Africa is destination next for India Inc

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Sushma Ramachandran | 29 Mar, 2010
The move by India's top telecom player Bharti Airtel to acquire the African assets of Kuwait's Zain marks the biggest foray of a domestic company into the continent. The landmark deal, estimated at $10.7 billion, raises the level of Indian investments in Africa to $16.7 billion.

Airtel's entry into Africa is hugely significant as it underlines the enormous potential available in the continent for Indian industry. In the telecom sector alone, the sky is the limit as far as growth is concerned. Tele-density in the continent is only about 30 percent. At the same time, Airtel will have to contend with stiff competition from MTN, a company it tried to merge with on two occasions, which is already making aggressive public comments about the Indian company having made a mistake in going with Zain.

But Airtel is not the only company looking for growth in Africa. The Tatas, India's largest industrial group, were the first to make their presence felt there. The group is estimated to have already made about $1.6 billion worth of investments in Africa, the latest being a luxury hotel in Cape Town.

The other Indian corporates which are active players in Africa include automobile majors Ashok Leyland and Mahindra and Mahindra, electronics and white goods giant Videocon, consumer products firms Marico, Dabur and Godrej, energy giant Suzlon, breweries group UB, drugs manufacturers Cipla, Dr. Reddy's Labs, software and IT education firm NIIT, and diversified houses Kirloskars and Essar.

Even state-run firms like the Oil and Natural Gas Corp (ONGC) bought a 25-percent stake in Sudan's Greater Nile Project seven years ago in a bid to improve the country's energy security, raising quite an eyebrow. But crude supplies to India have already begun and ONGC maintains its entire investment of nearly $1 billion had been paid off in three years.

Unfortunately, ONGC has been less than successful in recent years in acquiring oilfields in less controversial parts of Africa like Uganda and Algeria, where it has been outbid in some cases by China. This, in turn, highlights the fact that Indian investment in Africa are way behind that of China which is estimated to have invested about $60 billion in that continent.

Thus despite India's traditional ties with countries like Kenya, Uganda and Tanzania, China has recently made substantial investments that go far beyond the Indian private sector initiatives.

Even so, it is clear that there is vast potential for Indian industry to have a larger presence in Africa. One major plus point is the huge middle class estimated to range from 350 million to 500 million, even larger than the Indian market.

Automobiles, IT and fast-moving consumer goods of Indian companies have already made their mark. The pharmaceutical industry has also played a role in providing cheap and effective drugs for a market that earlier relied on high-value drugs produced in developed countries.

As for telecom, Airtel is not the first Indian entrant to the African market as Essar has already launched its YU brand in Kenya and is planning to be a pan-African player. Telephone density ranges from 14 percent in Congo to 123 percent in Gabon though most countries are in the lower ranges. In the consumer goods sector, Marico has already acquired a hair products brand in Egypt while Godrej has bought Tura, a soaps and lotions brand that is a household name in Africa.

The main challenge in the continent, however, remains the diversity of its countries. The northern region is very different from the south and there is a wide range of cultures. The levels of political stability and economic progress are also markedly different in each area. Marketing strategies will thus vary widely from country to country.

As far as India-Africa trade is concerned, a target of $70 billion has been set for the next five years from the existing level of about $40 billion annually. This is much lower than the existing level of China-Africa trade, currently estimated at $109 billion. At the same time, there appears to be a recognition in official circles that India needs to ramp up political and economic ties with Africa.

The recent Africa-India conclave in New Delhi, sponsored both by industry and government agencies, managed to discuss business projects worth $10 billion. Simultaneously there was an effort to highlight the difference in the Indian and Chinese agendas in the continent, with India's focus being on capacity building, training and private investment. The effort was to stress the fact that in contrast to the mere profit- seeking approach of China, India's approach was to bring about empowerment of the continent.

Airtel's buyout of Zain's African assets thus is not a mere indicator of the growing strength of Indian industry. It also highlights the increasing importance of Africa as an investment destination and market for Indian goods and services.

It seems even India Inc. is turning away from the tried and tested markets of the West and is finally taking the plunge into the relatively less-explored countries of Africa. With growth momentum picking up in many African economies, this is clearly the time for India Inc. to make the right moves in this highly potential and yet greatly neglected part of the world.

* Sushma Ramachandran is an economic and corporate analyst. She can be reached at sushma.ramachandran@gmail.com.
* The views expressed by the author in this feature are entirely his/her own and do not necessarily reflect the views of SME Times.