Africa as a market for Russian business

Together with an expert, we figure out why Africa is a promising market and what prevents Russian companies from operating on the continent.

Africa — market of the future

Every year, African countries will consume more and more goods and services; this is an inevitable consequence of the growth of the economies of African countries. In the next five years, their total GDP will grow by an average of more than 4% annually — slower than in China and India, but much faster than the world average (2–2.4% in the next two years), other developing countries and Russia.

In the future, we can expect a surge in demand: the markets of different African countries have already begun to unite into a continent-wide free trade zone, which over time will boost the growth of the African economy. As a result, by 2050, the total GDP of African countries could grow 10 times, to $29 trillion.

In addition, there is a progressive increase in the well-being of the population. According to Korn Ferry and Consultancy.org, wage growth in Africa has outpaced the rest of the world, adjusted for inflation — the whole world, except Asia and Eastern Europe. And Africans are likely to be willing to spend their money aggressively: the continent has a very young population. Median age — 20 years, and most of the wealthy citizens — under 34. Young people are usually active and strive for higher levels of consumption.

Russian products: (yet) unrealized opportunities

Russia’s trade turnover with African countries in 2022 reached 18 billion US dollars — this is almost a tenth of the turnover with China, our country’s largest trading partner. 85% of this volume comes from the export of Russian goods and services. However, there are huge opportunities for development: so far Russia accounts for only 3% of African imports.

Russian companies now mainly supply African buyers with food, agricultural products, chemical products, weapons, equipment and machinery, while the structure of trade is gradually changing in favor of non-commodity goods. Mikhail Orlov, Chairman of the Russian-Egyptian Business Council, defines the needs of the African market quite simply: “People live in Africa, and they need literally everything to live. They eat, and they don't have enough food — basic commodities such as wheat or barley. They get sick and they don't have enough medicine. There would be demand there, Russian education, our combine harvesters, and much more. I see huge potential for almost every business.”

Other experts also share the same opinion — for example, the Roscongress digest identifies the continent's priority challenges: hunger and disease, lack of education, underdeveloped infrastructure and needs for raw materials. To solve these problems, overseas supplies are important. Also in Africa, goods and services in the field of logistics, energy and high technology (information security, fintech, telecom) will find demand.

Long-term investment projects also exist, but, as a rule, they are implemented by the largest corporations — "Rosatom" builds a nuclear power plant, Lukoil and "Rosneft" are engaged in oil production, Alrosa mines diamonds, etc. The creation of a coal hub in Morocco and the assembly of trucks (KAMAZ) are being discussed. Thus, explains Mikhail Orlov, localization of production in Africa is also possible, but requires a balanced approach and more careful study than, say, in Southeast Asia.

In addition to market capacity, the political mood of the continent is now important. Russia has never been a colonizer of Africa, and also inherited the ties that the Soviet Union built there, and now African countries are quite friendly and constructive towards Russia. Unlike Western countries, Africa does not impose restrictions on Russian products and is ready to consume them.

According to Mikhail Orlov, there are no political prohibitions for Russian business in Africa, but there are problems of a different nature: “A participant in a Nigerian business mission to Russia told me that he was impressed by Russian construction equipment. However, he can lease bulldozers from world brands and receive them on the day of the first payment, while at the Russian plant he was asked for 100 percent advance payment with delivery in six months. Representatives of the Egyptian business mission noted the quality and affordable price of Russian oil and gas equipment, but difficulties arose with the purchase: the manufacturers did not respond to letters, and no one could answer calls in English. Here the question is more likely for Russian enterprises — how interested they are in working with the African market. I think there are good prospects for those who can cooperate in a spirit of partnership and respect.”

To make it easier for Russian businesses to enter the African market, efforts are being made at the state level. In particular, the first Russia-Africa forum was held in 2019, and in 2023 — second. Exporters are provided with financial and non-financial support. There are state and regional organizations that develop business interaction with individual countries, business missions are conducted in Africa and Russia — and this gradually brings results.

Heterogeneous Africa: where they do business

Russian exports to Africa are distributed extremely unevenly: 85% of the total volume falls on just 5 countries: Egypt, Algeria, Senegal, Morocco and Nigeria. This is due to many reasons, first of all — with the economic heterogeneity of the countries of the continent.

In the latest Doing Business ranking (an analysis of the ease of doing business in different countries), Mauritius was in 13th place, ahead of most European countries. Morocco took 53rd place, Kenya — 56th, beating Italy and Greece. However, 8 of the last 10 places in the ranking were also occupied by African countries.

The 54 internationally recognized states that make up Africa are usually grouped in two ways.

First — division into economically developed North Africa and huge “Sub-Saharan Africa”. The macroregion turns out to be extremely heterogeneous: economically strong countries, South Africa and Nigeria, are considered in it along with South Sudan and Somalia.

Second — a narrower division into five economic regions: North, West, Central Africa, East, South.

Based on his experience of working with African countries, Mikhail Orlov considers both methods to be conditional: “The existing borders of not even regions, but African countries, as a rule, were drawn by Europeans during the colonial period. These borders violate objectively existing zones of distribution of peoples, cultures, languages.”

According to the expert’s forecast, in the future, only continent-wide cooperation based on common financial, administrative, logistics and other standards can meet the interests of Africans. In the meantime, it makes more sense for the business community to plan work in Africa based on completely different criteria — in particular, areas of distribution of languages: in many countries French is historically spoken, in others — in English, etc.