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8 August 2014, Gateway House

A better package for Africa

China's investment in Africa holds both positive and negative lessons for India. India can learn from Beijing's success at courting African leaders, but should focus on investments that better develop local African communities.

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With most media attention on U.S. Secretary of State John Kerry’s trip to New Dehli a few weeks ago, a visit by another foreign minister— Mr. Sam Kutesa of Uganda—might have flown under the radar. During his visit, Kutesa proposed several avenues for Indian cooperation, such as ICT and hydropower.1

After the recent 2014 U.S.-Africa Leaders Summit in Washington D.C. between U.S. president Barack Obama and over 40 African leaders, talk about Africa’s potential as an investment target have re-emerged. The summit is actually a latecomer: China, Japan and India have hosted similar conferences (the last Indian conference was held in 2011).

India is well-placed to invest in Africa. There are trading links between South Asia and Africa that are almost a millennia-old.2 Africa produces several commodities that India needs to continue with its development. In addition, several challenges of investing in Africa—poor infrastructure, inefficient governments and entrenched corruption—were faced by Indian companies during their own growth;3 Indian companies can transplant these skills to Africa.

Indian companies already have a significant presence in Africa. India is the fourth-largest source of foreign investment in Africa, standing at $15 billion in 2012 (behind the UK, France and China),4 and the third-largest creator of jobs, accounting for 7.1% of jobs created from foreign investment.5 Indian firms have done especially well in the fields of telecom and pharmaceuticals – several African phone networks are now managed by Indian companies, and Indian-produced generics are often more price-competitive in Africa than western-produced drugs. India is also a large importer of energy commodities: it now buys 30% of Nigeria’s oil, making India the largest purchaser of Nigerian oil. India also buys large amounts of oil from Angola, which is the second-largest source of oil for India (after Nigeria).

However, despite this large private-sector presence, Africa does not appear to be a priority for New Delhi. Africa has yet to feature in either Prime Minister Narendra Modi’s or External Affairs Minister Sushma Swaraj’s diplomatic calendars, despite planned visits to South and East Asia, Europe and the Americas. Nor are individual conferences or meetings necessarily a replacement for a sustained focus on the continent. It is not yet clear that President Obama’s conference will make up for his neglect of Africa, nor is it clear that India’s two conferences had an intensifying effect on Indian investment.

India’s approach appears to be limited to tweaking existing policy. At the most recent meeting with African Regional Economic Communities this week, the only news to emerge was an expansion of a scheme where African products receive lower import duties, as well as an appeal to support India on food security at the WTO.

This can be contrasted with China’s initiative. Much of the recent interest in Africa can be credited to the Chinese commercial or diplomatic push into the continent as part of Beijing’s “Going Out” policy. Chinese investment in African resources has since skyrocketed. China now imports 16% of its oil from Africa, which makes up 64% of its total imports from Africa.6 In addition, China has offered concessional lending in exchange for infrastructure contracts for Chinese construction companies. China has devised a package of concessions and incentives that have persuaded African leaders to greenlight Chinese projects.

However, China’s investment in Africa offers more than just positive lessons; India should also draw lessons from what China’s investment has failed to do.

Chinese investments have garnered controversy amongst African communities. Beijing has long been accused of ignoring political and humanitarian concerns, but they have also been charged with causing environmental damage, having poor worker safety and failing in other standards. Chinese migrants have also caused tensions: Ghana expelled 4500 Chinese migrants after accusing them of illegal mining.7

Several of China’s large-scale investment projects are also isolated from the local community. At their most extreme, investment projects have been run using imported Chinese machinery, staffed with imported Chinese labor, fed only with food imported from China.8 Large purchases of African land by Chinese agricultural firms have also sparked concerns amongst Africa’s communities.9

Beijing has done quite well at persuading African leaders, but done less well at persuading African communities. China’s projects may work as a one-off extractive project (which may be, admittedly, Beijing’s goal), but they fail as a long-term, sustainable economic relationship. In other words, China’s investment does not necessarily translate into wider development. 

What can India learn from the Chinese experience? For one, tensions are often triggered by large-scale investment projects; small-scale, low visibility projects tend to arouse less ire. And, admittedly, this is what India’s corporations have already been doing: Indian mobile phone networks may be less visible than a Chinese-built highway, but may provide greater benefits to the community.

The problem may be a lack of government attention. New Delhi has long neglected “soft power,” and is only recently beginning to rectify it. It should make a greater effort to highlight the long-standing linkages that exist between India and Africa. This may intensify the Indian engagement already happening on the continent.

If India does want to engage in a large-scale project, it needs to ensure the investment actually benefits the community. China is already being painted with the “neo-colonial” brush; India will need to ensure that it does not fall into the same trap.

Thus, any program launched by New Delhi would need to be inspired by China’s program in two ways. It would need to devise an attractive set of incentives for African leaders, with both concessional lending and large-scale investment. It would need to consistently push the ‘Africa agenda,’ in order to intensify the private activity already happening. However, it would also need to ensure that any projects help the local community develop, by using African components and labor whenever possible.

Nicholas Gordon is an intern at Gateway House.

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3.“India’s Africa Story,” Africa in the Wider World

6.           “China and Africa: Is the Honeymoon Over?”, Africa in the Wider World