply won’t get anything, and that’s good. Unfortunately, this may be part of the “highly qualified” fraud. Moreover, it is often designed purely for the Russian consumer. Directly “sharpened” under us.

There is a simple algorithm for successful work in Africa. Almost every country now has a ministry (agency) of investment. Come there, there is a “one window” system, they will tell you everything and advise you. If you haven’t decided yet and haven’t chosen a specific country to start your expansion into the African continent, ask me. I'll tell you what steps and how to do it correctly. There are only five of them. Simple and clear. The first — thorough and in-depth marketing of the chosen country. Goal — check that your product is needed there and can be competitive in terms of price-quality parameters. The placement of words in this combination for Africa is important in exactly this order: price still comes first, quality only comes second.

If the marketing conclusion is positive — step number two. Definition of strategy, business plan, choice of counterparty, partner. The most important thing here — is to check out the African side. No trust, only objective verification. For the entire range of issues, which includes the so-called “business due diligence”, legal verification of a business. Do not waste time on this and allocate the necessary resources, you will save yourself a lot of money and nerves. If everything coincides and the results of the first stages are positive, then take the final step of the preparatory stage. You definitely need to come to the country to understand the realities, visit the investment bureau (ministry), and hire a good local lawyer for consultation. Study the conditions for opening a company and doing business for a foreign person in this country, understand the system of taxes and fees, study the customs rules for the import of your intended goods and only then make a final decision. If it is positive, then it will be a good, difficult, but, I assure you, very promising path to Africa.

In the worst case, if the business results of the trip are negative, you will visit a new country and see the animals. Here the weather is almost always good and the people are nice. At a minimum, you will leave here with the understanding that in reality everything is not so simple and at the same time promising. If you have about 10 thousand dollars in investment resources, then you don’t need to go to Africa at all. Business costs here are still higher than in Russia, but they are compensated by higher profit rates and, nevertheless, wider opportunities.

— Is it worth analyzing political risks?

— Yes, of course, it’s worth taking a careful look and soberly assessing how politically stable the country is. It is clear that political risks are everywhere. We are now living in an era of turbulence. But I think that we are not talking about a business that will invest billions of dollars for 150 years in the future. He needs forecasts. Although, in my opinion, no one will do this now.

One thing — this is the relationship between the Russian Federation and Ethiopia or Uganda, or even the smallest country in Africa. It's a completely different matter — this is the relationship with them of Ivan Sidorov, a young ambitious businessman from Russia. This is a completely different level of relationship. Of course, the image of a Russian helps. As before, we continue to use the brand made in the USSR. Africans perceive Russian as Soviet. Russia — it is a reliable, open, friendly and comradely country. This is a good background for you to come. As I have said many times, they are waiting for us here. They treat us very well. They love Russia here because they see in our country the embodiment of the movement of liberation from former colonialists represented by the collective West, and also the reduction of unilateral dependence on Africa’s new global partner — China.

But you and I will still have to work in new, highly competitive conditions. There is no more ideology. There will be Americans here, there will be French, and they will oppose us, and there is no need to be afraid of that. But I want to emphasize that the attitude towards Russia from the average person, from the common person, from the African politician, from the African businessman, is very positive. But only until you promise and return more. This is starting to ruin our reputation. Therefore, there is no need to rush, no need to promise anything. We must come, we must see, we must meet, we must evaluate. You need to evaluate your own capabilities, but you also need to evaluate your local partners.

— How necessary is a permanent physical presence in Africa to do business there?

— You can fly in for a week, see the animals, negotiate with a local “excellent” person. a partner who you will like so much in a week that you will lose your head, give him control of your project and investments and fly away to your home. Then think and expect that your local “partner” will will start sending you money from your investments tomorrow. Unfortunately, this will never happen, and never has happened. It seems that these are some basic things, but still many are trying to build just such a business model, and, of course, it doesn’t work. Disappointment sets in.

The simplest — this, of course, is “export-import”, bought and sold. But it's still the same algorithm. You must find a counterparty and check it thoroughly in all respects, and then strictly control it. And of course, no deliveries on a postpaid basis, especially in the first stages. Categorically — no!

Equipment — a whole story, because the customs legislation system in Africa is complex. There is a tax exemption for tax payments, but if you have received investor status, this does not guarantee anything. Everyone is deceived, they think I will now bring the equipment without taxes. Nothing like this. You will pay tax on this equipment; it’s just that when you start producing what you brought it for, the tax burden will be removed from you until the investment is returned. And each country has its own specifics.

But don't be afraid to start. Perhaps there will be some losses, there will be inconsistencies at the first stage. Well, where was it easy? At least one businessman has built something so easily. No, it will be difficult. But, as they say, the reward is guaranteed. Maybe you can take some other route to Africa, which will be easier, shorter, but I just don’t know it.