A rejuvenated India to complement a rising Africa - CNBC Africa

A rejuvenated India to complement a rising Africa

Special Report

by Ronak Gopaldas 0

India’s close ties with Africa are further strengthened by the shared political and cultural history between the two. PHOTO: ThomaspmBarnett

The divide across the Indian Ocean stands to be significantly narrowed if the mutually beneficial strategic partnership between India and Africa is developed to its full potential.

Since Indian Prime Minister Narendra’s Modi assumed power in May 2014, foreign policy has formed a key tenet of his plans for his country’s economic revival.  Largely underpinned by the strategic competition between China and India for influence in South Asia and their rivalry to exert soft power within the sub-region, foreign policy is an area that has been keenly prioritised by the new administration.

However, this policy thrust is not limited to the Asian sub-continent. In line with the belief that an effective foreign policy underpinned by economic considerations is critical to cement India’s status as an emerging giant, Africa has become an increasingly important stage for the competition.  

For India, the idea of a “rejuvenated India to complement a rising Africa" is increasingly entering the mainstream narrative while events such as the India-Africa Forum summit, to be held in Delhi in December, have created optimism around a fresh wave of investment between the Indian sub-continent and Africa.

This optimism is encouraged by Africa’s abundance of natural resources, a middle class larger than India’s, rising per capita incomes and major institutional and political improvements, all of which mean that Africa is set for an unprecedented decade of economic expansion. For Indian businesses, this potentially represents a massive untapped market to expand their footprint. Success in this regard could be instrumental in stimulating a new round of Indian growth with expansion being driven by exports rather than domestics markets.

Africa provides a massive market for Indian manufacturing goods like textiles, pharmaceuticals, automobiles and light machinery. For Africa, India offers huge expertise in sectors such as healthcare, education, IT and pharmaceuticals, which can offer expertise and customised solutions for African countries. Furthermore, Africa carries a number of opportunities in the resource and energy sectors, which has traditionally been an area of vulnerability for India.

India’s burgeoning economic expansion in Africa is demonstrated by the diverse portfolio of Indian investment activity on the continent: from numerous small family firms and small and medium enterprises; through to large-scale bids by Indian companies or groups such as Tata, Essar and Bharti Airtel. Through these investments, and through its diaspora, India and Africa are able to solidify economic ties across a wide range of sectors.

Unlike Chinese investment on the continent, which tends to be state-led, Indian investment is largely driven by the private sector. Despite a multi-fold increase in the past decade, India is still playing catch up to the US$200-billion China-Africa trade. However, there is a major structural difference in the type of investment between the two countries, with Indian investments deemed to be of a better quality, although significantly smaller in size than those of China.

The Indian model of investment creates value by prioritising local productivity and plays a crucial role in fostering skills and human resources that are critical for Africa to develop in a sustainable way, as opposed to the “resource for cash” approach that China is often criticised for. These Indian sponsored projects also require considerable investments in “soft infrastructure” so, in the long term, they will show up not only in the quantity, but also the quality of their economic growth.

Despite trailing in terms of the quantum of investments relative to China, India has a number of distinct comparative advantages which can be used to foster a mutually beneficial relationship with Africa. Amongst these are the strength and experience of its corporate sector, cultural and political linkages and engaged and active diaspora.   

Many Indian business people believe Africa is now on the cusp of a boom and see similarities to India 30 years ago. Consumer spending in Africa is expected to double to as much as $1.8-trillion by 2020. Consequently, India views Africa as a place where it can reproduce the business models it has refined at home and replicate its success in building vibrant manufacturing and services sectors.

Many of the challenges Africa faces today were mirrored by Indian companies growing in their own internal markets. In India, private companies developed their own initiatives or public-private partnerships to overcome the lack of government services and structures – practices and lessons that have application in African markets.  Furthermore, Indian businesses have significant experience in navigating complex ethnically, culturally and linguistically diverse landscapes and societies.  The experience of these companies in tailoring their products and services to differing consumer tastes and preferences offers huge lessons for Africa which has a myriad of religious, tribal and ethnic divisions to contend with.

The Indian diaspora continues to play an influential role in business throughout Africa, where their roots are firmly planted. There are an estimated 2.3-million people of Indian origin living in Africa, according to India’s Ministry of Overseas Indian Affairs. The vast majority are in South Africa and Mauritius, but many sizable Indian diaspora communities are thriving across southern, eastern and western regions of the continent. Kenya, for example, has one of the largest and longest established Indian populations in the world outside India with many families having lived there for five generations.

Today, Africans of Indian origin are (mostly) involved in trade and commerce and play an important role in business leadership in many countries across the continent. They are mostly merchants although a significant number have diversified into industry, banking, and transportation and service businesses. Three businessmen of Indian-origin were among the 50 richest people in Africa in 2013, according to a list released by Forbes magazine, namely Vimal Shah, Sudhir Ruparelia and Naushad Merali.

The diaspora network represents an important advantage which Indian public and private sectors can leverage off in stimulating trade and investment. These communities of Indian origin are fully integrated and often interested in offering their business expertise and local networks to Indian investment projects. The diaspora offers the Indian investment community local knowledge, contacts and access to personnel who are beneficial to Indian commercial interests and activity on the continent. Similarly, these relationships can also be used to expand the reach of African companies looking to establish themselves in India.

Finally, India’s close ties with Africa are further strengthened by the shared political and cultural history between the two. One of the greatest links between India and Africa can be found in India’s Father of the Nation, Mahatma Gandhi, who began his political career in South Africa, and became personally involved in the anti-colonial movement and the fight for civil rights.

In addition, Indian political figures (particularly Gandhi and India’s first Prime Minister Jawaharial Nehru) and the Indian independence struggle were an inspiration to Africa, which was still battling colonialism during that time.  African independence leaders were motivated by Gandhi’s approach and philosophy and this inspired leaders such as Kwame Nkrumah of Ghana, Julius Nyerere of Tanzania and Kenneth Kaunda of Zambia. Nehru cemented the Indo-African relationship and gave it a political structure in his quest for liberation of all nations from colonial rule.  Under his premiership, India supported national liberation movements in Africa generously, both financially and politically.  India’s pluralistic, democratic structure is also much more suited to an African context where democratic and institutional gains are being consolidated, than the communist Chinese political model.                

For the African continent, Indian investment offers a compelling value proposition. The foreign direct investment flow from India has significant long-term benefits for the industrialisation of Africa, particularly in sectors such as education, infrastructure, tourism and health, where India can offer expertise and customised solutions for African countries.

For India, Africa is the world’s largest untapped market for trade and investment. The divide across the Indian Ocean stands to be significantly narrowed if this mutually beneficial strategic partnership is developed to its potential.