Indian investments in Africa need to be honest, to make a business of it,” said Vinod Dhall, director of corporate planning for the Mac Group, which invests in the East African and Tanzanian markets. Dhall has been in Africa for 12 years and has noticed a “changing ethos” in the manner that business is done in Africa.
Africa is the way forward for Indian investment. This is the message that Bharti Airtel sent to the subcontinent with its move to acquire the African assets of Kuwait's Zain at $10.7 billion. With tele-density standing at a mere 30 per cent in the continent, Airtel has the potential to reap huge gains from the deal.
Airtel is not alone. The Tatas were their predecessors and have made close to $1.6 billion worth of investments in the continent.
Other private groups such as Reliance Industries, Mahindra and Mahindra,Videocon, Ashok Leyland, Dabur, Godrej, Dr Reddy’s Labs, NIIT, Essar, Suzlon and Kirloskar have already made their foray into the Dark continent.
With its deep historical linkages to India, two million-strong Indian diaspora, burgeoning middle class and rich natural resources, Africa has the potential to solve both India’s simmering energy security issues as well as provide a large, dynamic market for India goods and services.
India needs Africa’s huge oil and gas reserves, standing at around 16 billion metric tons and 500 trillion cubic feet respectively, to allay/meet its huge demand for energy. Today, India is the fifth largest consumer of energy and imports 70 per cent of its oil needs. Africa covers about 20 per cent of these imports.
Yet, compared to China’s investment of $109 billion, Indian investment of about $40 billion — which has been largely private sector investment — has not grown as quickly.
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This stems from a mixture of ambivalence from Indian industry towards Africa and uncertainty as to the regulatory abilities of various governments. Dhall observed, “There is hardly any trust in government standards and rules to incentivise long-term investments.”
K V Bhagirath, the Indian High Commissioner to Tanzania, pointed out that “Indian companies need to be bolder when coming into Africa.” He emphasised that “there was a lot of good will for India and it would be warmly welcomed on the continent.” India is Tanzania’s largest trade partner.
One of the largest obstacles Indian businessmen face coming into Africa is in understanding its large diversity. “Africa is a not a country, Africa is a continent and must be treated as such,” warned Marten Kapewasha, the Namibian High Commissioner in India. He pointed to the fact that different African countries would have very different things to offer India.
This can be seen from the disparate growth of the continent. The Asian Development Bank reported that East Africa, which was the least affected by the global financial crisis, will grow at an average of 6 per cent in 2010-11 — the highest on the continent. South Africa and Central Africa will grow more gingerly at 4 per cent while North and West Africa together will grow at 5 per cent.
Today, African trade constitutes around 6.4 per cent of India's total trade. Trade between them has increased considerably, from $4.9 billion in 2000 to nearly $40 billion in 2008. This is expected to expand by over nine times to $150 billion by 2012, according to the The Associated Chambers of Commerce and Industry of India.
Governments have taken measures to increase the inflow of capital. Sudan, for example, allows foreign investors to own all of the capital of the company, while Mauritius reduced the rate of corporate tax to 15 per cent. Many African countries have also undergone banking reforms to give credibility to the financial services sector.
Demographically, half of the country is below the age of 20 and speaks Western languages and the workforce is available at a lower cost than in many other developing countries.
While investments have largely been in the extraction sector of various African countries, there are many other sectors that hold promise for Indian industry.
In Kenya, Indian investors are involved in financial services and pharmaceuticals. In Ethipoia, it's engineering and agriculture. Namibia offers the promise of diamonds and uranium, while Sudan has its huge oil and gas sector.
Important schemes are in place to enhance economic relations. The Focus Africa Programme (2002 -2007), conducted by the Export Import Bank of India offered subsidies in exports to Indian companies trading with African nations. It also gave lines of credit to governments in Africa and regional blocs.
The 2008 India-Africa Summit was a blueprint for partnership and resulted in development pledges, credit lines worth $5.4 billion, five-year grants of $500 million and an opening of India’s economy to all the LDCs.
Both Prime Minister Manmohan Singh and External Affairs Minister S M Krishna have pointed to the need to build win-win partnerships on the continent to develop Africa. Mr Kapewasha echoed this sentiment, saying that Africa wants to approach their relationship with India as an equal partner.
As such, India’s investment in Africa should follow a model that emphasises the development of the local people, through technology transfers, training and local development practices.
With India’s traditional markets in the West faltering after the effects of the global financial crisis, Indian companies have much to gain from looking towards Africa as the next big investment destination.