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India and Africa Partnership: Opportunities and Challenges

Ruchita Beri is Senior Research Associate at the Manohar Parrikar Institute for Defence Studies and Analyses, New Delhi. Click here for detailed profile.
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  • April 08, 2008

    The India-Africa Forum Summit is an indication of the coming of age of India’s relations with African countries. While India’s relations with African countries are time tested and historical, nevertheless in recent years this affiliation has been revitalised. Booming trade is an indication of this change. Trade has grown from US$967 million in 1990-91 to $25 billion in 2006-07 (inclusive of oil imports). This transformed relationship is driven by a number of factors.

    Changing African Outlook

    First, on the political side, there has been an end in sight to some of the debilitating conflicts that have ravaged the continent. The conflict in the Democratic Republic of Congo, often referred as Africa’s world war, has abated considerably. Similarly, Rwanda, Sierra Leone, Liberia and Ivory Coast have moved out of the conflict zone. In Sudan, after years of negotiations, the Comprehensive Peace Agreement (CPA) was signed between southern rebels and the Sudanese government in 2005. At the same time, there is a move towards Africans taking charge of their own destiny. This is reflected in the African Union’s (formed in 2002) steps towards conflict resolution. The continent is also embracing the value of democracy and good governance. Some two-thirds of African states have conducted multi-party elections in recent years. Similarly, 24 countries have taken their promises of good governance seriously and signed up for the African Peer Review Mechanism (APRM), which is an offshoot of the New Partnership for Africa’s Development (NEPAD) initiative launched by African countries in 2001.

    Second, on the economic plane, there is a transformation underway in the continent. About 20 countries have averaged a growth rate of over 5 per cent during the past decade. According to the latest IMF World Economic Outlook, the average growth rates for Sub- Saharan Africa were around 5.8 per cent in 2007. While rising crude oil and other non- fuel commodity prices may explain the high growth rates of some of these economies, the implementation of radical structural adjustment programmes mandated by the IMF may be the real factor for the steady performers.

    Africa’s Growing Strategic Importance

    From the geostrategic perspective, there has been a perceptible rise in the importance of Africa for New Delhi. First, India’s growing energy needs have forced it to diversify its oil imports. In the past, India has been dependent on West Asia for its oil imports. In recent years, India, like the US and the other major powers, has recognised the energy potential of African countries. Currently, around 24 per cent of India’s crude oil imports are sourced from Africa (including North African countries). Indian national oil companies like the Oil and Natural Gas Corporation Videsh Limited (OVL) have invested in equity assets in Sudan, Ivory Coast, Libya, Egypt, and Nigeria, Nigeria-Sao Tome Principe Joint Development Area and Gabon. Private sector companies like Reliance have also invested in equity oil in Sudan. Essar has procured exploration and production blocks in Madagascar and Nigeria. India has recently completed a $200 million project to lay a pipeline from Khartoum to Port Sudan on the Red sea.

    Second, there is a growing recognition of the fact that countries on the eastern coast of Africa abutting the Indian Ocean – from South Africa to Somalia – fall under India’s maritime strategic neighbourhood. It has been acknowledged that insecurity in the Indian Ocean region is growing, given the existence of fundamentalist, terrorist, and militant, separatist or extremist organisations and criminal syndicates involved in trafficking in drugs, arms and humans, and piracy. The growth in incidents of piracy in Somali waters in particular threatens the security of the Sea Lanes of Communications (SLOCs). The Indian Navy has been active in its diplomacy in the Indian Ocean, providing maritime security cover during the African Union summit in 2003 and the World Economic Forum in 2004 in Mozambique.

    Third, Indian industry has realised the strategic importance of Africa, specifically in commercial terms. This is supported by the Indian government’s fresh look at Africa with the initiatives of Focus Africa and Team 9. New economic initiatives launched by the African governments like the New Economic Partnership for African Development (NEPAD) have also attracted the interest of Indian investors. There is a growing realisation that African economies are at a stage of development when India could offer the most appropriate technology and products at competitive prices. A recent study by the Federation of Indian Industry and Commerce (FICCI) points out that it is “high time India took a pragmatic assessment of the business opportunities offered by Africa.” The success of the four India-Africa project partnership conclaves held in New Delhi since 2005 – the last one attracted 606 African delegates from thirty three countries, and around 152 projects worth $10.5 billion were negotiated – is an indication of Indian industry’s growing interest in Africa.

    Opportunities

    India and Africa together make up nearly a third of humanity. Politically, both share similar world views – they acknowledge the growing North-South divide, identify with issues like reforms in institutions of global governance, and face similar challenges of instability and conflict. It is therefore quite natural that countries from Africa and India have come together to collaborate in multiple areas:

    Human Resource Development and Capacity building: One of the priority areas for India is developing partnerships in the human resource development process in Africa. In the last forty or more years, India has extended $1 billion worth of assistance in this sector in Africa through the Indian Technical and Economic Co-operation Programme (ITEC). This has involved deputation of Indian experts in a number of African countries as well as providing training to Africans in Indian institutions. Over 1000 officials and 15,000 African students receive training in India annually. The challenge is to take this partnership beyond government to the business and corporate levels. This would involve undertaking a needs analysis of each African country as a unit and for Africa as a whole. Finally, it would involve formulation of common human development training, techniques and methods.

    Pharmaceuticals and Health

    The Indian pharmaceuticals industry leads the effort in the developing world in terms of technology, quality and range of medicines. Further, it has the advantage of low cost of production and R&D. Over the years, India had Africa have dealt with the scourge of communicable disease like malaria, TB and HIV-AIDS. Collaborative research and development partnerships between Indian and African pharma majors would be mutually beneficial. Several Indian pharma and healthcare companies have invested in Africa like Ranbaxy laboratories, Cipla Limited, Aurobindo Pharma and Emcure Pharmaceuticals.

    Information & Communication technologies

    The Indian government, private sector IT and telecom companies have recognised the potential investment opportunities available in this sector in Africa. African governments have shown interest in accessing Indian assistance to bridge the digital divide. India has already made a vast contribution through building the Pan-African E-Network, which will connect all 53 nations of the African Union through satellite and fibre optic network. The network will connect 5 universities, 53 learning centres, 10 super specialty hospitals and 53 remote hospitals in India and Africa. Leading infotech firms like Tata Consultancy and HCL, NIIT and Aptech have launched operations across Africa.

    Agriculture

    The majority of African countries are looking for ways and means to fortify their food security. To achieve this, they would like to replicate the Indian “green revolution model” in Africa. Specific areas of collaboration could range from provision of agricultural inputs, agro processing and watershed management. A few Indian companies like the Kirloskar Brothers Ltd. and Water and Power Consultancy services (WAPCOS) are already engaged in water management projects across Africa. Tractor makers like International Tractors Ltd. have already made a mark in Africa. Corporate houses like Dabur and Tata Coffee have also ventured into the agriculture sector in Africa.

    Power and Energy

    African countries have identified expansion of power projects as one of the priorities in recent years. Opportunities thus exist for Indian companies for setting up power plants that includes laying transmission lines, sub-station structures and railway electrification structures. Indian public sector companies like Bharat Heavy Electronics Limited (BHEL) and private sector firms like Tata Power, Kalptaru Power lines, KEC International, Mohan Energy Corporation and others are making inroads in this sector across Africa. In the alternative energy sector, India’s Suzlon Energy and Mohan Energy Corporation are offering wind energy based solutions. In the hydrocarbon sector, apart from acquiring equity assets, Indian firms have invested in refineries. Essar Energy overseas has invested to acquire stakes in Kenya and Egypt.

    Challenges

    Major Powers take a relook at Africa: India is not alone in strengthening its ties with Africa. The United States and Europe are also taking steps in this direction, mainly with the fear of Africa exporting its problems – refugees, health problems and more importantly terrorism to Europe and elsewhere. Former British Prime Minister Tony Blair set the ball rolling with a defining speech on the “state of Africa being a scar on the conscience of the world” and attempted to erase the scar through the lofty promise of debt relief and increase in aid. President Bush’s recent visit to the continent signifies the fact that Africa has entered the strategic space as far as the United States is concerned. Further, the establishment of the US military’s Africa Command (AFRICOM) is an indication of the emerging importance of Africa from Washington’s perspective.

    China factor: China has been active in forging partnerships all across Africa, offering economic aid and political support, and promising to be an “all weather friend”. The Chinese have been engaging African countries in a big way. The November 2006 Sino- Africa summit that brought together 47 African presidents at Beijing demonstrated Chinese seriousness about doing business with the continent. In February 2007, Chinese President Hu Jintao wrapped up a tour of eight African countries promising enormous aid packages. China’s interest in Africa is reflected in the phenomenal growth of its trade with Africa, which ballooned from $6.5 billion in 1999 to $40 billion in 2005.

    Instability and Governance issues: Despite the positive outlook, conflicts and poor law and order environments persists in several African countries. Weak and fragile states with limited institutional capacity in enforcing the rule of law are the inevitable challenges in doing business in Africa.

    Recommendations

    While India enters into a fresh dialogue with Africans, it should be aware that it cannot match the pace or the extent of engagement of the EU, US or China in Africa. Hence it should leverage the strengths of the unique Indian model.

    • Forge ties based on a model that stresses Indian uniqueness: India should showcase its long term approach towards Africa, which is based on a triad of training, technological assistance and trade. It should also hinge on empowering Africans.
    • Recognise diversity: It is crucial to recognise that Africa is not a monolith, but a continent representing fifty three countries, diverse people and cultures.
    • Avoid emulating the Chinese, as there are pitfalls in that approach. In the African perception, the Chinese are following a short term approach based on extraction of natural resources. Things are unravelling for the Chinese as protests and racial anger against them is on the rise in Africa, particularly in countries like Zambia. China’s mercantilist approach has left many Africans disenchanted.
    • Rope in the Indian Diaspora: Efforts should be made to strengthen ties with more than three million people of Indian origin on the continent. They could play a greater role in promoting business ties. The presence of African Indian businessmen in the delegations from South Africa, Uganda, Kenya and Zambia is a pointer in that direction. Nevertheless, these efforts should not overshadow efforts to build cultural contacts with mainstream Africans.
    • Become a shareholder in Africa’s development: The African leadership expects India to become a shareholder in Africa’s development; a shareholder that is well informed of African aspirations and helps them refashion indigenous structures to achieve them.

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