A Battle Over Africa's Riches

Late on a Friday at the Simba Saloon in downtown Nairobi, music by the Kenyan pop sensation Boomba Clan is playing, and the ties are coming off. At the bar, financial types swap news of the latest bank IPOs and mineral concessions—the must-have gossip in Africa's biggest boomtown. Some of the conversations are in English. Some are in Chinese. And increasingly, many are in Russian, as Moscow begins to give both the West and Beijing a run for their money in the race for Africa's riches.

Today emerging-market giants are fighting for oil, gas and metal ore in Africa as energetically as 19th-century European colonialists grabbed land. The Chinese have been the most aggressive, with more than 700 companies active in 50 countries, according to Standard Bank of South Africa. China is now Africa's second largest aid donor and trading partner, behind the United States, with trade up fourfold to $40 billion since 2000.

But Russia, the second most-active emerging-market power, is gaining. While trade with Africa is only $3 billion a year (up threefold since 2000), Russian companies flush with cash have sunk more than $5 billion into buying up African assets since 2000—and that's not counting $3.5 billion of oil-exploration deals coming online by the end of the decade. (Over the same period, China has put $6.7 billion into Africa, but much of that money has been sunk into infrastructure projects like telecom, electric power, water conservation, transportation and agriculture.)

Pushed by the profit motive, and by a Kremlin eager to build economic empires, Russian businessmen are heading south. Africa, like Russia in the early 1990s, is full of basket-case economies with great mineral wealth—and the Russians reckon they know how to deal with those conditions. Russia has strongly encouraged its companies to buy assets around the world because it suits President Vladimir Putin's philosophy of restoring his country's international position. Recent energy deals in Algeria have gone hand in hand with $4 billion in arms sales from Moscow. Russian businesses interested in South Africa have gotten a boost from a deal Putin made with President Thabo Mbeki to expand nuclear cooperation. Last September Putin made a whistle-stop tour of Africa with several top Russian oligarchs in tow—including Viktor Vekselberg, who pledged to invest $2 billion in metal and mining projects in Africa.

While the Chinese are staking ground in Africa mainly to power their burgeoning cities and manufacturing sector, Russians see the deals differently. Russia is the world's largest energy exporter, and has plenty of its own metals and minerals. But rich Russian companies want to extend their global reach while they have the money, and with oil approaching $100 a barrel in recent weeks, the time is now. There's another motive, too, analysts say: moving empires beyond the reach of the Kremlin serves as insurance against future political changes in Russia.

Over the last three years, four top Russian metal companies have invested more than $5 billion in sub-Saharan Africa alone. Russian oil giants Lukoil, Rosneft and Stroytransgaz have signed exploration deals in Algeria, Nigeria, Angola and Egypt worth more than $3 billion. Earlier this year Lukoil snapped up 63 percent of a field off the Ivory Coast in a production-sharing agreement with the Nigerian owners.

While the Chinese focus on commodities, the Russians have that in mind and more. Economic growth in sub-Saharan Africa is expected to hit 6.7 percent this year, and the region's debt burden has fallen from 80 percent of GDP a decade ago to about 30 percent. Economic reform is gaining momentum in places like Zambia and Kenya, and countries like South Africa, Kenya and Nigeria now boast a growing consumer class. The Russians see that and are expanding from oil into financial services, telecom and retail.

Russian banks are fast outpacing Western private-equity investors such as Washington's Emerging Capital Partners and South African hedge funds. It's a Moscow investment firm, Renaissance Capital, that is pioneering services that will soon allow billions in outside money to be channeled into sub-Saharan African businesses. And a new Africa Fund just launched by Renaissance is expected to reach its $1 billion cap by spring —making it as large as the total of five funds put together since 2000 by Emerging Capital Partners, previously the largest private investors.

It's not clear that Russia and China will be better for Africa than Westerners turned out to be. South Africa, for example, has been a model for sustainable growth in the region, but South African corporations eager to expand throughout the continent may be winnowed out by Chinese or Russians who can pay cash for practically any asset. Local leaders say they've been following Western business and development models for decades without seeing returns. New countries may offer something new. At the very least, they bring cash. As the ties come off on the dance floor, and cocktails that would be worth two weeks' wages of a Kenyan laborer are spilled, it's unclear what else the new conquerors will make of Africa's future.

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