India Inc is discovering the potential of the African continent. Companies across sectors are looking to set shop on the continent and tap the enormous potential of a growing market for goods and services. The Indian hunger for a piece of the African pie is in line with the global trend, with several companies from across countries looking to enter Africa.
The realisation of a large market is not one sided. African companies, too, are looking to tap the large middle-class market for goods and services in India. This growing interest in bilateral trade and investment has meant that companies and governments are realising the barriers to the markets and are voicing their views at different platforms.
The World Trade Organisation (WTO)'s "Fourth Global Aid For Trade Review" at Geneva last week was one such platform where there was deep interest among countries in building linkages with Africa and helping the exporters there reach out to global markets.
The Confederation of Indian Industry (CII) released a report at an event in Geneva on the sidelines of the Aid For Trade Review. The CII produced this report titled "India-Africa: South-South, Trade & Investment for Development" in collaboration with the WTO.
Sunil Munjal, Joint managing director of Hero MotoCorp and former president of CII, who released the report at Geneva is one of the recent investors in Africa. Hero recently set up a two-wheeler plant in Kenya and is looking to invest in a few more countries to tap the market completely.
The report, which is based on a survey of companies in India and Africa, brings out some pertinent issues that need to be addressed for taking the relationship forward. An important aspect that has been highlighted in the report is the point on African investment in India. Mauritius, of course, is the largest investor in India, accounting for 40 per cent of African investments in the country since most US companies have chosen that route for investments.
Some of the other large African investors include South Africa and Morocco. The report states that Morocco and South Africa have investments worth $137 million and $112 million, respectively.
Investments from South Africa have been growing at a steady pace with Tiger Brands, Airports Company South Africa & Bidvest, SABMiller, FirstRand Bank, Standard Bank, Old Mutual, Balela Leisure, Anglo-American, Sasol and Nando's Group Holdings, having made investments in the Indian market. Shoprite, the second-largest retailer in South Africa, that withdrew its India operations in 2005, is looking towards the Indian market again after the recent announcement by the Indian government to liberalise the retail sector.
Morocco has also invested in the manufacture of phosphate in India. Zuari Maroc Phosphore holds a 74 per cent stake in the earlier state-run Paradeep Phosphate Ltd.
Interestingly, the thrust on the investment side of the India-Africa relationship has, until now, focused more on enhancing Indian investments towards African destinations rather than vice versa. This may change in the years ahead since outward foreign direct investment (FDI) from African countries has been growing rapidly. Outward FDI flow from African countries has steadily grown from $1.5 billion in 2000 to $7 billion in 2010, before falling to $3.5 billion in 2011.
A substantial portion of the outward FDI is intra-African and emanates from a few countries, including Zambia, Angola, Egypt and South Africa. As African companies diversify further, they too will look towards emerging growth markets like India, the report states.
This approach in the report brings forth the view that has been expressed by the private sector that the need for engagement with Africa has to be investment for trade and not aid for trade alone. There is a growing feeling among industry circles that the best engagement strategy for Africa would be to build linkages for investment between the two sides.
But at the same time there is also a need for addressing some key concerns that have been put forward in the survey. These include access to trade finance; poor business environment; transport and logistics costs, and informal controls.
Africa certainly provides a large opportunity for Indian and global business. The CII has over the years built close linkages with the continent. The results are showing with large and medium Indian corporations building sustainable investment and trade partnerships in various African countries.
The writer is Principal Adviser at APJ-SLG Law Offices
Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper
