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Opinions of Tuesday, 3 February 2015

Journaliste: Kester Kenn Klomegah

Eurasian integration could open market for Africa


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Early January, Russia and four other ex-Soviet republics completed finally the creation of a new economic alliance intended to bolster their integration. The Eurasian Economic Union or popularly referred to as EAEU, that includes Russia, Belarus, Kazakhstan, Armenia and Kyrgyzstan, came into existence on January 1, 2015. It is expected that Kyrgyzstan will become a full-fledged member from May 1, 2015.

In addition to free trade, it's to coordinate the members' financial systems and regulate their industrial and agricultural policies along with labor markets and transportation networks.

Russia's changing economic identity with its neighboring ex-Soviet republics, Armenia, Belarus and Kazakhstan has opened business and economic opportunities despite the inherent teething problems associated with its creation. For instance, President Vladimir Putin said that the new union will have a combined economic output of $4.5 trillion and bring together 170 million people which means a huge potential market for business. "The Eurasian integration is based on mutual benefit and taking into account mutual interests," Putin said after business talks with his colleagues in the Kremlin.

Some experts say the union members will benefit largely members and other foreign countries if the emerging opportunities are exploited strategically, while other analysts have explained in an email to Buziness Africa that foreign countries such European countries and Asian states, especially all three major powers of Asia – China, Japan and India are ready to take their share of the new developments. But on the other hand, the experts interviewed for this story were, however, skeptical as to what extent African business leaders, investors and political elites will recognize and explore the profitability of the new geo-strategic economic arrangement in the region.

The key question is who can benefit from EAEU. According to an official statement posted on Kremlin website on December 23, 2014, "there is growing interest in cooperating with the Eurasian Union among countries in other regions. Thus, the drafting of a free trade agreement with Vietnam has entered its final stage. We are working on similar agreements with Turkey, India and Israel."

In addition, the Eurasian Economic Commission (EAEC) press office explained in an email query to Buziness Africa media that foreign countries interested in cooperation with the Union have to apply to the EAEC and if all the necessary conditions fit both parties, the consultations about one of the forms of cooperation (e.g. Free Trade Agreement) could be started.

The press office cited in the report sent by email to Buziness Africa that “EAEC has negotiations with Vietnam about Free Trade Agreement. At this time, we have eighth round of negotiations, that were dedicated to existing provisions of the future agreement. The parties believe that they manage to reach a fair balance of benefits for the both of them and provide for necessary tools that would mitigate the risks for entrepreneurs. But the work is not over yet, the remaining issues will be solved in further consultations.”

According to media reports, East African Community (EAC) countries could soon be able to export tea, coffee and horticultural products to the Eurasian Economic Commission (EAEC) member states without going through Western Europe. According to the media article based on official statement issued after a meeting by the EAC Ambassadors in the Russian Federation, this was one of the resolutions agreed on during a recent meeting between EAC ambassadors in the Russian Federation, "the meeting was aimed at learning about the EAEC integration process and development of the economic bloc with view of exploring business opportunities for EAC member states."

EAC diplomats agreed that traders from the region pay custom taxes at only one entry point to the EAEC bloc to boost exports from East Africa. Once in effect, the EAEC bloc will represent a single economic market of 171 million people with a gross domestic product of $3 trillion. The East African Community (EAC) is a regional intergovernmental organization of the Republics of Burundi, Kenya, Rwanda, the United Republic of Tanzania and the Republic of Uganda, with its headquarters in Arusha, Tanzania.

Last year, a high-powered delegation of officials from the Eurasian Economic Commission also visited South Africa to explore economic relations with SA and Africa broadly. Headed by Tatyana Valovaya, a member of the Board of the Commission responsible for Integration and Macroeconomics, the delegation held discussions with South African business representatives, political actors and academics on significant economic opportunities for South Africa and Africa. During the visit, the delegation also participated in an interactive meeting in South African parliament with the heads of the committees for trade, industry, tourism and small business development.

The visit received no media reports or publicity but this does not mean that it was insignificant. The key questions are what is the potential for SA-Russia relations to be the springboard for relations with the whole of Eurasia generally or the Commission area particular? What would be the key drivers and pillars of such relations? What economic and trade potential lies is such relations? How should South Africa's foreign policy and Russian foreign policy gurus be thinking through this development?

Egypt is one of Russia's leading trade partners in the Arab world and may soon conclude an agreement to establish a free trade zone with the Eurasian Economic Union (EAEU), according to the Russia's Chamber of Commerce and Industry. Experts argue that this will contribute to the revitalization of trading activities and develop deeper cooperation in a number of fields between Egypt and member countries of EAEU. Victor Spasskiy, the director in charge of integration development, argues there are initiatives to expand the bloc to include Armenia and Kyrgyzstan. Local business people were encouraged to take advantage of the immense opportunities in the bloc to develop new business ties with the EAEU business community. Possible exports from EAEC include natural resources, human capital, technology in manufacturing industry and farming machinery.

Some experts are skeptical pointing to the teething problems including differences in approach to varying issues in the region. The creation of the Eurasian Economic Union parallels two deepening interrelated crises: the growing rift between Russia and the West over the conflict in Ukraine and the looming economic crisis in Russia.

Since the beginning of 2014 the ruble lost almost half of its value and the inflation in Russia has exceeded 11%. Some of the member-states of the Eurasian Union (Belarus and Kazakhstan in particular) have been growing more and more ambivalent about Russia’s increasingly heavy-handed attempts to reassert its influence in the former Soviet spaces, according to views of Maxim Matusevich, director of the Russian and East European Studies program at Seton Hall University in New Jersey.

Historically, he maintained that African states have been exceptionally sensitive to any real or perceived efforts by “developed” nations to establish neocolonial control in their former zones of influence. And by a number of measures, Russia’s muscle-flexing in the so-called “near abroad” can be perceived as neocolonial.

“I wouldn't be surprised if some African states responded to such aggressive expansionism with caution or even distaste. So far only Egypt, which under the new military leadership has grown closer to Putin's regime, expressed any interest in possible closer ties with the EAEU. But there exist far more specific reasons, for which, I believe, the creation of the Eurasian Union will have little relevance for Africa,” the director said.

Matusevich pointed out: “The member-states of the union have little to no manufacturing output, the two pillars of the union (Russia and Kazakhstan) have economies almost entirely based on oil and gas exports. It is not clear what exactly they can offer to African nations, especially in the context of the deepening economic crisis in Russia. I expect that just like during the previous period of economic turmoil in the 1980s and 1990s Russia and some of its post-Soviet allies will cut down on their ties with Africa rather than expand them. Africa, in my opinion, has very little either to gain or to lose from the creation of the Eurasian Economic Union.”

In an address at the Supreme Eurasian Economic Council meeting in December 2014, Putin further explained that Memorandum of Understanding (MoUs) were drafted with ASEAN and Mercosur states. “I am certain that expanding ties with all countries and organisations both in the East and in the West on the basis of equality and mutual benefit meets the interests of our Union as well. There are great new challenges ahead of us. We are to ensure the stable and efficient functioning of the Eurasian Union and continue strengthening its institutional basis,” Putin said assertively.

Among the priorities is the need to make the Union more competitive and attractive for investors, to launch joint projects and create high-technology jobs in the oil and gas sector, in the metals and chemical industries, aviation, machine-building and the space industry. In addition, to remove the existing barriers that impede the free movement of goods, services, capital and labor, and to implement plans to form as of 2016 a common market of pharmaceutical and medical products.

Putin added: “We will also approve a list of services sectors where the common market will become functional on January 1, 2015. This will benefit construction workers, wholesale and retail traders and companies working in tourism. It is important that we do not drag our feet with the mutual approval of licences for these activities issued by our respective countries. This will make it possible for our companies to take full advantage of the benefits of integration right from the start.”

The Treaty on the establishment of the Eurasian Economic Union was signed by the presidents of Russia, Belarus and Kazakhstan on May 29, 2014 in Astana. The agreement is the basic document defining the accords between Russia, Belarus and Kazakhstan for creating the Eurasian Economic Union for the free movement of goods, services, capital and workforce and conducting coordinated, agreed or common policies in key sectors of the economy, such as energy, industry, agriculture and transport. The agreement stipulates the transition of Russia, Belarus and Kazakhstan to the next stage of integration after the Customs Union and the common economic space.

*Kester Kenn Klomegah is an independent researcher specializing on African affairs in the EurAsian region and former Soviet republics.

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