Africa not just a China play as India makes inroads

Much has been written about the role China has played in increasing FDI into the African continent, driven in particular by its almost insatiable requirement for natural resources to prop up its fast growing economy.

Such has been its more aggressive approach (China-Africa trade has increased an average of 30% in the last decade), that growing interest by its other BRIC counterpart, India, has been largely overshadowed.

India’s investment into Africa has largely taken a slightly different approach from that of China, the latter having been more on a government to government, bi-lateral level, while that of India has been private sector driven. The recent acquisition of Zain’s African assets by Bharti Airtel is a prime example.

The Financial Technologies Group, which itself has invested heavily in coming up with an exchange venture in Botswana, called Bourse Africa, in one of its publications notes that while China concentrated more on resource investments, India focused on capacity building in various sectors such as telecoms, automobiles, and IT.

Having said that, a more recent announcement of Indian investment into Africa has been resource focused. Indian Oil Corp., India’s second biggest refiner, announced that it plans to acquire oil fields in Africa as part of a US$1bn overseas investment plan. “Africa is top of our list to buy assets because it is near India and has good quality crude,” its chairman was quoted as saying.

A recently released report by KPMG says India faces a coal deficit of 50% of the power sector’s expected demand, or 189 million tonnes a year by 2015. This increasing domestic demand has prompted Indian companies to look further afield at mines in amongst other places, Mozambique and Botswana. Private companies, including Tata power Co., Reliance Power Ltd., GMR Infrastructure Ltd. and JSW Energy Ltd., have acquired coal assets overseas in Indonesia and South Africa.

India’s percentage share of trade with Africa remains relatively small, and we believe as India’s economy continues to grow, so too will its requirements for Africa’s resources, providing further impetus to the African growth story.

Article produced by the Imara Africa Securities team. Imara is an investment banking and asset management group renowned for its knowledge of African markets.