Sunday, October 19, 2008

Indian investment in Africa pales in comparison to China’s

Mwangi, Benin; African Path 2008-07-24

“Although India is an economic powerhouse in its own right”, writes Mr Benin ‘Mwangi’ Brown, a business writer at African Path, “in the West we don’t hear that much about India’s recent economic progress because so much of this growth has taken place in the shadow of China’s advances”.

Mwangi asks whether India’s investment in Africa really is minimal compared to China’s, or whether this is a reflection of something else. To him, the only answer is a little bit of both.

On the one hand, because the stories are not sensational, we hear very little about India in Africa. The country has adopted a more passive and laid back approach to expanding into Africa which doesn’t sound as interesting as China doing business with Sudan.

One could assume that because India is one of the continent’s oldest trading partners, it would have an advantage over China in terms of African investment. When we take an aggregate of some of the deals taking place between India and Ethiopia, Kenya, Nigeria and South Africa, as well as some of the other African countries it does trade with, the number could get quite robust.

For instance, it was recently reported in The Daily Monitor that “the total investment in Ethiopia by 351 Indian companies has become 1.8 billion USD as at April 2008, in a sign of marked surge in number and size of investment from the emerging economy”.

And in the prelude to the 2008 India Africa Summit, Anjana Pasricha (VOA) reported: “India will invest $500 million in development projects in Africa, in the next five years. It will also double financial credit to African countries from about two-billion dollars during the past five years to $5.4 billion.”

Figures such as these are impressive. But at the heart of the matter, India’s African deals pale in comparison to what Beijing does annually. China invests approximately US$60 billion in Africa, while India does only about half that amount on an annual basis.

Dr Harry G. Broadman, in his book ‘Africa’s Silk Road: China and India’s New Economic Frontier’, writes: “The relationship between India and the African continent relies on private networks, linked to long-standing Indian populations in the region. The relationship between China and the region, on the other hand, is more recent and more often mediated by formal government-to-government agreements.”

It is for this reason that even though India does some respectable trade with Africa, we are only hearing about their Asian neighbour – China.

Mwangi believes that in order for India to catch up to China’s recent achievements in Africa, it must either begin to focus on Africa’s smaller countries that have been too small to register on China’s radar (such as Mauritius and the Seychelles); continue to rely upon old ties in East Africa with countries such as Ethiopia, Kenya, Mauritius, Tanzania, and Uganda (although China has made substantial inroads into the Eastern and Horn regions of Africa over the last decade); or change strategy and go more formal like China has done.

Mwangi writes: “A few things that do appear to be in India's favour when it comes to competing with China’s investment in Africa is a longstanding favourable human rights record, the wide spread usage of the English language, and the historical ties with Africa.”

If such factors are found to translate into socially responsible investment in Africa, this could counterbalance China’s “no questions asked” and “loss leader” approach to investment in Africa which have caused concern in the continent. Although this may be a bit far-fetched, the residual effect could be much stronger PR for India and a possible erosion of China’s gains into Africa.