AAGC vs OBOR: Can India and Japan create an Asia Africa growth corridor to rival China’s Belt and Road initiative?

The African Development Bank held its annual conference in Ahmedabad, the capital of Gujarat in May this year. The presence of the African regional development bank’s showcase in India underscored the long lasting and growing ties between them. While far behind rival China, India has invested a lot in the continent particularly in oil and mineral investments, but also in areas like telecommunications.

Indian forays into Africa have been largely private sector led as New Delhi lacks the funds or large state owned enterprises that Beijing has to spearhead investment. India has huge infrastructure needs of its own, so there is a limit to how much capital can profitably go abroad, all of which has limited its role in Africa, but now India’s burgeoning alliance with much wealthier Japan could put it in the driving seat across Africa and beyond.

The Asia Africa Growth Corridor (AAGC) is a proposed project which would be spearheaded by Japan and India, it looks to invest (mainly with Japanese money), US$200 billion in infrastructure, technology, improving skills, renewable energy and on agricultural projects all focussed on African and South Asian countries. This idea was first promoted at a bilateral summit between India – Japan in 2016 and was cemented during the May 2017 African Development Bank meeting in India.

The AAGC vision document was drafted by three institutes namely India’s Research and Information System for Developing Countries (RIS), Indonesia’s Economic Research Institute for ASEAN and East Asia (ERIA), and Japan’s Institute of Developing Economies (IDE-JETRO), all in consultation with African partners.

The four pillars of AAGC are:

  • Development and Cooperation Projects
  • Quality Infrastructure and Institutional Connectivity
  • Enhancing Capacities and Skills
  • People-to-people Partnership

The vision document currently include a lot of vague aspirations and ideas but not much yet in the way of solid plans.

Japan wants to increase its exposure to African markets and sees India as an ideal risk sharing partner. Indian firms are already well entrenched in Africa and its private sector approach has set it apart from China’s state led model.

India like China sees the continent as a promising market, as well as a supplier of raw materials, particularly oil and gas. India’s political capital along with Japanese funds should in theory form a potent partnership but of course the project is right now very much on paper and there has been nothing yet in the way of action, in contrast to China and its One Belt, One Road (OBOR) initiative which already has hundreds of projects underway.

The emergence of the AAGC is also a sign that two major Asian powers are drawing together to provide a serious rival OBOR initiative, which India has broadly rejected fearing an encroachment of its sovereignty and Japan is not part of. The democracies of India and Japan have long had troubled relations with China for both historical reasons and plain economic and political competition.

The AAGC can be viewed as an economic initiative to assist with Africa’s huge development needs, but also a diplomatic one which aims to ensure that countries in Asia and Africa look favourably upon India and Japan and they are not surrounded by pro-Beijing states in places like Sri Lanka, Bangladesh, Malaysia, The Philippines and Tanzania. China is backing a great many projects in these countries which of course usually benefit the host, but at the same time raise the risk of overextending their financial and political indebtedness to Beijing.

India has already made a foray into regional economic diplomacy with its planned expansion of Chabahar port in Iran which will provide a safe passage for Central Asian gas and oil, a project which Japan now looks set to back financially.

India and Japan are already complementary partners in many respects with Japanese technology and capital already well deployed in India, with Japanese firms building a high speed rail link between Mumbai and Ahmedabad and the first part of the Delhi metro and many other infrastructure projects across the subcontinent.

The AAGC could herald a new dawn in economic diplomacy with Japan and India combining to refashion Africa and Asia in its own image, taking on the might of China’s OBOR at the same time, or it could turn out to be a disappointment as the difficulties of coordinating two different nation’s ambitions and mapping them onto other countries proves a challenge to far. Right now AAGC is just a vision, but it will be worth watching closely to see if it does indeed develop into a serious rival to China’s all encompassing Belt and Road project.

 



Categories: China Goes Global, Development finance

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