Although India is an economic powerhouse in its own right, so much of its growth in recent years has been eclipsed by rival China’s shadow. Talk about India’s investments in Africa often steers towards “how it seems to be playing catch up with China.”

Yet, India has firmly rooted historical ties with Africa dating back to when merchants traipsed goods across continents to reach virgin markets. In contemporary times its trade and investment can be traced back to the 1960s, particularly in East Africa where there are numerous expatriate Indian communities.

“Africa accounted for virtually all Indian outward investment in the 1960s. In the 1970s, Indian firms also began to invest in the rest of Asia, and now Africa and Asia have an almost equal one-third share in foreign direct investment (FDI) from India,” says World Bank Consultant Premila Nazareth.

Indian FDI flows into Africa expanded geographically between 2000 and 2007 and increased by 837%. Initially limited to Kenya, Nigeria and Uganda in the seventies, Indian companies are now doing business in over 20 countries in Africa.

Associate professor at Sader Patel Institute of Economic and Social research, Dr Jaya Prakash, says more Indian firms are going to intensify their expansion plans in Africa given that traditional export markets are experiencing a slowdown. Also, energy security is of crucial importance if India is to satisfy rising demand at home. “Chinese investment into Africa particularly in the oil and gas sectors is also generating competitive pressure on Indian firms to invest more to secure access to natural resources,” he says.

The rise of Indian multinational corporations

In 2006 tyre manufacturer Apollo acquired Dunlop in what was then touted as the largest Indian investment in South Africa. The year before that the company‘s strategy team had drawn a map depicting the world’s tyre industry and noticed giants like Michelin and Goodyear had minimal presence in some regions , including Africa, because they deemed them challenging to operate in. But Apollo saw potential and took the plunge. Now renamed Apollo Tyres South Africa Pty Ltd, it has the highest market share in passenger car, truck and bus tyres in South Africa.

“Indian firms' globalisation is as much about ambition and competing with western multinational corporations, as it is about competing with fellow Indian competitors for global reach and technology with which to dominate India. You see this most clearly in telecoms where Tata, Bharti and Reliance are fighting for international presence as much in a bid to outdo each other globally, as to consolidate their dominance at home,” says Nazareth.

To gain market share at home, Indian companies have innovated unique service or product offerings particularly focusing on serving low-income earners. “This is clearly seen in the telecommunications sector - where Bharti innovated the world's cheapest calling rates and Reliance introduced the world's cheapest handsets. Due to the pressure on spectrum, Indian telecom firms are thus more frugal and efficient than global firms such as AT&T,” says Nazareth.

Nazareth also says firms whose innovations and paradigm-shifts have succeeded growing new market segments at home feel their price offerings may be of relevance to African consumers.

Indian investment abroad however turned bearish in 2008 after growing faster than other emerging markets for quite some time. “The global slowdown has made a difference, as have the credit crunch and a depreciating Indian currency. The stronger than expected gross domestic product growth in the first quarter of 2009 is a positive sign in this context, as is the fact that not every Indian firm with foreign interests is cash poor,” says Prakash.

Reforms at home are likely to provide a solid basis for corporate India to survive the global financial downturn and those with cash reserves will explore emerging markets rather than the beleaguered West. “Indications arising out of recent interviews with India’s leading outward investors show Africa once again becoming a key regional focus for investments over the next three to five years,” says Nazareth.

Indian footprint in Africa

Private investment in Africa has already exceeded $5 billion. (That figure could increase significantly if the $23 billion Bharti Airtel/MTN Group cross-border sharing deal is finalised.) Leading the pack is Tata with investments worth $1.6 billion in tourism, mining, automobile, energy and telecommunications. Other reputable players include Mahindra and Mahindra, UB group, Cipla, Dr Reddy’s Labs, NIIT, Kirloskar, Essar, Ranbaxy Laboratories, Reliance and Skipper Energy.

While the private sector eyes the continent for profits, India’s government has been vying for influence by giving more than $2 billion worth of grants and credit to African countries over the past six years for projects in rural electrification (Mozambique, Ethiopia), IT training (Lesotho), railways (Senegal, Mali), construction (Ghana), a cement factory (Congo) and military barracks in Sierra Leone.

Regional footprint

East Africa: By 2007 the East Africa region, led by Mauritius, was the main host of Indian FDI, accounting for about 70% of total flows into the continent. Mauritius has attracted a large number of Indian software companies catering to the financial services providers. In Kenya, 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. The total investment in Ethiopia by over 250 Indian companies (mainly in agriculture, engineering, pharmaceuticals and consultancy) stood at US$1.8 million by April 2008. In Uganda, pharmaceutical company Cipla is building a $32 billion plant which will produce drugs used to treat malaria and HIV/AIDS.

North Africa: The second most attractive region for Indian FDI, North Africa had attracted investment worth over US$550 million by March 2007. 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. Libya has only recently been able to attract non-development investment with OVL and the Oil India-Indian Oil Corporation (OIL-IOC) consortium and Hydrocarbon Resources Development Co investing in the hydrocarbons sectors.

West Africa: Due to instability in the region, Indian investment in West Africa was low at 8% of total Indian FDI into Africa in the period between 1961 and 2007. A number of Indian companies are showing interest in Liberia since the change in the political dispensation with shipping companies Seaking Empress and West Asia Maritime Limited now holding considerable investment. Mining company Arcelor Mittal won the bid to re-open Nimba iron ore mines in Northern Liberia. In Nigeria, the multinational corporations that moved in from the seventies include Ranbaxy Laboratories (pharmaceuticals), HMT (machine tools), Hyderabad Industries (cement products), Karam Chand Thapar (blankets), Skipper Energy (transformers) and consultants Birla Bombay. By 2007, Nigeria was India’s largest trading partner in the continent 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. Senegal also has substantial Indian investment directed entirely into the chemicals sector. Other companies such as Tata Motors and Avantha Group are exploring opportunities in Senegal following the agreement with India to enter into double tax avoidance treaty.

Southern Africa: This region, in comparison to the North, East and West Africa, had attracted a minimal proportion of total Indian direct investment (1.4%) to Africa by 2007. However, major Indian corporations now have a presence in industries such as ICT (NIIT), mining (Verdanta, Arcelor Mittal), steel (Tata Steel), pharmaceuticals (Dr. Reddy’s Lab, Ranbaxy) and automotive (Tata, Mahindra). South Africa is increasingly becoming the gateway to the region as seen in Mahindra SA’s expanded operations in Zimbabwe, Botswana, Namibia, Swaziland and Zambia. Its managing director, Ashok Thakur, advocates the sustainability of the investments even during a downturn. “Overseas ventures are enabling Indian companies to share technology, skills and market access. In the end it benefits customers and stakeholders,” he says. In August India signed five accords that promise to bring investment into Namibia’s mining sector in a bid to secure a source of Uranium.

In conclusion, Indian investments are enabling Africa to become a processor of commodities – a major departure from the continent’s traditional economic relations with the North. Also, Indian companies are increasingly operating with world class standards thereby helping African businesses integrate into advanced markets.

* This article was first published in TradeInvest Africa on September 7, 2009.

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