Indian investment in Africa challenges China

Indian investment in Africa challenges China

As domestic growth slows, India is looking to investment in Africa. However, China has the same idea, as New Delhi bumps up against Beijing in the region.

Recent economic news coming out of India has been quite glum. A report by the International Monetary Fund this past April forecast the Indian economy to grow by 28 percent from 2013 to 2016 – down considerably from an April 2011 report, which forecast growth during the same period as 37 percent. In the world of emerging markets, where both expectations and perceptions play a prominent role, there is a growing perception that India may not be be the market that the BRICs system encouraged many investors to expect.

Some figures certainly encourage this pessimism about India’s current economic state. Growth is now stalled at 4.4 percent this year, which pales in comparison to the impressive average annual rate of 7.7 percent present from 2002 to 2011. The rupee has been in free fall, hitting record lows a little over a month ago at 67-68 per USD, thereby slowing imports considerably. Several problems that plague India’s economy further complicate the stagnating growth: anaemic and often corrupt institutions, poor allocation of government funds, a looming gigantic budget deficit, rising inflation, many low skilled workers and comparatively little manufacturing.

Yet, while these factors are certainly reason for concern, there is an important development that began before this pessimism emerged and will likely continue after it. India, a famously inward-looking country, is expanding its global role considerably and signals that it will be a global player. You only need to look at Africa to see a growing Indian presence, even at the height of domestic troubles.

Much attention has been paid to the increased role that China plays on the African continent. But China is not the only emerging power to have increased its engagement on the continent. India’s presence has steadily increased and takes a variety of forms. Indian trade with West Africa rose sharply from 25 billion USD in 2012-13 to estimates of 40 billion by 2015. Various government and private sector sponsored-initiatives have sought to further this trend, for instance by establishing conferences in the region hosted by the Indian Council on World Affairs, a think tank which counts the Vice President of India as an ex-officio President.

Indian steel and mining companies have established a presence on the continent, as have several telecommunications companies, including Airtel, one of the worlds’ top five telecoms. Rhetorically, Indian officials also make it clear that they view increased engagement in the region as a priority. As a joint secretary of the Indian Council on World Affairs, Shamma Jain, stated “India has demonstrated its commitment to playing a substantive role in the development of the west Africa region through its trade and investment, cooperation in the area of oil and gas, education, healthcare, pharmaceuticals, mining, textiles as well as infrastructure.” Left unsaid is that such increased Indian engagement also reflects a foreign policy that seems to have accepted competition with China, also in Africa.

India seems to market a different appeal when doing business in Africa than its neighbour and competitor. India often emphasizes a shared colonial legacy and a longer history in the region when it seeks to use a soft power approach that differs from that of China. Both the private sector and governmental officials in India have stressed what they feel are the differences between the two countries, and appeal to some of the critics of Chinese policies in Africa.

As Sunil Mittal, the co-chair of the India-Africa Business Council, claimed, “Indian investors are not colonial in their approach. They are not coming here to grab resources. In the many countries that I have visited, there is an increased respect for Indian way of investing as opposed to the Chinese way of investing.” In line with this sort of claim, capacity building has been an important aspect of Indian investment in the continent, with over 100 different professional institutes and 900 scholarships set up under the India Technical and Economic Cooperation programme for professional training in west Africa. Total funds spent on this project is currently at 700 million USD.

Yet, while Indian influence and investment in Africa has been steadily increasing, it still pales in scope to that of China. Indeed, India has sought to stake out its own claim and brand on the continent, but the uptick in attention says more about India and its direction than about any particular emerging power competition.

India still has much work to do to enhance presence in Africa and to offset some of the problems that other emerging powers such as China have met. At the moment, India’s investments do not reflect a security or militarized presence, with some involved, such as Ghana’s Minister of Foreign Affairs, indicating a greater need for collaboration on matters such as terrorism. Given its own foreign policy history, many domestic concerns, and a populace often sceptical of spending overseas, a commitment of that nature is not likely to come easily.

Other more manageable problems such as air connectivity and visa-related issues are being addressed now following the second meeting of the India-Africa Business Council. For investors worried and concerned about recent events in India’s economy, a growing global presence in Africa and in other regions such as South-East Asia, should be viewed as a positive indicator that the long-term future for the world’s most populated democracy is much brighter than the rupee’s current exchange rate would suggest.

About Author

Sean Durns

Sean Durns worked as a research assistant to a former high ranking Pentagon official and the Director of National Security Strategies at a DC based think tank. His analysis has been referenced by a variety of media outlets including The Wall Street Journal, Roubini's EconoMonitor, OilPrice, and many more. He holds a M.Sc. in History of International Relations from the London School of Economics where he focused on US foreign policy, security studies, and energy security.