India in Africa

Indian engagement in Africa

India’s biggest mobile carrier, Bharti Airtel, was feeling the effects of a rapidly saturating Indian phone market: by 2015 over 75% of Indians are predicted to be mobile phone subscribers. The company had been looking for new revenue sources, which eventually came in the form of purchasing the African assets of Zain (a Kuwaiti firm), for the sizable sum of $10.7 billion. The company is now active across nearly 20 Sub-Saharan African countries, including key fast growing markets such as Nigeria, Kenya and Ghana and has over 50 million subscribers.

The company improved its pre-acquisition performance by halving call tariffs and cutting text message costs by 80%, or to put it another way, rolling out the Bharti Airtel “minutes factory” – a business model which promotes prepaid minutes and generating the maximum amount of use from each base station, while adding as many users as possible, even if they do not individually use many minutes. At the same time the company outsources all non-core processes, and focuses on marketing and advertising. In Africa there is room to grow: Nigeria for example has 162 million people and had a mobile phone penetration of around 35% in 2011.

The story of Bharti Airtel is one of a successful Indian company in Africa.  Demonstrating how another Asian giant is taking an expansive role on the continent. While it remains well behind China in its level of engagement, India has enjoyed impressive if unequal economic growth and many of its companies are ready to find new markets, often driven by the search for raw materials or in the case of Bharti Airtel, the desire to continue expanding in a new market.

Africa exports more to India than vice versa. This was massively encouraged by India’s duty free tariff scheme for less developed countries, which benefited 33 African countries. India’s exports primarily go unsurprisingly to the larger economies such as Nigeria, South Africa, Egypt, Tanzania and Kenya and consist of manufactured goods, food, and pharmaceutical goods. While raw materials like gold, minerals, phosphates and oil go in the other direction.

Like its Chinese namesake, the Indian Export Import Bank has been active in Africa, signing a Memorandum of Understanding (MOU) with the African Development Bank and providing letters of credit with nearly all African countries, totalling $4.7 billion since 2009. The Indian Oil and National Gas Corporation (ONGC) has invested across Africa, including US$ 3 billion in Sudan. This was put under threat during the split between Sudan and South Sudan, when South Sudan capped production to deny the north transit fees, the oil fields suddenly became a potential liability as the two countries contemplated war.

Although Chinese and Indian engagement in the continent is often compared and looked upon as a geo-political battle between the two Asian giants, a more interesting comparison can be made between Chinese “state capitalism” and India’s laissez faire approach. Chinese companies have had explicit or implicit State support compared to India whose involvement in Africa has been far less co-ordinated and spearheaded by private companies (with exceptions). However, this is changing, the first Africa-India summit was held first in 2008 and every year since, but the summits still lack the stature of the China Africa FOCAC shindig.

In the long term it will be fascinating to see if India’s private companies catch up with the levels of involvement set by Chinese firms, and if the private sectors supposed strengths of innovation and adaptability will outmatch the deep war chests and government backing of the Chinese.