By Jason Simpkins
As the home to 34 of the world's 50 least-developed countries, Africa is the poorest and least-developed continent on the planet. It's 11.7 million square miles of desert and jungle, with little in between.
Africa is malnourished, politically impotent, overrun with disease, and teeming with warlords, so it's no surprise the typical life expectancy is 20%-30% below the global average.
Despite such a daunting outlook, Africa will be the most hotly contested battleground for the two of the world's most influential powers over the next 50-100 years.
That's because Africa has become a key economic priority for both India and China – the two Asian powerhouses in the midst of major financial and industrial reformations.
China and India have been home to two of the world's fastest-growing economies over the past several years, and that momentum is expected to carry through the rest of this year, as well. India's economy is expected to expand by as much as 9.5% in the current (2008/2009) fiscal year. And China's economy already has expanded by 10.6% in the first quarter of 2008, despite complications stemming from the U.S. credit crunch, the Chinese New Year, and the worst ice storm the country had seen in decades.
Story continues below…
In addition to booming economies, China and India have the world's two largest populations. The combined population of China and India (Chindia) is approximately 2.4 billion people. And it won't be long before those 2.4 billion people evolve into the largest consumer class the world has ever known, making Africa – with its vast resources and close proximity – an ideal trading partner.
As a leading exporter of gold, silver, cotton, cocoa, copper and aluminum ore, and oil, Africa is an invaluable ally to emerging economies that will require vast amounts of raw material to sustain growth.
The bottom line: China and India will be vying for Africa's favor in the years ahead.
Of course, China already has a head start.
"The Chinese Are Everywhere"
In 2006, Beijing hosted the China-Africa Cooperation Forum – an event attended by more than 40 African heads of state. At the forum, China unveiled $9 billion in preferential loans, export credits, and trade incentives – all part of a strategic plan to achieve a preferential status with key African nations.
The meeting was more than a mere publicity stunt to play up Beijing's humanitarian efforts. It was a symbolic acknowledgment of growing cooperation between the regions.
Trade between Africa and China has grown 40% a year since 2001. In just seven years, trade volume grew from $4.5 billion to as much as $55 billion, meaning that China has emerged as Africa's third-largest trading partner after the United States and France.
China also has invested tens of billions of dollars directly into African-infrastructure and social-development projects. Some examples:
- In Freetown, the capital of Sierra Leone, office blocks, military headquarters and a refurbished stadium are all the work of planners from Beijing.
- In Uganda, the new State House was built with Chinese money.
- In the city of Rwanda, Chinese companies built 80% of all new roads.
- And in Nigeria, China's Civil Engineering Construction Corp. is building an $8.3 billion railroad linking Lagos and Kano.
While in Zambia, an "economic partnership zone" that will attract $800 million in investment was promised by the Chinese president on a recent state visit. Even Zimbabwe's international pariah, Robert Mugabe, has declared: "We have turned East, where the sun rises, and given our backs to the West" – perhaps grateful for Chinese assistance in cultivating crops on land seized from white farmers.
In short, as Granta magazine put it, "the Chinese are everywhere."
Chinese involvement also has received a slightly warmer welcome than efforts by Western nations. Where western powers have attempted to use aid and investment as bargaining chips to achieve certain political or social reforms, China employs a less-conditional "no-strings-attached" attitude that many African leaders find appealing.
"With the Chinese, we don't feel any interference in our traditions or politics or beliefs," said Awad al-Jaz, Sudan's energy minister.
Most recently, China agreed to take on large-scale infrastructure projects in the Democratic Republic of Congo, in exchange for copper and cobalt reserves. To facilitate the exchange, Congolese and Chinese state-owned enterprises (SOEs) set up a joint venture known as Socomin. The mining company will invest $3 billion, mostly in new mining projects. The profits of Socomin will then be used to repay these mining investments, and also to find Chinese investment in other big infrastructure projects.
Under the agreement, Socomin will raise about ten million metric tons of copper to pay off $12 billion in total investments over a 15-year period.
And last year, the state-owned Industrial and Commercial Bank of China Ltd. took a 20% stake in South Africa's Standard Bank Group Ltd. for $5.4 billion. Standard Bank is Africa's largest lender, servicing 18 sub-Saharan countries. And now, China's government will get a piece of every new loan, every ATM fee, every credit card taken from Standard Bank.
India Follows China's Path Into Africa
With all China has achieved in the past few years, India is beginning to wake up to the potential benefits of a strong relationship with African nations, many of which are enjoying their fastest growth rates in 30 years.
The first-ever India-Africa summit concluded last week, having laid the groundwork for future cooperation between the regions. 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.
At the summit, 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 his nation would more than double India's credit line to Africa, from $2.15 billion in 2003-2004 to $5.4 billion in 2008-2009, 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."
But Prime Minister Singh was 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."
Privately, however, policymakers acknowledge that India must close the gap between itself and China. And that will be a Herculean task. India's trade with Africa soared from $967 million in 1991 to $30 billion in 2007 and 2008, but still lags Africa-China trade – estimated at $55 billion. African exports to India grew 14% between 1999 and 2004, but African exports to China jumped 48%.
While India clearly lags China significantly in terms of infrastructure, trade, and investment dealings with Africa, that doesn't mean it's "game over." In fact, India could well find opportunities to build on the Chinese developments already in place.
"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."
The surge in development has opened the door for Indian multinationals like Videocon Industries Ltd., Suzion Energy Ltd., and The Indian Hotels Company to move parts of their businesses to Africa, bringing jobs and business-development expertise with them.
Tata Motors Ltd. (TTM) plans to make trucks and buses in South Africa. The company also anticipates the assembly of pickup trucks in Senegal.
"Africa is a key market for Tata Motors," Managing Director Ravi Kant said at the India-Africa Summit. "We are supplying trucks and buses for public transport and one opportunity could be for individual transport… Nano could fit in that market."
The company's recently unveiled Nano is the world's most affordable passenger car at $2,500.
Carving Up Africa's Oil Fields
Regardless of the recent forays made into Africa by India and China, oil seems to be the principal interest for both parties. China, already the world's third-largest user of oil, is expected to see its average annual demand grow 3.3% a year from 2010 to 2020. And the International Energy Agency says India will overtake the United States, Japan, and China as the world's leading net importer of oil by 2025.
As competition intensifies, the oil fields of Nigeria, the Sudan, and Angola are where the world may see the first hostile flare-ups between China and India.
"India is in all the same countries as China, including Sudan [but] it's just below the radar because its investments are so much smaller," Aves said.
Earlier this week, for instance, China and India both agreed to build oil refineries in Nigeria, rather than just buying crude from that country for export back to their home markets.
Three prominent Chinese companies operating in Nigeria – CNPC Ltd., Sinopec and CNOOC Ltd. (CEO) – "have together committed themselves to make available a refinery" in the southern delta region, Tony Chukwuemeke, head of Nigeria's Department of Petroleum Resources, told the Associated Press.
"I cannot tell you its capacity but it's in the neighborhood of 450,000 barrels per day," he said. "We are just beginning a discussion."
Nigeria has a similar cooperation agreement with India to establish another export-oriented refinery. Chukwuemeke said Indian oil and gas group ONGC, teamed with steel giant ArcelorMittal (MT), "have some oil blocks from Nigeria in the deep offshore and for that they have committed to build a refinery in Nigeria."
India currently imports 11% of its oil from Nigeria and is moving in on Angola and the Sudan. India recently completed a $200 million pipeline that links Khartoum and Port Sudan on the Red Sea.
Still, China became the biggest investor in the Sudan after commissioning the construction of a 900-mile oil pipeline expected to cost about $16 billion. Sudan is China's fourth-largest provider of crude, sending 60% of its supply to the Asian nation.
Another 14% of China's oil imports come from Angola, where a $1.6 billion deal to develop a new field was signed last May. China also extended $4.5 billion in credit to Angola in the past four years according to the nation's Finance Minister, Jose Pedro. A new line of credit worth $500 was negotiated with China in 2007.
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.
Western countries may rail against Beijing's business practices, but the fact is that Africa needs trade and – in contrast to Western capital – China's cash arrives quickly and with no colonial hangover and no complex relationship of resentment.
News and Related Story Links:
- Center for Knowledge Societies:
Emerging Economy Report
‘The Tata-fication of Africa: Indian Corporations Will Drive Innovation and Investment in Africa' Emerging Economy Report by CKS
- Business Daily:
- Associated Press:
Nigeria says China, India to build its oil refineries
- Times Online:
India takes on China over Africa's riches
- Financial Times:
India follows China's path in Africa
- Money Morning:
Is China Annexing Africa?
- Money Morning:
China Covets Crude