Originally Published 2018-02-20 09:42:33 Published on Feb 20, 2018
India’s feeble stakes in Africa

Although India and Africa have shared close relations for many decades, economic relations, particularly Indian investments in the continent were insignificant until the mid-2000s. According to the World Investment Report, India is currently the eighth-largest investor in Africa. Some large Indian businesses like the Birla Group did invest in East African countries in the 1950s and 60s but such investments were considerably smaller in magnitude as compared to current flows. The growth of Indian investments in African countries can be traced to two main developments. Firstly, with economic reforms, rules for outward investments were gradually liberalized and it became easier for Indian companies to invest abroad. Secondly, with higher growth rates, India’s energy requirements grew rapidly. As a result, diversification of energy suppliers and investment in oil and gas ventures abroad became an important objective of India’s foreign policy. Similarly, important changes occurred in Africa. Once described as a ‘hopeless continent’ — Africa entered a phase of high growth in the 2000s. Many African countries emerged as attractive investment destinations on account of high growth, rising middle class, and resource abundance.

The remarkable growth of Indian investments in Africa caught widespread attention. News headlines such as ‘Africa is the next big frontier for Indian companies’, ‘A marriage made in heaven? Indian companies in Africa’, and ‘India’s investment in Africa: Feeding up an ambitious elephant’ became quite common. However, the subject did not receive the scholarly attention that it deserves. There are only a few instances of serious empirical work. Moreover, in many studies, there are wide variations in the reported investment figures. A detailed analysis of the Reserve Bank of India’s data on overseas direct investment flows from Indian firms to African countries between 2008 and 2016 reveals some very interesting facts. Between 2008 and 2016, the African continent received foreign direct investment flows worth $52.6 billion or about 21 per cent of India’s total FDI outflows during the same period (see Figure 1). Although the figure seems appreciable, it is important to note that India’s FDI flows to Africa are concentrated in Mauritius, a tax haven. From 2008 to 2016, Indian FDI outflows to Mauritius totalled $47.6 billion. Only $5 billion went to the rest of Africa, which represents only 2 per cent of global Indian FDI outflows. A large share of Indian FDI to Mauritius is round-tripped back to India, which means that the actual volume of Indian investment in Africa is much less than reported in the media. Thus, for an accurate picture of Indian investments in Africa, Mauritius has been excluded from the analysis.

Secondly, Indian investments in Africa are highly concentrated geographically. With a share of 63 per cent and 22 per cent, East and North African regions attract most of the investments from India (see Figure 2). Table 1 shows that the top ten recipients account for over 90 per cent of Indian FDI flows to Africa. With a share of about 52.9 per cent, Mozambique tops the list. But its top position is largely due to ONGC Videsh’s investment in the Rovuma gas field, which accounts for about 99 per cent of Indian investments in Mozambique. Thirdly, Indian outward investment in Africa is concentrated within a few large firms. Although about 597 Indian companies invested in Africa over 2008-16, the top eleven companies account for about 80 per cent of the total Indian investment flows. With investments worth $3.02 billion, ONGC Videsh tops the list, followed by Gujarat State Petroleum Corporation, Interlabels Industries, Oil India, and Coromandel International.

Moreover, these large Indian firms have not expanded their presence across the continent and their investments are concentrated in only a few countries. With the exception of ONGC Videsh, which has investments in six African countries — Congo, Egypt, Ivory Coast, Libya, Mozambique, and Sudan — all major Indian companies have established their presence in only one or two African countries.

Indian investments in Africa are typically characterised by large-scale investments in oil, gas, and mining sectors by public sector enterprises. But sadly, India’s public sector companies have not fared very well in Africa’s energy market. In many instances, they have had to relinquish the blocks they acquired due to poor commercial prospects, inability to meet contractual agreements or because the blocks were still in their exploratory phase. On the other hand, although the private sector’s footprint has grown, its footprint is smaller than India’s public sector and definitely smaller than what news reports would have us believe.

In a nutshell, energy is the critical pull factor behind the growth of Indian investments in Africa and the private sector is yet to fully exploit the opportunities that Africa presents.

This commentary originally appeared in DNA.

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Malancha Chakrabarty

Malancha Chakrabarty

Dr Malancha Chakrabarty is Senior Fellow and Deputy Director (Research) at the Observer Research Foundation where she coordinates the research centre Centre for New Economic ...

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