India’s proliferating relations with Africa

India’s demand for resource security, potential trade and investment opportunities and a strategic partnership with the African Union is similar to that of China; but the approach that each nation has taken is rather different.
Anirudh Menon
9 December 2011

China and India are growing exponentially and are on a quest to fulfill their insatiable yet justified demand for energy. The recent surge into Africa by the Asian giants is very evident and Africa is rather enjoying the attention.  Africa is beckoning in these new age powerhouses because of the political and economic prowess these countries have garnered over the past two decades.  China’s current relationship with Africa is led by the state-owned enterprises who are interested in the extractive and infrastructure industries. India’s strategy for Africa is however spearheaded by the private sector in collaboration with the Export-Import bank (EXIM) and the Confederation of Indian Industries (CII). The world still perceives India’s presence in Africa to be caused by the ‘China factor’, despite the constant refutations from both New Delhi and Beijing. The reasons are very similar; the demand for resource security, potential trade and investment opportunities and devising a strategic partnership with the African Union; but the approach that each nation has taken is rather different.

Indian entrepreneurs suddenly found themselves decked with opportunities, post-liberalisation. India began amassing wealth and became an economic powerhouse within two decades. The economy attracted sufficient foreign investments, and the valuations of the private sector grew rapidly. The social metrics improved, money was being pumped into poverty alleviation programmes and this was considered an incredible feat for the largest democracy, which was once riddled with troubles.

Energy dearth

The rapid pace of growth had to eventually catch up with India who soon realised that it could not continue its remarkable growth story unless it could keep catering to its increasing energy demand.  Oil and gas are essential for this and India is endowed with neither. With only 0.4 per cent of the world’s proven oil reserves and no significant discoveries in the past two decades, India has to source its needs externally. It currently imports 75 per cent of its domestic oil consumption and is expected to reach 90 per cent by the next decade. This resulted in the Ministry of External Affairs packing its diplomats off to address the energy deficits and increase India’s footprints in oil rich areas. The government has set up embassies in no less than twenty-seven countries although the Indian Foreign Service still remains gravely understaffed.

The state-owned Oil and Natural Gas Corporation (ONGC) has over recent years, secured new exploration contracts in Nigeria and Sudan through its international division, ONGC Videsh Limited (OVL). It has also entered into an agreement in 2005 with Arecelor Mittal which is the largest steel production company in the world, to form a joint venture in a $6 billion infrastructure deal. Further, Indian companies have entered the following oil rich regions; Cote d'Ivoire, Libya, Egypt, Angola and Gabon.

Trade investments

India’s trade has grown significantly, from a meager $967 million in 1991 to $50 billion in the first quarter of 2011. South Africa is a prominent trade partner where exports have totaled more than $2 billion. India has also offered a duty-free tariff preference scheme to thirty-three of the least developed countries in Africa, which covers 94 per cent of India’s total tariff lines.  Indian imports are on the other hand mostly primary goods. Oil accounts for the largest share, followed by gold, and other minerals.

India exports machinery, transport equipment, petroleum products, paper and wood products, textiles, iron and steel, plastic and linoleum products, rubber manufactured products, agro products, chemicals and pharmaceutical products. Africa is also a draw for investment in sectors such as tourism, electronics, computer software and accessories, information technology related products, and financial services.

EXIM bank started an initiative back in 2002 called ‘Focus Africa’, targeting Kenya, Mauritius and Ethiopia. The bank has extended Lines of Credit (LOC) to support these countries in continuing to import goods and services. This initiative also covers the LOCs extended to the NEPAD (New Partnership for Africa development) and credit to accomplish the Millennium Development Goals (MDG).

Symbiotic corporate relations - a gentle overture

Africa perceives China as a powerful nation and looks up to it in awe, but it looks at India as a nation that has gone through similar hardships and has come out triumphant. African entrepreneurs relate more to the Indian growth miracle and thus are more welcoming to investments flowing in from the private sector. The delegates of the 2009 India-Africa conclave stated that ‘the visit to India was like a homecoming as many of them were either educated in India or had been taught by Indian teachers back home’ and therefore regarded Indian companies favourably.

The Africans are receptive and the Indian companies are very comfortable investing in countries where the diaspora have settled. The British sent Indians to Africa to replicate the railway model that was successfully implemented in India.  Indians eventually became station-masters, clerks and shopkeepers. “Where we find Indians living, we feel at home,” says Sanjay Kirloskar, chairman of the Kirloskar Group, an Indian firm that is building pumping stations in 25 African countries.

The Government of India has directed its corporate entities and Public Sector Units (PSUs) from various sectors to Africa. The prominent corporations are the telecommunications Consultants India ltd, Rail India Technical and Economic Services (RITES), ONGC Videsh Ltd (OVL), Bharat Heavy Electricals Ltd (BHEL) et al.

India is not only in Africa for oil. Companies like Vedanta have invested in the copper mines in Zambia; Arcelor Mittal has invested close to a billion dollars in Nigeria for the infrastructure required to extract and refine iron ore; the TATA group has panoptic investment in multiple industries where its activities range from infrastructure, energy, hospitality, automotive parts and telecommunication. The TATAs have strategically selected a few countries (Mozambique, Malawi, Namibia, and South Africa) in which to operate, where the restrictions and taxes are minimal.  

The private sector is promptly diversifying in Africa and these corporate houses have made their presence known. The TATA  group, Mahindra and Mahindra (Automotive), Kirloskar Brother Ltd  (India’s largest Engineering and Construction conglomerate), Larsen & Toubro (Business conglomerate  present in 25 countries), National Information Informatics Technology (NIIT) , Kalapataru Power, Shapoorji Pallonji (Construction ), Fortis Healthcare, Apollo Healthcare and  Essar group (Steel , Power, Communications, Logistics) have a stellar reputation in Africa.

Indian companies are also making a big push and acquiring smaller companies to embed their hold on African concerns. For example, Godrej Consumer Product Ltd (GCPL) will acquire 51 per cent in a hair care company, Darling Group this year; it purchased a Nigerian FMCG firm Tura (2010) for $33 million; and it acquired Kinky (Hair Care, 2008) and Rapidol (Hair Care, 2006) in South Africa.

“First world service at third world prices”

The healthcare sector in India is renowned for its high quality and relatively low-cost services. Medical Tourism in India is a $2 billion industry and attracts more than a 150,000 tourists every year. With years of expertise and a lucrative business model, the Indian healthcare firms are investing in Africa.

Companies like Apollo Group of Hospitals and New-Delhi-based Fortis Healthcare Ltd have created an extensive network in India and abroad and are accredited by the Joint Commission International (Considered as the gold standard in excellence for hospitals in the US and Europe). They are also the largest providers of telemedicine and are assisting Nigeria and Mauritius in capacity building through personnel training and investing in infrastructure.

Indian pharmaceutical companies ($11 billion industry, 2011 est.) are the largest generic drug manufacturers in the world. It exports pharmaceutical products to 220 countries, and Africa accounts for 16 per cent of the total share. The sector is now focusing on South Africa, Kenya and Nigeria. Ranbaxy Laboratories was the first pharmaceutical company to set up base in 1977, when it entered a joint negotiation with Nigeria. The products usually range from anti-infectives, cardiovascular and most importantly antiretroviral (ARVs). There are other Pharma based companies who are also involved in improving the healthcare system in Africa, Aurobindo Pharma , Cipla, Dr Reddy’s, Wockhardt and Hetero, all export affordable lifesaving drugs to millions of Africans.

These companies, however, face a lot of challenges of cheap imitation. A lot of spurious anti-malarial drugs are entering the African markets labeled ‘made in India’ which have in fact been traced back to China. Despite such instances, Indian companies are working hard to maintain cordial relations with Africa.

The land issue

The population explosion in India has brought down the acreage of arable and fertile land. This has massively affected food security and has hurt the treasury due to rising imports. In order to compensate for this food shortage, the Indian government has been purchasing/ leasing land from African countries to cultivate crops which are then brought back to the country. India along with countries like China, Saudi Arabia etc. who face similar grain deficits are blamed for being neo-imperial in their approach.

During the India-Africa summit in 2008, the Tanzanian President and the Chairman of the African Union, Jakaya Mrisho Kikwete stated that, Africa’s is a ‘peasant agriculture’  -  traditional and plagued with low production. If they could increase their productivity, they could feed the Africans and maintain a surplus in buffer stock to feed the world. India has the technology and the skills. Post-independence, India has boasted an impressive record of zero famines after the implementation of its own version of the Green Revolution in 1965. The Indian private sector has responded positively to the invitation of the African governments to raise their overall productivity. Customised agricultural equipment such as tractors, processing machinery, drilling and irrigation equipments are exported on a large scale because of its durability and affordability.

Political persuasion

India is not trying to catch up with China in resource acquisition, but it has been trying to gain geo-political influence in order to have a more significant say on the global platforms. India has been vying for a permanent seat at the United Nation Security Council for a very long time and was only offered a temporary seat this year. It wants to change the membership rules at the UNSC because it believes that the emerging economies are seriously under-represented. Therefore India is wooing the African Union (AU) to support its bid for a permanent seat at the council and in return has promised to back South Africa’s aspirations for the same position. Last year, when President Barack Obama visited India to discuss bilateral relations, he committed the support of his administration to back India’s bid, for a permanent seat to the UNSC.

Challenges ahead

The challenge the Indian government faces at the moment is to support the private sector in its overseas ventures while also advocating the tenets of democracy and lessons about nation-building to Africa. India has struck up amiable relations with Africa by providing assistance every step of the way. A notable Member of Parliament from India, who was the Minister of State for External Affairs to Africa, spoke about the level of service offered by the Indians:

The Indian buses are still running, the Chinese buses have long since broken down. No one knows how to fix them, the Chinese are not there to help, whereas we are more attuned to their needs, we’ve brought in the spare parts and trained the maintenance guys, and this has been a huge advantage to us.

Despite the fact that India is helping Africa reach out to the World, it is still rebuked for turning a blind eye to the dictatorial and the authoritarian regimes. India continues to trade with Sudan, Zimbabwe and other nations which are increasingly under the spotlight for human rights violations. The Indian government brushes these comments aside, asserting that it is all in the plain interest of business. Many observers would prefer the Indians not to emulate the Chinese way of accelerating investments while having scant regard for the issues of human rights and democracy. But can they get their voices heard?

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