14 August 2018

Cover Story

Scramble for Africa

 

Buzz doing the rounds of the financial canyons of Mumbai’s Dalal Street: A decade from now an Indian EPC explorer lands in a glitzy Africa and greets the local construction magnate with “Mr Lee, I presume” – in what could well be an Asian takeoff of the legendary meeting of Henry Stanley with Dr David Livingstone at Ujiji, a village near Lake Tanganyika in the 1870s… 

 

If nothing else that should be a measure of how well the Chinese are entrenched in Africa. And that should increasingly worry New Delhi: India has had a relationship with Africa that is several centuries old but it is Beijing that has got its doing business onions right in what was once derisively called the Dark Continent.

 

Right now the Chinese dragon is breathing its sheer presence through its companies – large, medium and indifferent – in almost every one of the 50 odd countries that dot Africa, while the Indian elephant is still coming to terms on how to make inroads into the vast development field. And to ensure that the competition is not just restricted between the Asian neighbours and rivals, are countries like Brazil and South Korea. Admittedly much of this contest stems from the huge demand for resources to fuel the economies of the respective countries.  Chinese construction firms are actively involved across the continent in almost every other infrastructure project – this includes ports, railways, airports, sports stadia, university campuses and superhighways.  Indian initiatives are largely led by individual players looking to expand in sectors such as telecom, agriculture, the automotive industry and education. It is easy to see why India's $70 billion bilateral trade with Africa is dwarfed by China's $200 billion.

 

Admittedly the approaches – Cautious Train of Indian Private Enterprise Vs Aggressive Juggernaut of Chinese National Backing – work differently. Despite the long standing relationship with the continent, Indians are finding to their increasing annoyance that they are late starters in Africa, which in many ways is the last El Dorado. Indian billionaires are reportedly pumping in as much as $15 billion as investment in Africa each year to tap demand but in the final analysis find themselves clutching at straws. What that does convey is the rather telling tale of the depth of the pockets of the two neighbors. That’s also resourcefulness – to give competition a more politically correct description. 

 

It’s a no contest right now but it needn’t be like that. As per a McKinsey report India can hope to quadruple its revenues from Africa to $160 billion by 2025 by developing its presence in sectors where it has a unique value proposition in areas such as IT, agriculture, infrastructure, pharmaceuticals and consumer goods.  Meanwhile the Indian government’s official line is to target bilateral trade to touch $200 billion by 2020.

 

Rohit Wahi, Chief Executive Officer and Country Manager, First Rand Bank Limited, India, “Africa is rich in commodities but what it doesn’t have is infrastructure. The business prospects are enormous and the opportunities, long term.”  

 

 

POLITICAL APATHY

 

Not that New Delhi is of any help in clearing the bog in the business area through some diplomatic or governmental intervention. A senior diplomat revealed how a grant of $5 billion approved by the Indian government for use in African countries has found no takers because no one has thought of using it. It is as ironic as it is instructive that this is the very money that could have helped Indian construction firms make inroads into several African countries. The fact is that no headway has been made in terms of fund utilisation because the route to getting to it is very complex. Ergo we have the African countries saying, “Never mind. The African Development Bank is there for us."

 

In sharp contrast to the Indians, the collective holds sway with the Chinese: They are smartly investing their money locally besides of course unloading their conveyor belt of cheap manufactured items – which could range from pin to piano to a plant to manufacture cement. Oftentimes, these are offered gratis to the locals. Ergo, the grouse in the case of Indian firms is that they do not get a level playing field, while the Chinese companies manage to take away most of the construction and infrastructure contracts.

 

Such an assessment may not be entirely true. The Chinese are a product of a different political culture and system and their responses are expected to be at variance with the more docile democratic neighbour.     

 

"Doing business is a different ballgame altogether. The Chinese companies get to work immediately. They deliver projects, goods and services like a mass production factory and that is how they secure a fast mover’s advantage while Indian firms spend time doing risk assessment.," explains Rakesh Sharma, Director,  AMCL Machinery Limited, a Mumbai based company that is into manufacturing Vertical Roller Pre-Grinding Mills for cement plants, tyre manufacturing equipment and glass. Sharma should know. His company has been scouting for business opportunities in various parts of the Africa and other parts of the world like Bangladesh, Myanmar, Iran, the Middle East and South America.

 

Admittedly Indian ability and adaptability is not in doubt here. The issue is one of accepting new challenges, also the fear of the unknown. A single error of judgement could set a business back by several years.

 

MS Ambegaonkar, Director Business Development (Global) Essar Projects, who is no stranger to Africa, told this writer, “There is a lot of micro planning that is done. Firms are now sending advance teams to familiar themselves with both the opportunities and the potential challenges. These could be in the form of local laws, taxation matters and cultural differences. We need specialists in communication skills, industrial relations and liaisoning.”  

 

While India needs to play the role of facilitator for corporates and construction firms operating in foreign environments like Africa, it is also required that the players themselves raise their own project management skills, quality and safety standards to keep up with the competitive business environment. 

 

 

THE HUNTING GROUND

 

That is not to say that Africa, which once lay outside the weltanschauung of development cannot be a happy ground for Indian business. Indian corporates have had a sizable presence in the African continent but are now decidedly looking to up their investment profile.  The salt to software Tata Group is a classic case. The Tata Group which has been in the region since 1977, first mainly through its trading arm Tata International, is slowly consolidating its position through various business verticals. Several of the Group’s firms, including Tata Motors, Tata Consultancy Services and Tata Power now have a presence in the continent. Tata Motors, for instance which has a commercial vehicles assembly plant in South Africa, is looking to set up new assembly facilities through local partners in countries like Tunisia and Kenya. The group's hospitality chain Taj Hotels Resorts and Palaces is also considering proposals from three-four countries to set up new luxury properties. Tata Power is involved in two wind based power projects in South Africa – the 94.8 MW Tsitsikamma and the 134.4 MW Amakhala Emoyeni which it is doing as a joint venture. The Tata Group reportedly has a committed investment of $1.7 billion in the continent, gets an annual turnover of $2.3 billion and expects to grow by 30 per cent every year.

 

Anil Sardana, Managing Director, Tata Power is led to say, “We are an established power generation group with a strong track record and extensive industry experience. This has helped us to identify new opportunities and to plan expansions across our generation assets.”

 

 

COMMUNICATIONS AND TECHNOLOGY

 

Like the Tatas another big ticket player is the country's largest telecom operator Bharti Airtel which announced its entry in 2010 by acquiring the African operations of Zain for $10 billion.  Bharti Airtel now is today the largest telecom player in the continent offering mobile services across 17 countries in the region. The company’s investment of another $3 billion has taken its total investment to $13 billion and its customer base to over 61.7 million and still growing. Manoj Kohli, Managing Director, Bharti Enterprises says, “In the last few months there have been market consolidation opportunities in Africa through acquisitions. We believe there is a great future there and are a long term player.”

 

Impressed with Airtel’s growing imprimatur in Africa an Indian telecom equipment maker Vihaan Networks Ltd (VNL) has now powered a communications revolution in remote villages of the continent in countries like Nigeria, Uganda and Ghana by offering innovative green mobile tower solutions VNL's solar-powered 'WorldGSM' mobile tower architecture is seen as  environment-friendly and cost-effective. The company is,currently in talks with other African nations to deploy its cheap and green telecom solutions.

 

Among the other firms that are prominent in Africa are Indian FMCG major Godrej Consumer Products; Anil Agarwal’s Vedanta, which is eyeing mining prospects; and Jindal Steel & Power, which has aspirations to build large power plants, while scouting for resources, and Essar, which was involved in the $750 million purchase of the debt-ridden Zimbabwe Iron and Steel Company (ZISCO) and continues to negotiate for a speedy closure of the deal involving iron ore reserves with the Zimbabwe government; Kirloskar Brothers one of the world’s largest manufacturers of pumps and valves; Apollo Tyres which purchased Dunlop Tyres International, South Africa now sells its products to more than 33 countries in the continent to name a few.

 

 

MINING  OPPORTUNITIES

 

A major reason for the growing presence of the larger corporates in Africa is the growing need to derisk themselves from the economic slowdown at home over the last few years.

 

The emphasis is currently on the continent owning to its absence of infrastructure, requirement for construction and development and the massive business opportunity that it presents in various fields. Most African countries are faced with acute physical infrastructure bottlenecks. The cost of redressing Africa’s infrastructure deficit is estimated at $38 billion of investment per year, and a further $37 billion per year in operations and maintenance. Over the years, Indian companies have engaged in projects across Africa, including watershed development, and construction of roads, railways, ports, airports, power plants and dams, etc.

 

But the extent of involvement is obviously not enough. It is easy to see why the Export-Import Bank of India is planning to set up a project development company with the   African Development Bank (AfDB) to encourage public-private partnership (PPP) projects in Africa. Till date the bank has in place 136 Lines of Credit (LOCs) with credit commitments of around $6.5 billion for financing exports from India to cover around 48 countries in Africa. These instruments have been earmarked for developmental projects like railway rehabilitation, setting up of textile, cement, tractor assembly, agro and food processing, rural electrification and transmission and irrigation About $5 billion worth of projects have been planned under the buyers credit introduced by the Indian commerce ministry.

 

Many Indian small and mid-size companies are keenly eyeing the prospect of investing in areas like power, consumer goods and engineering equipment thanks on the strength of a growing African
middle-class. Many of them have expanded on the back of acquisitions.  Firms are also eyeing natural resources and rich arable land.  Good economic ties with countries like Ethiopia and Sierra Leone have led Indian companies to enter the farming business by leasing large tracts of land. So much so that India is today the largest foreign leaser of Ethiopian farmland.

 

Mining holds great allure for Indian players. India is exploring coal deposits in South Africa and seeking out new, safer technology for mining and quarrying. Coal India Limited, for instance, has signed an agreement with South Africa's Department of Trade and Industry (DTI) to explore mutual prospects" in the African coal and mining industry value chain.

 

 Mumbai-based miner, May Flower Mining Enterprise Ltd is looking to invest $116 million in Ethiopia’s Delbi Mining S.C.’s coal mine over a three-year period.

 

Nigeria too  is looking to revamp its moribund coal mines with an eye on attracting investment from Indian companies like Jindal Power and Steel, which has a $1 billion investment commitment in Africa. The company is already mining coal South Africa, Mozambique and Botswana. In addition it has copper, lime stone and iron ore mines in Zambia, Madagascar and Namibia. The company is now looking to firmly entrench itself in Africa’s mining firmament.

 

New Delhi, as a part of its overall outreach to the growing potential of Africa has decided to extend its support to West African countries notably Mali and Ghana. Mali has opened up its telecom, agri-business and IT sectors, particularly in the area of internet service providers all of which are viewed as good opportunities for Indian firms. Presently there are various Indian ventures doing business in Mali, particularly in mining, oil and gas, pharmaceuticals and agro industry sectors. The country has large reserves of minerals like gold, iron ore, uranium and bauxite, while cotton is a major agricultural product. In Ghana a $1.2-billion joint venture fertiliser project with India has been stalled due to the failure of the China Development Bank to disburse a $3 billion-loan to establish a gas processing plant at Atuabo. On July 6, 2010, India had signed a memorandum of understanding (MoU) with Ghana for the establishment of the project.

 

GAIL (India) Ltd, meanwhile, is seeking Liquefied Natural Gas from East African producers to diversify its supply sources. With power supply being a major area of deficit in Africa it is no wonder that firms like Su-Kam which manufacture a range of products like inverters, online UPS, SMF and tubular deep discharge batteries, automotive batteries and solar products are popular among the masses. In Uganda the company has established itself as a preferred brand for power back-up solutions by dealers and corporate users in the country. Such success stories naturally inspire interest in Africa.

 

Vasant Patel, Director, philbrick Technologies India Pvt Ltd, an Ahmedabad based company which offers solutions for the elevator industry, says, “Africa is a huge market waiting to be discovered by Indian companies. We are naturally looking to tap business opportunities there”

 

 

HEALTH CARE

 

Africa faces a major challenge in terms of its health infrastructure role. So much so that an IMS Health report titled ‘Africa: A Ripe Opportunity’ reveals that by 2020, the market could represent a $45 billion opportunity for drug makers, spurred in large part by robust economic growth and demographic changes. To add to that assessment is the International Finance Corporation (IFC), an arm of the World Bank group, which in a recent report claimed that the healthcare industry is set for huge growth in Africa with sub-Saharan Africa's market, including Nigeria, itself estimated to touch $35 billion by 2016. It is instructive to know here that Nigerians last year spent close to $350 million to access healthcare in India. The Nigerian authorities therefore have urged Indian entrepreneurs to consider investing in healthcare facilities in their country for the benefit of patients who find it difficult to travel to India.

 

It is not difficult to see that the Africa growth story is gathering oomph.

 

Early last month close to 549 projects collectively worth about $85.37 billion were discussed at the India-Africa Conclave in New Delhi. Representatives of African nations evinced keen interest seeking Indian investments and expertise in expanding their industrial base and showing a readiness to provide India Inc a gateway to the huge market in the continent. Sanjay Kirloskar, Chairman and Managing Director, Kirloskar Brothers, was led to comment, “Africa is the continent of the future. From the point of view of the pumps business there is a huge requirement there. There is a very big opportunity and we will continue to focus on servicing those needs.” At around the same time an Indian business delegation from Gujarat on a tour of three South African cities – the Federation of Gujarat Industries (FGI) members drawn from the pharmaceutical, chemical, electrical, power, energy, and engineering sectors – displayed both buoyancy and hope of the growing business prospects. Janak Seth, Vice President, FGI, and MD, Century Pharmaceuticals, Vadodara said, “There are great opportunities especially in the small business sector which generates a lot of employment”        

 

 

Future Outlook

 

The biggest challenge for any development sector player in the African continent would be its sheer geographical size. Servicing the gargantuan requirements needs both an understanding of the environment and the ability to adjust which Indian firms have in large measure. The Chinese dragon notwithstanding, every construction and infrastructure player – including India – can be assured of a piece of the business pie.

 

As First Rand’s Wahi puts it, “Africa is the emerging world of tomorrow and all the companies have a long term opportunity to provide primary infrastructure and services. Probably 30 or 50 years won’t be enough to fully provide for Africa’s development.”

 

Admittedly there are challenges such as law and order problems, political and economic volatility, tight local regulations built around activities like mining which essentially stem from the rising trend of resources nationalism, but there now appears to be a perceptible paradigm shift.

 

The governments of several African countries are increasingly realising that the continent – rich in commodities but poor on infrastructure – needs to open up to a world of development.

 

After being called Dark Continent for far too long it’s high time for the land to see light.

 

 




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