India Embraces Africa, Opens the Door to Competition with China

By Jason Simpkins
Associate Editor

The first ever India-Africa summit concluded yesterday (Wednesday), having laid the groundwork for future cooperation between the regions.

In the years ahead, India will be competing with China for influence in a resource-rich continent that boasts strong supplies of gold, silver, cotton, cocoa, and copper and aluminum ore.

The two-day summit - attended by eight heads of African states and delegations from 14 African countries - culminated with the signing of the Delhi Declaration and the Africa-India Framework for Cooperation, two documents designed to build political and financial synergy. The accords stressed cooperation in agriculture, food security, technology, trade, energy and education.

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On Tuesday, Indian Prime Minister Manmohan Singh announced duty-free access to Indian markets for the world's 50 least-developed countries, 34 of which are located in Africa. Singh also said India would more than double the size of credit lines to projects in Africa, from $2.15 billion in 2003 to 2004 to $5.4 billion in 2008 to 2009, and boost grants and aid to the continent to $500 million in the next five to six years.

"It sounds like something Beijing did a few years ago," Philip Aves, an economist at South Africa's Institute of International Affairs, told the Financial Times. "It's a mini-China approach to dealing with Africa. It has all the same elements, except on a much smaller scale."

In 2006, Beijing hosted the China-Africa Cooperation Forum, an event attended by more than 40 African heads of state.

However, Prime Minister Singh was also careful to point out that while China has clearly established economic and political inroads in the region, this is not a competition.

"We are not in any race or competition with China or any other country. The desire of India and Africa to work together is not new," Singh said. "We are willing to offer whatever help we can to build capabilities in Africa. We share a colonial past and have been partners for a long time."

Still, it's hard to ignore the parallels between China and India. Both countries are undergoing a major financial and industrial reformation as their economies grow at an unprecedented pace. India has a population of 1.1 billion people, while China is home to 1.3 billion. In the next several years those populations will grow into the largest consumer class the world has ever known and the growing need for resources and infrastructure make Africa, with its vast resources and proximity, an ideal partner.

India's trade with Africa has soared from $967 million in 1991 to $30 billion in 2007 and 2008. However, the value of China's trade with Africa, smaller than that of India as recently as 1999, has blossomed to $55 billion. African exports to China grew 48% between 1999 and 2004, versus a 14% jump in exports to India.

India also lags China in terms of direct investment. Chinese corporations have made large-scale investments in Africa over the past decade, and those investments are paying off. For example, Chinese companies built 80% of all new roads in the city of Rwanda. And China's Civil Engineering Construction Corporation is building an $8.3 billion railroad linking Lagos and Kano.

However, while India trails China significantly in terms of infrastructure, trade and investment, there may be an opportunity for India to capitalize on the Chinese developments. Indian multinationals like Videocon Industries Ltd., Suzion Energy Ltd., The Indian Hotels Company, and Tata Motors Ltd. (TTM) are moving parts of their businesses to Africa, bringing jobs and expertise with them. 

"Anyone who has lived in both India and China will agree that the Chinese have been far more successful at creating mass urban and cross-country infrastructure," said Dr. Aditya Dev Sood of the Center for Knowledge Societies. "On the other hand, just having quality infrastructure is not enough for Africa - the continent needs jobs, and that's something Indian service sector companies can provide."

Regardless of which country ends up with a bigger stake in the continent, Africa appears to be the biggest winner so far with two of the world's fastest growing economies competing to infuse the region with jobs, capital, and infrastructure. 

News and Related Story Links:

• Financial Times:
  India follows China's path in Africa

• CKS:
  Emerging Economy Report

• BusinessWire:
  'The Tata-fication of Africa: Indian Corporations Will Drive Innovation and Investment in Africa' Emerging Economy Report by CKS

• Money Morning:
  Is China Annexing Africa?

• Money Morning:
  Despite Economic Challenges, Investors See Profit Potential in South Africa