Africa and India appear closely aligned in terms of their predisposed socio-economic status, demands and growing populations. It is therefore only natural for these two developing regions to invest in intensified bilateral trade agreements. However, when examined against China’s involvement in Africa, it is likely to be a challenge for India to supersede China’s rank, given the latter’s existing impressive investment portfolio in Africa, which continues to gain momentum.
In view of this, India is relooking at some of the investment it has made in Africa to date – India’s financial resources are not as large as that of China, and so it is exploring opportunities to take advantage of the private sector as well as financially secure countries in Africa.
With a strong focus in the minerals, chemicals, energy and automotive sectors India is seeking out opportunities to either develop or improve upon existing foundations. According to Mani James, Vice President of global growth partnership company Frost & Sullivan.
India is already having a strong influence in countries like Kenya, Ethiopia, and Nigeria Testament to this is the Dangote group, largest manufacturing firm in West Africa, that has employed over 500 Indians with a large portion of top management being from Indian origin, James highlighted.
Active entrants: Japan vs China
James further noted that with ongoing bitter relations between Japan and China, Japan now wants to overtake China and show that they are better investors and can do better in Africa than what China has done in the past. Japan has already invested $30 billion dollars into the Mozambique gas sector and there is a view that India is aligning more with Japan where movements in Africa are concerned.
Furthermore, each of the aforementioned Asian countries is entering the market in their own right; however, these moves could be tactical, especially as they both have similar sector strengths and requirements. The window of opportunity is open – it is now or never, James exclaimed.
Taking advantage of this opportunity, James says that having gathered over 35 African Presidents at a recent hydrocarbons summit in India is quite a statement, and the very fact that the investment summit of Japan happened in Kenya, is a very strong declaration as well – both of these countries are actively showing a strong commitment towards investing in Africa.
Strength vs weakness
Noting China’s impressive manufacturing portfolio, James said it is currently far more advanced when compared with what India is trying to develop – however, various governmental initiatives are being implemented to develop the people of India with efforts to bring them up to a similar level to that of China’s operating level.
Historically India has hampered investment developments and opportunities due to its highly complex tax regime, which has various rates for different regions, making it challenging for a smooth business transaction.
However, James noted a big game changer for the South Asian country – last month India’s parliament approved a new tax system abolishing the erratic national, regional and local rates into a single unified tax regime. According to the Financial Times, economists estimate this could contribute an additional 1.5% to the country’s GDP growth per year.
The Financial Times reported: “The new regime, in which companies can claim tax credits for tax already paid by their suppliers, is also expected to improve tax compliance, boosting government revenues in the long run. Industry groups say it will be far easier to transport goods between different Indian states, something that at present is a bureaucratic and logistical challenge.” It is an exciting time to consider investment in India, James said, especially now that the historical investor “sore point” has been cleared up – the new tax regime is set to be implemented by mid-2017.
Prime trade position
Not only is the geographical proximity of India and Africa closer than that of China, India believes it has the equipment that Africa needs in terms of infrastructure development, especially within the power sector. The upcoming SWITCH global event to be held in Vadodara, Gujarat, has positioned the region as the electrical manufacturing hub of India.
According to the Government of Gujarat, “the state has been making massive strides in the power sector and is the only power surplus state in the country. The state witnessed an unprecedented surge of 166% in power production capacity between March 2004 and January 2013. The portion of private players in the power sector also rose from 25% to a substantial 60% in this span of time. A testimony of good governance and sound policies, the state boasts of 24×7-power supply.”
With a clear identified pool of opportunity in Africa, India is looking at the supply chain as a whole. From a manufacturing standpoint, Government is having direct lines of credit that is operated by Exim bank which is facilitating these India-Africa investments.
Distribution is being made easier as infrastructure is being developed in India to construct specifically designed ports for import and export of bulk manufacturing equipment.
Given the opportunity to foresee the future over the next 10 years, James says that India will find it tough to replace China as the No.1 partner of Africa. However, he hopes to see the existing Africa-India investment triple, as well as an increased signing of treaties with African countries as most preferred nation status, which will facilitate an increase in investment and business.
Mani James is the Vice President for Middle East, South Asia and North Africa at Frost & Sullivan. He has extensive strategic consulting experience having worked for over seventeen years with clients in North America, South East Asia, Asia Pacific and Africa. Mani spent over 10 years in the African continent and has supported a number of clients in various sectors with their Africa growth strategy. Mani was part of the executive management in Africa.
Mani has particular expertise in market entry and expansion strategies, customer analysis and segmentation, competitive strategy and solutions modelling and implementation. He has in-depth and wide experience with working across multiple domains in many countries and regions.
Mani holds a B.Tech (Mechanical Engineering), National Institute of Technology (NIT), Calicut, India and Project Management Professional (PMI), USA and PGDCM, XIME, Bangalore, India.