A WAVE of interest in Africa is coming from emerging global powers. Africa’s economic relationships with the Brics powers, in particular China and India, have grown rapidly over the past few years. India is now seeking to expand its political and commercial influence across the world’s fastest-growing region.
Very little has been made of India’s foray into Africa to date. The route followed by Indian companies in Africa differs markedly from China’s. Unlike China’s policy of direct investments led by state-owned entities, it is India’s private sector that plays the leading role in Africa. Indian corporate giants such as Bharti Airtel, HCL and the Tata group have spearheaded the country’s charge into Africa, while new Indian investment and trade into Africa is gaining traction.
Since 2005, Indian companies have spent about $16bn on the continent. India’s trade with Africa has also doubled in the past four years, from $24.98bn in 2006-07 to $52.81bn in 2010-11, with Indian companies active across a range of sectors, including mining, pharmaceuticals, machinery and equipment, chemicals, textiles, paper, financial services, software, refineries and printing.
Indian companies are acquiring overseas assets to establish their presence in foreign markets and to upgrade their competitive strength as they realise their future growth will be driven by the share they have in the global market. According to Thomson Reuters data, Indian acquisitions made up a third of total acquisitions (in terms of value) in sub-Saharan Africa in 2010, the highest by any country in the region.
Bharti Airtel, India’s largest cellphone provider, has become the second-largest mobile operator in Africa. Tata Motors has opened an assembly operation in South Africa, while the Essar Group is investing in the African steel sector and Godrej is very active in the consumer goods market.
India is clearly looking to Africa to fulfil its growing resource needs and major investments are also under way in mining and oil exploration. Oil & Natural Gas Corporation has acquired shares in oil exploration ventures in Libya and Nigeria, while Vedanta Resources invested nearly $750m in Zambia’s Konkola Copper Mine. Africa’s hydrocarbon potential is immense, with significant oil production already coming from West Africa and new promising gas discoveries in East Africa. India, which faces a huge energy deficit and imports about 80% of its crude oil, is scouting for hydrocarbon assets that can boost its energy security.
Meanwhile, Indian medical companies such as Cipla have invested nearly $32m in Uganda as a joint venture with another local manufacturer to produce antiretroviral and antimalarial drugs.
Many Indian business people believe Africa is on the cusp of a boom and see similarities to India 30 years ago. Consumer spending in Africa is expected to double to as much as $1.8-trillion by 2020. Consequently, India views Africa as a place where it can reproduce the business models it has refined at home and replicate its success in building vibrant manufacturing and services sectors.
The burgeoning commercial relationship between Africa and India has created the need for a deeper engagement between the African and Indian business sectors. The India-Africa Business Network was established in 2011 in Johannesburg with the idea of increasing synergy between India’s emerging multinationals moving into Africa and African companies looking to establish a footprint in India. Given India’s large diaspora, businesses are also increasingly using the expatriate Indian network to tap opportunities in Africa.
The government of India, too, via its Pan-African e-Network project, has started playing an active role via a strategy of "soft-power diplomacy", which matches the best Indian expertise in scientific, medical and telecommunication services, to African countries’ daily needs.
The foreign direct investment flow from India has significant long-term benefits for the industrialisation of Africa, particularly in sectors such as education, infrastructure, tourism and health, where India can offer expertise and customised solutions for African countries. For India, Africa is the world’s largest untapped market for trade and investment.
With an abundance of natural resources, a middle class larger than India’s, rising per capita incomes and major institutional and political improvements, the continent is set for an unprecedented decade of economic expansion.
• Gopaldas is a country risk analyst at Rand Merchant Bank.