Russia and South Africa: The Trade and Investment Dynamics – Russia Briefing News

Bilateral trade up 16.4% in 2022

By Emil Avdaliani

Relations between Russia and South Africa have been expanding with trade and investments potential growing exponentially. The trends were observable well before the start of the Ukraine conflict in 2021 and when the West imposed heavy sanctions on Russia. Yet after February 2022 the process significantly accelerated. Strained relations between Russia and the West have complicated matters, causing issues with logistics and the bilateral payment system. However, this has not stopped the overall trend despite Western claims of success.

The two countries are close partners in a number of areas, but most of all in their pursuit of a less West-dominated world order. Russia and South Africa are members of BRICS which has recently seen a new wave of expansion by adding new members. As South Africa is a critical player in the Global South, Moscow is particularly keen on developing ever closer political and economic ties with Pretoria.

Russia – South Africa Bilateral Trade

By the close of 2022, the trade volume between Russia and South Africa witnessed a 16.4% spike, reaching a record total of US$1.3 billion. Agricultural goods played a significant role in this trading relationship, comprising 40% of the total trade. Notably, 2022 saw the agricultural trade volume grow by a remarkable 30.2%, reaching US$488 million. This fits into the pattern of Russia’s trade with Africa. For instance, in 2022, trade turnover between African states and Russia amounted to US$18 billion, out of which agricultural products made up US$6.7 billion.

South Africa’s growing trade with Russia also fits into its overall trade growth with the founding BRICS nations (Brazil, Russia, India, China, South Africa), which reached US$43.3 billion in 2022, up more than 70% from the US$25.2 billion recorded in 2017, and representing a near 17% annual rate of expansion.

During 2022, South Africa’s imports from Russia totalled US$547.88 million. The core of South Africa’s imports from Russia in 2022 consists of fertilizers, copper, mineral fuels, oils, and distilled products, inorganic chemicals, precious metal, paper, fish. Other notable imports include cereals, iron and steel, optical and technical apparatus, plastics, machinery, and various other commodities, reflecting the diversity of trade between the two nations. Even sectors such as arms and ammunition, aircraft, and spacecraft made their mark, though in lesser amounts. These trade statistics underscore the multifaceted nature of the Russia-South Africa trade relationship.

In 2022, approximately 85% of food exports from South Africa to Russia consisted of fruits. This has been a consistent trend since the countries began their trade relationship in 1994. Throughout this period, the proportion of fruit in this exchange has never dropped below 50%. Direct shipping routes between South Africa and Russia to cater for this demand have been introduced for the first time in 30 years.

Five of South Africa’s 23 categories of exports to Russia showed actual growth in 2022 compared to 2021. The largest gains came from the vegetable category, which also includes fruit and cereals. It rose by R429 million (US$22.9 million) to R3.747 billion (US$200.3 million), representing 81.1% of all South African exports to Russia in 2022.

Russian exports to South Africa have also been increasing. In 2022, 11.5 million tons of grain were exported from Russia to Africa. Given the increasing population across the African continent, demand for grain is also on the rise.

South Africa’s imports from Russia are increasingly positive, with eight out of 23 categories showing an improvement in 2022 compared to 2021. The leader was chemical products, including fertilizers, which rose by almost 2 billion rand (US$106.9 million) to 4.748 billion rand (US$253.8 million), increasing its share of Russian exports to South Africa to 51.9% from 30.2%.

Logistics, however, remains a primary concern for South Africa as well as all African nations trading with Russia, particularly due to the absence, bar a handful of exceptions, of direct container shipping routes. The need for transit through third-party countries increases costs for Russian exporters. Moreover, since most of multinational companies, including Maersk and others, have left Russia and no longer accept orders for the delivery of containers from Russian exporters, Russia struggles to find viable alternatives. This hinders bilateral trade, which, despite recent growth, remains low. In the overall trade turnover of South Africa, Russia’s share is less than 1%. For comparison, in 2022 South Africa’s bilateral trade with the United States reached US$21.2 billion, nearly fifteen times higher. This does however indicate considerable room for growth.

Russia – South Africa Double Tax Treaty

Russia and South Africa entered into a Double Tax Treaty (DTA) in 2000, this is still in force. The agreement s especially useful in reducing taxes in bilateral services, as well as permitting lower forms of tax treatment in respect of royalties. A copy of the Russia-South Africa DTA can be found here. As Russia has suspended DTA with ‘non-friendly’ countries, the South Africa DTA can be expected to drive some non-locational dependent services from the West to South Africa for servicing the Russian market.

Russia South Africa Bilateral Investments

Presently, the cumulative Russian investments in South Africa stands at US$1.5 billion. There is a growing interest of Russian companies in investing in the South African power generation infrastructure. However, this is still a relatively minuscule number and fits into Russia’s more trade-oriented relations with South Africa and the African continent at large. Indeed, Russia contributes just a little less than 1% of total foreign investments into the African continent.

But there are exceptions. Russia’s Renova Group (mining, energy, telecoms) Severstal, (steel), and Kamaz (heavy duty trucks, which also regularly participate in African desert rallies) are well represented in South Africa. Rosgeologiya and the South African state corporation PetroSA are closely cooperating in the exploration and development of hydrocarbons on the southern continental shelf of South Africa. The two countries see the geological survey of South Africa’s land, mapping, mineral exploration, and assessment, especially for minerals like platinum and chrome as areas of immense potential. The expertise required for these ventures is present in the Russia’s state owned enterprise Rosgeology and several geological institutions, priming them for cooperative endeavors.

Russian company Renova owns a stake in the United Manganese of Kalahari company, which specializes on extracting manganese ore. The investment was worth US$400 million. United Manganese of Kalahari is jointly owned by South African Majestic Silver Trading. Rosatom cooperates in the field of nuclear medicine with the Atomic Energy Corporation of South Africa.

Russian investments into South Africa should be seen from a broader perspective where from approximately 60 to 70% of Russian investments on the continent goes to the exploration and production of oil, gas, uranium, bauxite, diamonds, iron ore and other minerals.

As to the South African investments in Russia, their accumulated value stands at about US$3 billion. Several South African companies are operating in Russia, including SAB-Miller (beer production), Mondi (pulp production), Naspers (information technologies), Bateman (supply of equipment and technologies for enterprises in the mining and metallurgical industries), Bell (heavy engineering), Standard Bank (financial services) operating in the Russian market. Moreover, the South African state-owned company PetroSA plans to resume negotiations with Gazprom on the issue of Russian investment in the country’s energy sector.

Also expanding is military cooperation. The two countries have developed projects for the joint development and production of weapons and military equipment. They agreed to create a service center for repairing helicopters made in Russia yet used by a variety of African nations.

Yet the Western sanctions imposed on Russia continue to serve as a major disincentive for South Africa and African continent as a whole. For instance, the New Development Bank (NDB), created by first BRICS countries (Brazil, Russia, India, China, South Africa) in 2014 announced recently that it does not plan to invest in Russia due to for Western sanctions. Similar hindrances persist in other areas from shipping, where insurance has proven problematic, to making payments for Russian services. De-dollarisation in trade is also occurring while use of the Chinese RMB Yuan has also proven an alternative.

Nevertheless Russia-South Africa relations are actively developing as solutions to sanctions issues begin to come online, with growth in bilateral relations expected to continue.

Emil Avdaliani is a professor at European University and the Director of Middle East Studies at the Georgian think-tank, Geocase. Tax related content by Chris Devonshire-Ellis at Dezan Shira & Associates. Contact: russia@dezshira.com 

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