India and China in Africa

World’s fastest growing economies find themselves facing each other in the biggest market of the coming years i.e. Africa. The story of Chinese invasion of African economies is well known now. Government backed Chinese companies are everywhere building structures, pumping oil, mining copper, and selling toys and clothes. Indian expedition on the other hand has been quite different. Indian expedition has largely been a result of expanding private sector into unknown realms of the Dark Continent.

Why Africa?

Africa was always one of the most under developed parts of the world. Picture of starving populous and barren lands are the common stereotypes associated with the African continent. But just like India being a land of snake charmers is a misconception, same holds true for Africa. African continent had a collective GDP of $1.6 trillion in 2008, almost equal to that of Brazil or Russia. Combined consumer spending of Africa in 2008 was $860 billion which was more than that of India. Africa has one of the largest middle class numbering between 350 to 500 million, which is more than that of India. More than 40% Africans live in cities; this number is almost equal to that of China and more than that of India. There are more than 52 cities in Africa with population more than 1 million. It is estimated that the combined GDP would have increased to $2.6 trillion and combined consumer spending to $1.3 trillion with more than 50% population living in cities. All these factors point out to one single development. Africa is growing at a dramatic rate as a market. It is going to be the key market in the coming years and two of the fastest growing economies of the world do not want to miss on this opportunity. Capturing the market early and creating a niche is the key to tap this burgeoning market.

Chinese approach to Africa

China entered Africa in early 1990’s after trade was decentralized in late 1980’s with the aim to capture resources the black continent had to offer. The approach of Chinese companies backed by the government has been quite aggressive and scintillating. According to MOFCOM statistics, from 2003 to 2007, annual Chinese investment in Africa grew from US$75 million to US$1.5 billion. China has become the largest exporter to Africa beating America in the process. Chinese companies have penetrated a large part of the continent by lending one of its major strength – infrastructure development in form if hospitals, bridges, roads, telecom networks, airports etc. giving a much required shape to the land of Africa. In return, it gets access to the hitherto forbidden marvels like huge supplies of oil, metals like copper and zinc amongst others. China Petroleum has more than 25 oil and gas contracts in Sudan, Algeria, Tunisia, Libya, Chad, Niger, Nigeria, Mauritania and Equatorial Guinea. Apart from providing low cost technologies and skilled labour, China is also using its growing geo political clout by assisting tainted economies and governments of countries like Zimbabwe. This policy has backfired with criticism from all parts of the world. Chinese policy in Africa is well structured and perfectly implemented. It is a far sighted approach with an investment risk of 20 years. This large time duration involved can only be sustained through the backing of the government. Off late, Chinese investments are also seeking new markets. With China’s domestic markets oversupplied and extremely competitive, the need to find new markets is main motivation for Chinese overseas investment.Africa thus is the most lucrative target. Companies in labour-intensive manufacturing, like in household appliances, textile and apparel, toys, as well as infrastructure construction are expanding their international operations to seek markets, brand recognition and access to distribution channels. The first four sectors alone contribute to approximately 29 % of total Chinese exports not alone in Africa but to the world. Thus, Chinese foray into the African continent has been largely fruitful.

Indian foray in Africa

India was slow in indentifying the potential of the Africa. In a stark contrast to the Chinese approach, the Indian march to Africa has been led by the private sector.After proving themselves in fields as varied as automobiles, telecom and education in recent years, Indian businesses are gradually upping the ante. Though Indian businesses were active in Africa for quite some time and people like Manubhai Madhvani carved their empires in Africa, but Indian brand wagon suffered major setbacks during late 70’s and early 80’s and the business almost perished in the notoriety of dictators like Idi Amin et al. After liberalization in 1991, the Indians forayed into the African land on a larger scale, but the market was already under the Chinese influence. Nevertheless, Indian companies are knocking doors and making big investments in the continent. Indian presence is seen through Airtel, Tata, ESSAR and NIIT to name a few. Most companies are focusing on the English speaking regions of Africa. Portuguese and French speaking areas are largely untapped. Indian companies are also facing blocks largely because of ignorance about the continent. Like developing economies on developing path, African countries are very cautious in doing business. Strong norms and regulations are the major hindrances faced by Indian conglomerates. Conglomerates employ different approach to overcome these challenges. NIIT chose to work with local partners to capture the market in the 8 countries through which it operates. It became easy to understand the requirements of the knowledge systems and to identify the delivery points. ESSAR chose a subtler strategy. Rather than confronting the Chinese competition in the market, ESSAR focused on areas which were largely untouched by the Chinese influence.  English speaking parts of East Africa were targeted by ESSAR. This allowed them easy access to the market, but still faced several bureaucratic hurdles before they could acquire the oil refinery in Kenya. Airtel on the other hand acquired African assets of Zain telecom; a Kuwait based Telecom Company to gain access to humungous largely untapped market. Another major sector where Indian industries are exceeding expectations is pharmaceuticals. Africa has the largest number of HIV patients. The scourge of diseases like cholera and malaria is widespread. Indian pharmaceutical industries like Cipla, Ranbaxy and provide cheap drugs. The antiretroviral drugs offered by these companies for the treatment of HIV are the mainstay on treatments in major parts of the continents. Slowly Indian camp is taking its steps in the continent and expanding.

Though Indian companies produce what is precisely the need of Africa, but the penetration is Africa is very low. This is where China has taken the lead. Indian sector has upped the ante but it still falls way behind the Chinese. Indian sector invested close to $2 billion in Africa in 2008 alone. But Chinese spending in the same year were approximately $ 8 billion. While Chinese utilize the state – sponsored might and distribute freebies to get chunk deals, Indians rely on their private sector to build long lasting relationships. While no strategy is picture perfect but Chinese have a larger market share owing to their early entry and perfect execution to the plans. If brand India wants to shine in the unexplored lanes of Africa, then it would require government backing and some bold decisions by the private sector to take the challenge up to China but in Africa.