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Monday, 18 December 2017

One to watch

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  • One to watch

India’s involvement in Africa goes back millennia. It is beginning to make its natural advantages count as it expands its economic role across the continent.

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It is widely assumed that Africa has four major trading partners: Europe, the US, China, and everyone else. This is fallacious, as it overlooks the country that ranks as Africa’s real fourth largest trade partner, India.

New Delhi has been slower off the mark in Africa in recent years than Beijing, which has cemented solid trading ties across the continent. Yet the Indo-African relationship is older, more nuanced and frankly more compelling than many realise.

At this point, it’s worth doing a little myth busting, in the hope of skewering some incorrect assumptions.

Myth number one: India is a laggard in Africa. This one is easy to dispel. Annual Indo-African trade, worth just US$4.6bn in 2000, soared to US$57bn in 2011 and is on track to hit US$90bn this year, according to the IMF and Standard Chartered. Africa’s share of trade with India rose to 7.6% in 2011 from 5.2% in 2000. Only China has seen two-way trade with the continent grow more quickly over that period.

Myth number two: India is playing catch-up in Africa. This flies in the face of reality. Sino-African trade has grown at a compound rate of 26.3% since 2000, with Indo-African trade expanding only marginally less slowly over the same period, by 24.8%. “The pace of growth in Africa-India trade and investment over the past decade is rivalled only by China-Africa trade,” said Sarah Baynton-Glen, Africa economist at Standard Chartered.

Myth number three: India only trades with East African nations. It’s true, Indians are historically happier on Africa’s eastern seaboard – and little wonder: Indian merchants have plied the coasts of Kenya, Mozambique, and South Africa for millennia, benefiting from proximity and favourable trade winds – but again that bypasses the hard facts.

Two of India’s top-four regional trading partners are Angola and Nigeria, deep in the western half of the continent. Some of India’s fastest growing ties are with nations with little or no cultural links to the continent, notably Ethiopia and Sierra Leone.

Indeed, India, and not China, the US or Europe, was oil-rich Nigeria’s leading trade partner in 2012, accounting for 10.2% of the latter’s total global trade. “Africa remains seen by India as a growing market that’s opening up fast and which has huge potential,” said Deepak Lalwani, director of London-based, India-focused brokerage Lalcap.

Myth number four: India’s corporates haven’t got their act together in Africa. There is an element of truth in this, but again only because India is so often compared with China. Beijing-based state-owned enterprises have indeed run amok in Africa in recent years, seeming to gobble up every natural resource going.

And it’s also true that Indian state oil giants often lose out in direct bidding wars with Chinese SOEs. But overall, leading Indian corporates, whether publicly owned firms or private enterprises backed by state cash, have credible track records in Africa. StanChart’s Baynton-Glen said that Indian investments in Africa have been “largely driven by state-supported private sector companies”, with cumulative investments, notably in agriculture, oil and telecommunications, exceeding US$35bn by the end of 2012.

Comfort zone

Yes, Indian corporates could be doing far more in a continent situated well within their comfort zone. Africa has far stronger genetic, cultural and commercial links with India than it has with any of its three leading trade partners. And bloodlines aside, the two markets, both of which exploded onto the economic stage in the mid- to late 2000s, are tailor made for one another.

India, vast and under-resourced, has cash to spare and a growing hunger for energy, minerals and foodstuffs. Africa provides an equally vast captive audience for upmarket Indian goods and services, from healthcare and pharmaceuticals to telecommunications and banking. Little wonder the likes of Mumbai-based healthcare giant Cipla and the Gujarati state-run lender Bank of Baroda have been notable success stories in Africa.

Yet all too often, India’s pendulum swings too wildly. Big acquisitions take place, but too infrequently. Bharti Airtel’s US$10.8bn acquisition of Zain Group’s African telecoms assets in 2010 was a storming deal, but it proved a one-off, with Indian corporates acquiring in Africa only sporadically since. Total Indian-led M&A activity in Africa swung from US$11.1bn in 2010 to just US$400m in 2011, then back to US$3bn last year.

Deal activity hasn’t been aided by the sense that India’s approach to Africa can sometimes lack organisation and consistency. One Mumbai-based banker bemoans the mismatch between government pledges to provide greater financial support to expansion-minded Indian corporates and “a generally uncoordinated set of policy procedures that often hinder more than they help”.

Nor, said Rashesh Shah, founder and chairman of Mumbai investment services firm Edelweiss Group, have a high interest rate regime and a lack of available capital – India’s central bank places stringent caps on the amount of cash that Indian corporates can raise to pursue foreign acquisitions – much helped. Both, said Shah, “have constrained overseas investment by Indian corporates, including in Africa. Interest [in acquisitions] is high, but available capital is very constrained.”

Antediluvian?

A lesser problem, but one nonetheless, lies in the antediluvian nature of some subcontinent corporates. Indian firms have been radically shaken up over the past decade. Successful family-owned groups, seeking to modernise, have brought in professional managers to run assets, subsidiaries, and sometimes entire holding companies. Yet too many Indian corporates remain tight-knit family concerns, protected by India’s insulated market and political connections. “Too many Indian firms lack the professional bandwidth to expand in Africa,” said Devam Modi, an analyst at Equirus Securities in Ahmedabad.

And on occasion, when it comes to the sheer lack of organisation, India can be its own worst enemy. Indian state-run energy giant ONGC finally agreed to buy a 10% stake in a Mozambique gas field from privately owned Indian conglomerate Videocon for US$2.6bn, having originally pursued, then backtracked from, the deal, leaving bankers scratching their heads. 

Yet these tend to be one-off mistakes. China’s SOEs have also had their fair share of false starts on the world stage, including in Africa. Indian firms remain well placed to continue gobbling up assets in industries from energy exploration to fast-moving consumer goods to financial services. Well-managed Indian conglomerates like Tata and Essar, and infrastructure specialists such as Larsen & Toubro, appear set to profit in Africa for decades to come.

And India has one final gainful attribute shared by none of Africa’s larger trading partners. Europe and the US have friends but also enemies across the continent. China, flush with cash, has ruffled feathers across Africa thanks to its perceived neo-colonial tendencies.

By contrast, India’s longer cultural ties, said StanChart’s Baynton-Glen, grant it a “smoother and less controversial economic involvement with Africa than is the case with China”. She also describes India as a neat “counterbalance” to China’s growing clout across the continent. One way or another, Africa’s unfairly forgotten trading partner will have a huge role to play in the continent’s future.

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