Russia’s Railway Inroads in Africa by Olawale Rasheed

Many industry watchers are obsessed with China’s widening reach in Africa’s railway infrastructure. What they are missing is the surreptitious Russian inroads into strategic railway assets across Africa. Interestingly,Russia is adopting western style investment practices as against the Chinese model.

 Certain trends are discernible in the Russian strategy.First is the adoption of conventional PPP arrangement as is the case with Ghana. Second is outright acquisition as was the case recently in certain South African transactions. Third is the tactical international o outreach by Russia private railway companies.Geo Services limited is taken a lead in this respect.And lastly is the internationalization of the state company, Russia Railways which recently entered into a relationship with Africa continental finance institution, Afrexim.

Africa assumes a new competitive garb as China now has a friendly rival. Both countries demonstrate readiness to transfer railway technology. China is financing a 15 billion dollar railway university in Nigeria while Russia has entered into similar pact with Ghana to build a railway university at Takoradi.

A review of Russia’s railway activities is attempted here. By July 2016, a delegation of Transnet arrived in Yekaterinburg in Russia, led by her former Managing Director, Gama.Gama actually pioneered the internationalisation of South African Railway sector through his origination of the Transnet African Growth Strategy. His outreach to Russia is probably a smart move to strengthen South Africa’s technical and financial base in the push to reach out across Africa.

The outcome of the trip was that a  Memorandum of Understanding between Russian Railways and Transnet was signed which covered the following areas of cooperation: the modernisation of signalling, centralisation and blocking devices on the railways of South Africa; the training of personnel and exchange of experts, including in the framework of the joint implementation of youth educational programs; the development of the railway transport infrastructure of South Africa in order to increase train speeds up to 160 kph and reduce rail breakages; the joint implementation of infrastructure railway projects in third countries.

To firm up the relationship, a delegation of Transnet experts visited Russia in November 2016 to achieve a more detailed acquaintance with the structure and activities of the RZD Holding in terms of infrastructure maintenance technology, management marshalling yards and human resource development in railway transport. And in early 2017,further consultation was made among experts from the two countries.

In order to identify a set of concrete projects for joint implementation, a videoconference round table was held with the participation of experts from the two companies on 13 April 2017.

In  early 2017,a team of top officials from Ghana visited Geo Service headquarters, a private railway firm in far away Russia in pursuance of prospects of a joint project for the development of railway infrastructure. According to reports from the company ,the delegation includes the Ambassador and Deputy Minister of Railway Development of the Republic of Ghana facilitated by the Ambassador Extraordinary and Plenipotentiary of the Russian Federation to the Republic of Ghana, Dmitry Suslov.

The Ambassador of the Republic of Ghana, Dr. Kodzo Kpoku Alabo, was quoted as noting that Geoservice has become a locomotive company that is ready to lead other Russian companies to the African market, “We are striving to attract Russian experience and Russian technologies to our lands”

Sergey Kamnev, General Director of Geoservice LLC, told the delegation that the project is important for Russia as it will become possible to sell her technologies and materials to Africa ,affirming jubilantly that “soon, the company “Geoservice” will receive an invitation to participate in the competition for the conclusion of a contract for design work and engineering support of construction works. Six months after , a Russian delegation has got the ground running announcing readiness to invest 12 billion US dollars in Ghana’s rail sector through various Public Private Partnership (PPP) projects.

As part of the plans, the Russian Government, through its railway services agency, Geoservice, in collaboration with the University of Ghana (UG), is planning to establish a railways university in the country. The focus is the  development of the Eastern rail line and Boankra Inland Port Projects.

Government of Ghana is seeking an amount of $2 billion for the Boankra Inland Port and Eastern Railway Projects respectively through PPP on a Build, Operate and Transfer (BOT) basis.PriceWaterCoopers (PwC), a global auditing firm, is acting as the transaction adviser.

Speaking on behalf of  Geoservice according to a report by Business Guide , President of Ghana-Russia Business Development Council, Dr Lawrence Awuku-Boateng, said aside from the multi billion investment, the railway university will provide technical education to Ghanaians in rail management so that they will be able to manage the country’s rail sector in the event that the foreign investors leave Ghana upon the expiration of their contracts.

He was quoted as disclosing that Russia has the capacity to develop Ghana’s rail sector, saying that Russia has been a leading force in the global rail industry for over 100 years. The Russian Government he said has already set funds aside to execute the various PPP projects in Ghana’s rail sector, adding that the monies would be given to Russian companies in Ghana who are interested executing such projects.

By June this year, major investment as decision was announced as Transmashholding, the largest rail rolling stock manufacturer in Russia, officially entered South Africa’s rail sector with a R500-million investment through a newly acquired subsidiary, TMH Africa.

According to an official statement from the firm, TMH has an annual turnover of €2-billion, a workforce of over 40 000 employees and 13 production sites in Russia.

The investment was described as part of the company’s growth strategy for international markets aimed at investing R50-billion in six countries — Argentina, Cuba, Egypt, Iran, Kazakhstan, and South Africa — over the next five years.

The report noted that the R500-million invested into TMH Africa will go towards the acquisition of DCD Rolling Stock, a company with a 107-year history as a supplier of locomotives, wagons and related products. TMH Africa will also upgrade and develop the 45 000 square metre manufacturing facility formerly owned by DCD, which will be used to assemble, manufacture and service locomotives and other rolling stock for the continent.

The arrangement is a 70% ownership by Russian TMH International and 30% by Mjisa Investments, a Black Economic Empowerment partner.

The Russian firm cited strategic position of South Africa as a gateway to Africa for the huge investment .Jerome Boyet, chief executive for TMH Africa, was quoted as  saying :“South Africa continues to be an attractive investment market because it is very stable and has a huge potential to grow into a big African and global market of choice. South Africa is a practical gateway into Africa for any business that wants to service the continent. In addition, its rail sector has the largest railway network, the required skills set and suppliers to support manufacturing and related activity. South Africa is also part of the Brics (Brazil, Russia, India, China and South Africa) countries, which our parent company belongs to.”

Boyet further opened up on what may be the Russian strategy as her private and public companies expand into Africa: “TMH International acts as an industrial investor to create local champions and this approach has yielded win-win results for us in other markets such as Cuba and Kazakhstan. We will do the same for South Africa, and together with our local partners, we will ensure that our business strategy is in alignment with the South African National Development Plan’s priorities for our sector. These include increasing job creation, making South Africa a manufacturing hub and increasing skills development.”

In a new twist, which is clearly incompatible with the Chinese model, Russia actually entered into partnership with Africa premier import and export bank. The African Export-Import Bank (Afreximbank) signed a memorandum of understanding with Russian Railways and the Russian Export Center (REC) to cooperate in implementing export and investment projects in the railway sector in Africa.

Under the terms of the MoU, the parties will undertake mutual consultations on export and investment projects abroad and by jointly developing project financing schemes in the sector.Afreximbank president Benedict Oramah signed the deal on behalf of the bank in Russia while Oleg Belozyorov, director general of Russian Railways, and Andrey Slepnev, director general of REC, signed for their respective organisations.

Oramah said Africa needed investments of $20-billion a year in the rail sector in order to bring it up to required level.He said that Afreximbank’s role was to find partners that would help it to deliver the necessary investment and that the signing of the MoU would enable Russia to participate in the opportunities that existed in Africa.Slepnev said the agreement was a demonstration of practical collaboration among the institutions and expressed confidence that it would bear fruit.

In Nigeria, Russia is making a deeper move as the Russian-Nigerian Business Council is already taken shape with active participation of leading Nigerian businessmen and public figures. Beyond that ,a private Nigerian firm,EriAuto is reported to be spearheading the entrance into Nigerian rail sector of Geo Service and other leading Russian railway manufacturers. Top executives of the Nigerian firm are said to be planning a railway park with substantial Russian investment, participation and ownership.

The preceding points at certain reality going forward in Africa Railway sector. First is that Russia is now a key player that is even more aggressive than many realised.Secondly the new entrant is playing within western investment rules as different from the Chinese model whose funding practices have been widely criticised.Thirdly,any country with leading stake in South African railway sector may eventually control future of Railway on the African continent.

The heated competition for the soul of Africa in the infrastructure sector is good news for the continent. With widely acknowledged deep infrastructure deficit, Africa is open to all investors, Russians and others.

*Olawale Rasheed is the Director, Policy Centre, Abuja Chamber of Commerce and Industry, Nigeria.

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