It’s the resources, stupid
RUSSIAN CORPORATIONS, PARTICULARLY mining firms with strong state connections and deep pockets, are pushing hard into Africa after years of under-investment in the continent. Their impetus results from two forces. The first is economic rationale – such companies wish to transform themselves into global commodities operations, with mines and distribution networks on every continent. Africa, a continent rich in resources but in desperate need of jobs, wealth and reliable investors, is the first step on that long road.
The second force is political: companies are getting involved with Africa because that’s what the Kremlin is telling them to do.
Russia’s reactivated desire to impose its military clout is becoming clear, but less appreciated is Moscow’s yearning for the country to be treated again as an economic powerhouse, not an economic pariah. Again, Africa, which had intimate ties with Russia from the early 1960s until the end of the Cold War (Moscow helped build Egypt’s Aswan Dam, and hundreds of thousands of Africans studied in Russian universities), is the first step along this road.
In May 2006, Russia’s president, Vladimir Putin, said in his annual state of the nation address that an improvement of relations with Africa was one of his top priorities. In July this year, Russia’s natural resources minister, Yuri Trutnev, went further, urging domestic energy and mining groups to bolster their positions in Africa, and promising domestic corporations direct government support.
That message is clearly getting through. The charge back to Africa has been led by Russia’s dwindling clique of super-rich oligarchs, who rose to fortune under Boris Yeltsin, yet remained to curry favour with Putin.
"It’s very popular in Russia to invest overseas – or, I should say, it’s very popular with Mr Putin," says a London-based consultant with long-established ties to Moscow-based corporations and financial institutions. "By investing abroad, you are showing that you are investing for the greater good of Russia, and you win a lot of kudos with the Kremlin."
Take Renova Group, a large diversified company with interests ranging from energy, mining and commodities to financial services, chemicals and construction. Renova’s board of directors is chaired by a 50-year-old Ukrainian, Viktor Feliksovich Vekselberg, who rose to prominence in the 1990s as the chairman and co-owner of Tyumen Oil, a leading Russian energy firm, developing, among other partnerships, a joint venture with UK energy group BP.
One of Russia’s few remaining oligarchs, worth an estimated $10 billion, Vekselberg joined Putin in September 2006 on a visit to Johannesburg to strengthen political and trade ties between Russia and Africa.
Also on the trip was Alexander Abramov (net worth, shared with brother Frolov: $4.9 billion), an oligarch who rose from obscurity to control a majority stake in Russia’s largest steel producer, Evraz Group. Both are investing heavily in southern Africa, using their deep pockets and strong Kremlin connections to snap up key mining interests and deposits.
Evraz, which is 41% owned by Millhouse Capital, a private investment group headed by Russia’s most famous oligarch, Roman Abramovich, has this year systematically increased its stake in South Africa’s Highveld to 79%. That has given Evraz control of the world’s largest supplier of vanadium, used in the production of industrial-strength steels, and South Africa’s second-largest steel producer after ArcelorMittal.
Renova has perhaps even bigger plans in the region. Mark Buzuk, project manager for Africa at the conglomerate, says up to $1 billion will be invested in prospecting for manganese in South Africa, with hundreds of millions of dollars more earmarked for investments in Namibia and elsewhere in the region. The company has already spent $15 million prospecting for manganese in the Kalahari desert, and $150 million more will be needed before drilling can get under way in 2009.
"We can say we’re pretty sure we have enough reserves to mine 1.5 million tonnes of high-quality manganese a year. We’re also prospecting for uranium in Namibia and looking for other opportunities," Buzuk says.
Other leading Russian resources firms are also making their presence felt here. As one Moscow-based banker put it, for Russian firms in Africa, "it’s the resources, stupid".
In March 2004, Norilsk Nickel, the world’s largest nickel and palladium producer, and Russia’s leading gold miner, bought 20% of South African rival Gold Fields for $1.16 billion.
In July 2007, Mirny, Siberia-based Alrosa, which controls 97.5% of Russia’s diamond production and a quarter of the global market for the precious stone, announced that it would form a partnership with Angola’s state oil firm Sonangol and Kansas-based Dark Oil to drill for oil and gas in the western African country. Alrosa, whose supervisory board is chaired by Russian finance minister Alexei Kudrin, also holds a 32.8% stake in the Cataca diamond mine in Angola and has plans to open up the country’s hydropower sector.
Yet another leading Moscow-headquartered resources company, RusAl – another group controlled by Vekselberg – is pushing into sub-Saharan Africa. In February it paid $250 million for a 77.5% stake in Aluminium Smelter Company of Nigeria from the Nigerian Bureau of Public Enterprises, the country’s state privatization body, and earlier this year said it would invest a further $1 billion in African mining projects.
RusAl, which in March merged with Russia’s Sual and the aluminium division of Switzerland’s Glencore, to create the world’s largest aluminium producer, is also planning a $9 billion London initial public offering in November, in what would probably be the largest IPO of the year. Russia’s leading telecommunications firms too are expected to expand into the region before long, as are leading Moscow-based oil and gas firms, notably Lukoil and Gazprom.
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Investments between Russia and Africa aren’t entirely a one-way street. South African corporations in particular have been busy in the frozen north – Standard Bank, the De Beers diamond group, brewer SABMiller and mining group Anglo American all have sizeable Russian operations, and bilateral trade is roughly doubling each year |
Investments between Russia and Africa aren’t entirely a one-way street. South African corporations in particular have been busy in the frozen north – Standard Bank, the De Beers diamond group, brewer SABMiller and mining group Anglo American all have sizeable Russian operations, and bilateral trade is roughly doubling each year. Exact statistics are hard to pin down, but a Moscow-based banker estimates total Russian mining investments at about $5 billion, and said that figure would rise 10-fold over the next 10 years.