India’s Investments in Africa

It goes without saying that trade flows encourage investments. India’s investment in Africa is led by the private sector, with most of the investments in the services and manufacture sectors. However, in recent times, India has diversified its investments significantly in the oil and mining industries of Africa. In East and Southern Africa, the large Indian diaspora, whose members have business ties with India and a good knowledge of Africa has played a significant role in attracting new investments from India to the African continent. This is especially true, given that India is flush with foreign currency reserves, and the government has lifted regulations and controls, to allow firms to go abroad. It has also removed the $100 million cap on foreign investment by Indian firms abroad. Through the period 1995–2004, Africa accounted for 16% of India’s FDI, at $2.6 billion. Indian oil companies in Africa, like ONGC Mittal Energy Ltd., have also pursued acquisition oil and gas assets. This is in the backdrop of Africa’s proven oil reserves of about 16 billion metric tons and gas reserves of about 500 trillion cubic feet¹⁸⁹.

Besides, India has made considerable investments in sectors like apparel, retail ventures, fisheries, food processing, commercial real estate and transport construction, tourism, power plants, and telecommunications, as well as finance. Indian conglomerates like the Tatas, the Kirolaskars, pharmaceutical firms like Cipla and automobile companies like Mahindra have all undertaken profitable projects in Africa. The Tata Group has invested about US$ 100 million till 2009, and plans to triple that amount over the next three years. The Group claims to have employed 700 people in Africa and also provided indirect employment opportunities three times that number. According to the Tata Group’s profile, their activities range from infrastructure development, energy and hospitality services to financial, communication and automotive outputs¹⁹⁰.

In East Africa, Mauritius is a major Indian FDI destination in Africa, particularly in the financial sector, as well as in the telecommunications and pharmaceuticals sectors accounting for about 70% of total flows into the continent. Routing overseas private Indian investment through Mauritius, directed at other host countries, and even bringing back the investment into the home country is very attractive for Indian companies. This is because they can avail of benefits of low rates of dividend and income tax in Mauritius, and as well benefits from double tax avoidance treaties that other countries have signed with Mauritius. Being an offshore financial centre, Mauritius has also attracted a large number of Indian software companies catering to financial service providers. Kenya and Uganda are the other African countries that have attracted Indian software investments.

In Kenya and Ethiopia, Indian companies are active in a range of sectors including pharmaceuticals, machinery and equipment, chemicals, textiles, paper and paper products, financial services, software, refinery and printing. In Ethiopia, Indian private investment reaches $4.5 billion and is dominated mostly by floriculture and agriculture in 2011¹⁹¹.

In major prospects of coffee production, Tata Coffee entered into an agreement in 2006 with the Ugandan government to set up a 3, 600 metric tones per annum capacity plant in that country, at an investment of Rs. 70 crore in 2005. The Ugandan government at Jinja has allocated Tata Coffee 50 acres, about 60km from Kampala. In Uganda, India is now the third largest source of foreign direct investment, after the UK and Kenya.

The second most attractive region for Indian FDI, North Africa had attracted investment worth over US$550 million by March 2007. Indian enterprises had a total of $750 million invested in 40 projects in Egypt alone in diverse areas like chemicals, petrochemicals, pharmaceuticals, cosmetics, garments etc. In Egypt, the OVL/IPR consortium has invested in excess of US $31 million in oil exploration project. Indian companies are active in chemical ventures in Morocco. In Sudan, ONGC bought a 25% stake in Sudan's Greater Nile oilfield in 2002, even though China National Petroleum Corp. (CNPC) operates in this oilfield in a big way. ONGC has also planned to invest US$750 million for renovation of Sudanese oilfields.¹⁹² Sudan offers Indian investors – most of them in the oil and gas sector – attractive incentives and preferential access to Arab countries. Efforts by Sudan to encourage Indian investments in other sectors have drawn investments in automobiles and light engineering goods. In a major breakthrough for the state-run Oil India Limited (OIL) in securing oil and gas assets abroad, the company and its partners have entered into an agreement with National Oil Corporation of Libya for four exploration blocks in that country that are estimated to hold two trillion cubic metres (tcm) of gas reserves.

In West Africa, Nigeria attracts significant Indian investments. Nigeria is the main trading partner of India in Africa with major FDI directed at metals, rubber and plastic products, infrastructure machinery and equipment. Oil companies such as Essar entered Nigeria in 2007, while state-controlled oil firm ONGC has bought concessions for long-term oil and natural gas extractions in Nigeria and Angola. Dabur India announced the commissioning of its new manufacturing facility in Nigeria. The new manufacturing facility has been set up by African Consumer Care, a subsidiary of Dabur International. The plant set up with an investment of around US$ 4 million will manufacture a range of toothpastes for the African markets. The production line at the new facility would be expanded to introduce newer toothpaste variants and manufacture a range of skin care, home care and household disinfectant products¹⁹³.

Although, traditionally, India’s private sector investments have focused on countries where the Indian population has a significant presence, this approach is rapidly shifting, as they now increasingly seek investments in non-Anglophone Western African countries. For instance, trade deals with Francophone Cote d’Ivoire, are expected to grow to $1 billion by 2011. India’s Oil and Natural Gas Corporation has agreed to buy 30% offshore oil exploration in Ivory Coast. The Government of India has also offered small loan facilities to private sector companies to cover the risk of payment. The impact of this strategy has been remarkably positive in the field of urban transport. In Abidjan, several Indian-made buses ply the roads. Nearly 350 Tata buses are at work in Dakar, Senegal. Tata Motors beat stiff competition from European car makers Renault and Volvo, and went on to win a World Bank-funded contract to build a minibus assembly line in Senegal. The original seed loan was $18 million. Senegal also has substantial Indian investment directed entirely into the chemicals sector. Recently the Liberian parliament ratified a 25-year deal allowing Arcelor Mittal to launch a $1 billion iron ore mining project that will eventually employ 20,000. Indian firms are now setting up cotton mills in Chad, cement plants in the Congo.

Although Southern Africa had attracted a minimal proportion of total Indian direct investment (1.4%) to Africa in comparison to the North, East and West Africa, however, major Indian corporations now have a presence in the region. In South Africa, the Indian conglomerate like Tata Group has 26% participation and Tata Motors is the 6th largest investor company in South Africa. The amount is estimated at nine billion rands ($1 billion). Tata is already in the mining sector in Mozambique and South Africa, but was now looking for more opportunities in coal and iron ore in East and West African regions. With a substantial presence of Tata Consultancy Services in South Africa, the company was looking to expand its Information Technology by venturing to other countries. Furthermore, Tata Steel in a tie-up with South Africa's Sasol Synfuel International is setting up the country's first project to convert coal into liquid at a mammoth investment of Rs 45,000 crore in Orissa¹⁹⁴.

In Zambia, Tata is investing in the 120 MW Itezhi-Tezhi hydropower project. This electricity project is being implemented by a joint venture company of Tata Africa Holdings with state-owned Zambia Electricity Supply Corporation. Vedanta Resources, a publicly traded metals conglomerate founded in Mumbai in 1976, has invested more than $750 million in Zambian copper mines¹⁹⁵.

Indian pharmaceutical companies have also made significant headway in the African market. They supply low cost generic drugs and provide support to humanitarian programs across the African continent. Ranbaxy, a leading Indian pharmaceutical company, has provided reasonably priced medicines, particularly Antiretroviral (ARV) drugs, to several African countries including Nigeria, Kenya and Zambia. Another pharmaceutical company, Cipla, provides HIV/AIDS drugs to 1 in 3 patients in Africa. India's pharmaceutical company Cipla corporation in conjunction with Quality Chemicals Industries Ltd., a Ugandan pharmaceuticals manufacturer, is planning an $80 million expansion to their current operations in Uganda. This expansion will enhance their capacity to produce generic AIDS and malaria medication. Some pharmaceutical companies, notably Ranbaxy, also have production facilities in Africa¹⁹⁶. These pharmaceutical companies are not only adding to their bottom line, they are providing urgently needed healthcare at affordable prices.

Moreover, with India being recognized and accepted as the IT destination by the world, countries like South Africa and Nigeria, which promise to be growing markets for the respective regional organizations like SADC and ECOWAS, offer enormous business opportunity to the Indian IT sector. In fact, Indian IT firms are helping African countries transform business through integrated technology solutions.

The route followed by Indian companies in Africa is largely through acquisitions led by private players, unlike China's policy of direct investments through state-owned entities. In fact, according to Thomson Reuters data, Indian acquisitions were a third of total acquisitions (in terms of value) in Sub-Saharan Africa in 2010, the highest by any country in the region. In the ICT sector, major initiatives in the African countries have been taken by Indian private sectors. The takeover of Zain Telecom's Africa Operations by Indian telecom major Bharti Airtel for US $10.7 billion has ensured its presence in 15 African countries and also made it the 7th largest telecom player in the world.¹⁹⁷

Companies such as Bharti Airtel and multinational conglomerate Tata Group, which operate in Nigeria, invest in African markets on their own volition and do not seem to be supported by the Indian Government. These companies wield considerable influence in the Nigerian market, and Nigeria is the third biggest importer of Indian goods and services among African countries.

Through Bharti Airtel, other Indian companies are grabbing a market share not only in Nigeria, but in the wider African market too. For example, in 2010, Godrej acquired the Nigerian personal care product maker Tura for about US$ 33 million, and is planning to acquire 51% stake (which will eventually be 100% in 3 years) for over INR 500 crores in the hair care company, Darling Group Holdings. On the other hand, Tech Mahindra, an information technology outsourcing company now provides customer care services in several African countries. Through partnering with Bharti Airtel, Tech Mahindra has also partnered with MTN and Multilink in Nigeria.¹⁹⁸

The future will see an increasing presence of Indian companies in Africa, considering that, to date, the number of Indian companies in the list of Greenfield FDI projects in Africa stood at 48 – the highest. In comparison, China had 32 companies. In the backdrop of the increasing global presence of Indian firms, India is fast emerging as a major participant in the African market. What’s more, with the African Development Bank including India among its 24 non-African members, as well as inviting Indian companies to bid for US$4.6bn – set aside by the Bank for infrastructural development projects¹⁹⁹, the presence of Indian in Africa is set to increase even further.