Rossiya Scan: Central Africa, Entrepreneurship and the Middle East

"How The World Sees Russia" Issue #20: 08/11/2018 From the Publisher: In this issue of Rossiya Scan we delve deeper into topics we have looked at in the past. For starters, we take a look again at central Africa is likely now to become more of a hotspot for geopolitics. Russia had quietly been expanding its influence in the troubled region for the past year with much success. However, with the recent murder of the 3 Russian journalists, hurdles are likely to appear in a region where Russia had essentially taken without much of a fight. Can Russia win this fight in central Africa with more attention now being placed on it? We believe that it can, and explain our rationale. Secondly, we visit again the latest sanctions on Russia by the U.S. These are likely to cause quite the stir in Russia, and not help its already troubled economy. This is likely to further escalate this ongoing “New Cold War” and kill any attempts for a détente. We then take a quick look at the troubling legal system of Russia, and highlight some of the reasons why this is likely to continue holding the country back from an economic standpoint. Finally, we take deeper look at Russia’s master playbook in the Middle East, and try to further decipher why it’s so strong. -Rossiya Scan The Battle for Africa Is Likely to Heat In Issue #10 of Rossiya Scan, we took our first look at Russia’s growing role in the Central African Republic (CAR). We detailed how the government currently heading the former French colony was receiving little help from its traditional supporters (e.g. France and the United States), and that this forced them to look elsewhere for support. The latter was a matter of survival for the government of CAR President Faustin Archange-Touadera, whose military controls approximately 20 percent of the country. The rest is split amongst Christian, Muslim and other rebel groups. Where could Touadera find support? Russia, who has been providing arms, and military advisors to prevent his weak Bangui-based government from being toppled. Russia delivered Touadera’s government with life-saving aid. His administration is in a better position militarily as result of this alliance, and Russia has successfully penetrated the heart of Africa without much of a fight from France or the United States. The latter essentially abandoned the Touadera administration, and were the key influencing powers prior to Russia's arrival. Russian involvement in the CAR, however, is now in the news though. Unlike before, where you would only read about such help rarely. This fight has gone mainstream with the deaths of Orkhan Dzhemal, Alexander Rastorguyev and Kirill Radchenko. The latter three were Russian journalists investigating the Wagner Group, a private military contractor with ties to the Kremlin, and with an increasing presence in the CAR. The journalists received funding for the project from Russian tycoon, and Kremlin opposition figure, Mikhail K. Khodorkovsky. Authorities of the CAR claim the journalists were killed while driving on a road by bandits. Something critics refuse to believe, in great part due to the targeted nature of the attack. The journalists were allegedly traveling in a convoy of three, and in a vehicle driven by a local driver. The local driver, allegedly came out unhurt, and is being held by authorities. “Many things don’t add up,” stated Lewis Mudge, a researcher for Human Rights Watch, to the NYTIMES. According to the NYTIMES, an obscure African media outlet is currently trying to put the blame on France for the killings. Prior to the Russian arrival, French troops were a constant presence in the CAR. France was either defending, or helping overthrow whatever Bangui government was in power. Decisions made according to whatever fit their current national interests. France, reported the NYTIMES was being blamed by the African outlet of killing the journalists, as a sign to Moscow that CAR is their turf. The problem for Russia though is that they have a history of alleged extra-judicial killings against journalist who do not share a Kremlin view. Hence, the narrative that France carried this out is unlikely to catch much steam in the Western world. Especially, when the subject of their alleged study was the Wagner Group, whose story and actions are very secretive, and is considered by the West as a front for Russian clandestine operations. The Wagner Group’s owner, Yevgeny V.Prigohzin, is a former intelligence officer and supposed close associate of Russian President Vladimir Putin. He is one of the individuals sanctioned by Western powers. The Wagner Group’s role with separatists in eastern Ukraine, and Prigohzin’s ownership of the Internet Research Agency, a troll factory linked to Russian interference in the U.S 2016 presidential election, led to such sanctions. The military contractor group, as discussed in previous Rossiya Scan issues is also operating in Syria. Russia is certainly not the first country to be accused of using mercenaries to push their foreign policy objectives. The U.S., for example, has used mercenaries throughout their various military campaigns. Blackwater in Iraq is probably the most current visible example. The use of soldiers of fortune remains controversial though, and will always carry a sting. Such soldiers tend to listen to a different chain of command, which lead to troubling situations that ultimately make things complicated for any country pushing its agenda through their use. Thus, the CAR and Wagner Group are unlikely to be an exception. The problem for Russia is that their quiet chess-game in the heart of Africa is now in the open. Hence, the fight between them and the West for this part of the world is likely to escalate more than before. The CAR has vast amount of minerals (e.g. diamonds, gold copper, uranium and iron to name a few), and although the West forgot about it before, it could easily be reminded about if things continue to escalate in other places. The global chess-game between Russia and the West simply call for it. Can Russia win this fight? In this situation we believe Russia can. Unlike Latin America or Europe, the countries in central Africa are for the most part in the least developed category. Hence, they are led by strongmen, and have populaces that do not make the demands that the inhabitants of Eastern European, Latin American or Asian developing countries make. Here, the security and loyalty are the biggest currency, and the decisions are made by handful of individuals, if not one. Also, a more “hands-off” attitude, which the West does not have with its allies, goes a long way. Therefore, Russia has the cards necessary to satisfy the needs of the actors in this area. The fight is officially on though. So far, Russia has the lead, and is unlikely to be toppled in near future. However, we will keep a close eye to see if this continues. After all, the world is an increasingly anarchic place. Read more: ‘In Africa, Mystery Murders put Spotlighton Kremlins Reach,” by Andre Higgins and Ivan Nechepurenko for the NYTIMES. “Battle for Africa: Russia Pushes into ‘Free Country for the Taking’ in Attempt to Rival the West,” Jack Losh for Newsweek. “Funerals Held for 3 Journalists Killed in Africa,” by the AP. More Sanctions… For the past couple of months, we have been commentating on the sanctions that the U.S has imposed upon Russia in the wake of the Skripal poisonings. Those sanctions have had the effect of creating a large fall in the price of Russia based equities, and further deterred investors from entering the market. The sanctions against EN+ (LSE:ENPL) , Rusal (MCX:RUAL), Polyus (MCX:PLZL) as well as the oligarchs have crippled the firms. They have also generated uncertainty as to the future development of trade and supply of certain commodities. As U.S President Trump seemed inclined to play the détente card, as shown in the wake of the Helsinki summit, congress has once again struck out on its own. This week congress voted a new set of draconian sanctions with the objective of crippling, and “punishing” Russia. From a historic perspective, let us remember, that the last time everybody united to punish/humiliate a country was in the aftermath of World War I, when Germany was humiliated. I believe we all can remember what came out of that… Instead of aggressive attacks, maybe it is time to come to the table and have a correct sit down with productive talks. Furthermore, the U.S is currently facing a quite complex situation in which Trump and congress do not see eye to eye when it comes to their Russia policy. With midterms approaching, populism is taking over, and both U.S parties want show that they are punishing the boogieman. They fail to understand that it is exactly this sort of behavior that in part gave birth to Trump’s electorate. What are these new types of sanctions that Russia will face? The first aspect, according to the Chemical and Biological Weapons Control and Warfare Elimination Act of 1991 (CBW Act) , Russia will no longer be allowed to purchase U.S military technology. Now, on this point let’s take a step back, this week Trump announced limiting the sale of U.S military technology to France. The French fighter jet manufacturer Dassault stated that because of they may not be able to build their Rafale airplane (a direct competitor to the U.S F-series jets). In effect though, Trump is not only crippling Russia, but also NATO allies. Furthermore, the Trump administration is equally imposing sanctions on Turkey, a NATO member, and home to many of the U.S military bases. On the tech side, these actions will be painful because the U.S will have total control on arms manufacturing, and sales. However, this will also force the countries to develop their own tech, be more independent and in a way regain some sort of sovereignty. In an interesting manner this ambivalence of the U.S could actually be a

"How The World Sees Russia"

Issue #20: 08/11/2018

From the Publisher:

In this issue of Rossiya Scan we delve deeper into topics we have looked at in the past. For starters, we take a look again at central Africa is likely now to become more of a hotspot for geopolitics. Russia had quietly been expanding its influence in the troubled region for the past year with much success. However, with the recent murder of the 3 Russian journalists, hurdles are likely to appear in a region where Russia had essentially taken without much of a fight. Can Russia win this fight in central Africa with more attention now being placed on it? We believe that it can, and explain our rationale.

Secondly, we visit again the latest sanctions on Russia by the U.S. These are likely to cause quite the stir in Russia, and not help its already troubled economy. This is likely to further escalate this ongoing “New Cold War” and kill any attempts for a détente.

We then take a quick look at the troubling legal system of Russia, and highlight some of the reasons why this is likely to continue holding the country back from an economic standpoint. Finally, we take deeper look at Russia’s master playbook in the Middle East, and try to further decipher why it’s so strong.

-Rossiya Scan

The Battle for Africa Is Likely to Heat

In Issue #10 of Rossiya Scan, we took our first look at Russia’s growing role in the Central African Republic (CAR). We detailed how the government currently heading the former French colony was receiving little help from its traditional supporters (e.g. France and the United States), and that this forced them to look elsewhere for support. The latter was a matter of survival for the government of CAR President Faustin Archange-Touadera, whose military controls approximately 20 percent of the country. The rest is split amongst Christian, Muslim and other rebel groups.

Where could Touadera find support? Russia, who has been providing arms, and military advisors to prevent his weak Bangui-based government from being toppled.

Russia delivered Touadera’s government with life-saving aid. His administration is in a better position militarily as result of this alliance, and Russia has successfully penetrated the heart of Africa without much of a fight from France or the United States. The latter essentially abandoned the Touadera administration, and were the key influencing powers prior to Russia's arrival.

Russian involvement in the CAR, however, is now in the news though. Unlike before, where you would only read about such help rarely. This fight has gone mainstream with the deaths of Orkhan Dzhemal, Alexander Rastorguyev and Kirill Radchenko. The latter three were Russian journalists investigating the Wagner Group, a private military contractor with ties to the Kremlin, and with an increasing presence in the CAR. The journalists received funding for the project from Russian tycoon, and Kremlin opposition figure, Mikhail K. Khodorkovsky.

Authorities of the CAR claim the journalists were killed while driving on a road by bandits. Something critics refuse to believe, in great part due to the targeted nature of the attack. The journalists were allegedly traveling in a convoy of three, and in a vehicle driven by a local driver. The local driver, allegedly came out unhurt, and is being held by authorities.

“Many things don’t add up,” stated Lewis Mudge, a researcher for Human Rights Watch, to the NYTIMES.

According to the NYTIMES, an obscure African media outlet is currently trying to put the blame on France for the killings. Prior to the Russian arrival, French troops were a constant presence in the CAR. France was either defending, or helping overthrow whatever Bangui government was in power. Decisions made according to whatever fit their current national interests. France, reported the NYTIMES was being blamed by the African outlet of killing the journalists, as a sign to Moscow that CAR is their turf.

The problem for Russia though is that they have a history of alleged extra-judicial killings against journalist who do not share a Kremlin view. Hence, the narrative that France carried this out is unlikely to catch much steam in the Western world. Especially, when the subject of their alleged study was the Wagner Group, whose story and actions are very secretive, and is considered by the West as a front for Russian clandestine operations.

The Wagner Group’s owner, Yevgeny V.Prigohzin, is a former intelligence officer and supposed close associate of Russian President Vladimir Putin. He is one of the individuals sanctioned by Western powers. The Wagner Group’s role with separatists in eastern Ukraine, and Prigohzin’s ownership of the Internet Research Agency, a troll factory linked to Russian interference in the U.S 2016 presidential election, led to such sanctions. The military contractor group, as discussed in previous Rossiya Scan issues is also operating in Syria.

Russia is certainly not the first country to be accused of using mercenaries to push their foreign policy objectives. The U.S., for example, has used mercenaries throughout their various military campaigns. Blackwater in Iraq is probably the most current visible example. The use of soldiers of fortune remains controversial though, and will always carry a sting. Such soldiers tend to listen to a different chain of command, which lead to troubling situations that ultimately make things complicated for any country pushing its agenda through their use. Thus, the CAR and Wagner Group are unlikely to be an exception.

The problem for Russia is that their quiet chess-game in the heart of Africa is now in the open. Hence, the fight between them and the West for this part of the world is likely to escalate more than before. The CAR has vast amount of minerals (e.g. diamonds, gold copper, uranium and iron to name a few), and although the West forgot about it before, it could easily be reminded about if things continue to escalate in other places. The global chess-game between Russia and the West simply call for it.

Can Russia win this fight? In this situation we believe Russia can. Unlike Latin America or Europe, the countries in central Africa are for the most part in the least developed category. Hence, they are led by strongmen, and have populaces that do not make the demands that the inhabitants of Eastern European, Latin American or Asian developing countries make. Here, the security and loyalty are the biggest currency, and the decisions are made by handful of individuals, if not one. Also, a more “hands-off” attitude, which the West does not have with its allies, goes a long way. Therefore, Russia has the cards necessary to satisfy the needs of the actors in this area.

The fight is officially on though. So far, Russia has the lead, and is unlikely to be toppled in near future. However, we will keep a close eye to see if this continues. After all, the world is an increasingly anarchic place.

“Battle for Africa: Russia Pushes into ‘Free Country for the Taking’ in Attempt to Rival the West,” Jack Losh for Newsweek.

“Funerals Held for 3 Journalists Killed in Africa,” by the AP.

More Sanctions…

For the past couple of months, we have been commentating on the sanctions that the U.S has imposed upon Russia in the wake of the Skripal poisonings. Those sanctions have had the effect of creating a large fall in the price of Russia based equities, and further deterred investors from entering the market. The sanctions against EN+ (LSE:ENPL) , Rusal (MCX:RUAL), Polyus (MCX:PLZL) as well as the oligarchs have crippled the firms. They have also generated uncertainty as to the future development of trade and supply of certain commodities. As U.S President Trump seemed inclined to play the détente card, as shown in the wake of the Helsinki summit, congress has once again struck out on its own.

This week congress voted a new set of draconian sanctions with the objective of crippling, and “punishing” Russia. From a historic perspective, let us remember, that the last time everybody united to punish/humiliate a country was in the aftermath of World War I, when Germany was humiliated.

I believe we all can remember what came out of that…

Instead of aggressive attacks, maybe it is time to come to the table and have a correct sit down with productive talks. Furthermore, the U.S is currently facing a quite complex situation in which Trump and congress do not see eye to eye when it comes to their Russia policy. With midterms approaching, populism is taking over, and both U.S parties want show that they are punishing the boogieman. They fail to understand that it is exactly this sort of behavior that in part gave birth to Trump’s electorate.

What are these new types of sanctions that Russia will face? The first aspect, according to the Chemical and Biological Weapons Control and Warfare Elimination Act of 1991 (CBW Act) , Russia will no longer be allowed to purchase U.S military technology.

Now, on this point let’s take a step back, this week Trump announced limiting the sale of U.S military technology to France. The French fighter jet manufacturer Dassault stated that because of they may not be able to build their Rafale airplane (a direct competitor to the U.S F-series jets).

In effect though, Trump is not only crippling Russia, but also NATO allies. Furthermore, the Trump administration is equally imposing sanctions on Turkey, a NATO member, and home to many of the U.S military bases.

On the tech side, these actions will be painful because the U.S will have total control on arms manufacturing, and sales. However, this will also force the countries to develop their own tech, be more independent and in a way regain some sort of sovereignty. In an interesting manner this ambivalence of the U.S could actually be a blessing that leads to more R&D, and incites competition.

Following the announcement of the new sanctions the ruble fell by over 5%, indexes fell several percentage points and bluechip stocks by over 9%. The reasoning is that the second wave of sanctions could be worse, and further restrict diplomatic ties between the U.S and Russia.

On another note, what could anger congress is the fact that Russia is attempting to form a coalition to bring the U.S back to the table in order to salvage the Iran deal, from which the U.S has just recently unilaterally walked away.

The U.S currently has a captain, with a first and second mate (both chambers of congress) that are challenging his course. A vessel that has no single direction will never get to a safe harbor. With a country attacking its allies more than its ‘foes’ there does not seem to be any predictability or rational for a positive outlook.

As stated in prior issues of Rossiya Scan, many members of congress are people who served or grew up during the Cold War. These people have a highly negative and condescending attitude towards Russia. They never allow for Russia to have a chance, and will always attempt to quash it in order to enforce their dominance. That being said, the same can be said of Russia, where senior officials are former spies wary of the U.S’s influence and goals. It is not until we change the current generation of politicians that we can hope for some sort of constructive change.

"U.S. to Impose New Sanctions on Russia Over Nerve Agent Attack in the U.K.," by Jessica Donati and Courtney McBride for the Wall Street Journal.

"Russia Hits Back at 'Unpredictable" U.S after Sanctions," by the Financial Times.

"The Tightening Vice of U.S. Sanctions on Moscow," by the Financial Times.

Is True Entrepreneurship the Cure to "Wild" Business Tactics in Russia?

For those of you familiar with the British show Mcmafia, or for those who have read ‘Violent Entrepreneurs’ by Vadim Volkov, you will notice that is a common portrayal for Russian businessmen to be steeply mob related, and make use of questionable tactics. However, and here is the million-dollar question: is it really so?

One of the reasons, why the Russian economy is so sluggish, and strongly reacts to sanctions is that for decades the country has stifled entrepreneurship. More importantly Russia has been overly reliant on oil and gas exports. At a time where most oil exporting countries are diversifying their economy , Russia has consistently lacked this vision.

The fact is, according to members of the Russia administration, the greatest "sanction" in Russia is the judicial system that considers state-ownership to be better than private property, as well as the battle between various ‘factions’ of existing security services. The latter can be a highly corrupt influence, and are present in various parts of the Russian economy. As Professor Paolo Zannoni, former Co-President of Goldman Sachs and lecturer at the Yale School of Management, stated in a lecture a few years ago, if you compare the various aspects of the Russian economy and the number of security services, and you will see a direct correlation.

These factions rule as barons of the Russian economy. It’s a group that does not understand that state planned economy and ownership have already failed. They simply fail to grasp that Russia needs to move from obscurity into the light to become stronger. Russia needs to promote once again true entrepreneurship. Much in the same way as the West has promoted it for decades. This of course is hard to explain to such powers. They fear change and see this as the end of an era or livelihood. Raids and mockery of legal processes are common in Russia, used by competitors to acquire assets at more than bargain prices.

In Russia, these factions are more interested in maintaining their own powers, riches and privileges than actually enhancing the system. With this in existence, there are few chances that Russia will get out of its sluggish growth, and high oil dependence.

"Business Behind Bats: the Judicial Threat to Russian Growth," by Kathrin Hill for the Financial Times.

Paolo Zannoni class on Russia privatizations at the Yale School of Management.

Keep Your Friends Close, but Your “Enemies” Closer…

Russian President Vladimir Putin has proven that he is still steps ahead from his allies and enemies. Continuously reaffirming that his government has the ability to plan in advance, and remain consistent with its long-term foreign policy strategy. Putin besides being a cunning strategist, also uses key traits from his favorite sport Judo, such as, “staying in full contact with his opponents and keeping them close.” The latter is something he is brilliantly applying to the Middle East and Europe (through gas supply).

Gazprom currently supplies 40% of Europe’s natural gas, with an 8.1% increase from the previous year reaching a new high in 2018. Furthermore, there is an intense debate within the European Union and its western allies (especially the U.S) regarding a new pipeline being built from Russia to Germany through the Baltic. Once again, this initiative is proving pretty divisive between West, a factor which plays in favor of Putin.

This route is an alternative to the current pipeline flowing through Ukraine. Germany, Sweden, Finland & Denmark fully support the project. However, this new pipe would make Europe more dependent on Russian gas, and would secure Russian hegemony. Russia would simply become the leading supplier for natural gas to Europe for decades to come. It would also in turn sideline alternative suppliers of natural gas, such as the U.S, Qatar and other producers; apart from frustrating a critical source of revenue from the Ukraine.

Russia is brilliant at building alliances in the murkiest situations. Qatar is aware that it is one of the greatest threats for Russia in relation to natural gas exports globally. Notwithstanding, Russia despite a diplomatic dispute in 2011, has bettered its relationship with Qatar immensely. So much so, that in periods of severe sanctions, Qatar became the main gulf investor in Russia to the tune of $2.5BB.

Saudi Arabia, which has never been an obvious “partner” of Russia (because of their warm relationships with Iran, and now Qatar), has become a frenemy, and is participating with them in several projects. For example, Saudi Arabia in 2015 agreed to invest up to $10BB in the Russian economy. Money that would be used for the development of liquefied natural gas terminals. Something which would indirectly harm Qatar. It’ also important to remember, that all these bilateral agreements and commitments don’t take into account the high volume of weapons that Russia sells to Saudi Arabia, or the region as a whole.

Further north, in Iraq, Russia is also making moves. Russia recently purchased a controlling interest in Kurdistan’s biggest oil pipeline. Adding a major piece of strategic infrastructure in the region that further provides it with greater political and economic leverage. Next door, one of Russia’s major energy corporations, Lukoil, has also been investing heavily in Iranian infrastructure plus oil fields. Also, beyond energy and weapons, Russia has considerably expanded their trade relations to receive food exports from Iran, Israel and Egypt.

The bottom line, Russia is speaking with friends, enemies, friends of enemies and the list goes on. The level of mastery in fostering relations with all sides in the Middle East is simply unparalleled. The West has lost this fight, and is unlikely to get a foothold for some time if it does not drastically change its playbook. Russia is the broker of the Middle East, something that is almost impossible to achieve, considering the animosity many of these countries share.

“Trump to Europe: Drop Nord Stream or we wont protect you from Russia,” by David Keating for Forbes.

“Russia aims to dominate Middle East energy,” by Dave forest for Oil Price.

“Russia in the Middle East,” by Rauf Mammadov for Jamestown foundation Global Research & Analysis.

“Russian Policy across the Middle East, Motivations and Methods” by Nikolay Kozhanov for Russia and Euroasia Programme 2018.

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