Africa is now the latest front in an increasingly global competition between India and China for new

markets, agricultural land and access to natural resources. While Western media and politicians
have reacted with varying degrees of alarm over the surge of Chinese trade and investment in Africa,
Indian companies have been quietly building their presence on the continent.

As China drives deeper into what many Indians consider their sphere of influence in South Asia,
Africa offers an ideal opportunity for Indian firms to challenge China’s growing influence in the
region. For many Indians, particularly in certain political circles and on the blogosphere,
competition with China is presented in a classical real politik paradigm. The headlines misleadingly
frame the issue in terms of win/loss or even as a “race” between the two countries. Although it
may be compelling, even somewhat entertaining, to draw on 19th century colonial cliches (e.g.
the Scramble for Africa or the Great Game) it is entirely misleading as both the Indians and Chinese
are employing radically different strategies in Africa than earlier European powers.

Ironically, the enhanced competition among Chinese and Indian companies will most directly affect
European and American firms who are rapidly being shut out of Africa’s emerging markets. “We just
can’t compete when both Chinese and Indian [construction]companies are under-pricing us by 50-60
percent in Africa,” complained a senior executive of General Electric’s

infrastructure systems group who

requested anonymity because of his ongoing negotiations with North African and Middle Eastern
governments where he is competing directly with Chinese contractors. “Our cost structure and
profit requirements are simply too high compared to the Chinese and Indians,” he added. General
Electric is not alone. Throughout Africa’s major cities such as Kinshasa in the Democratic Republic of
the Congo, low-cost Tata Motors and Great Wall cars now fill the streets where Fords, Chevrolets
and VWs once did. With increased internet connectivity, especially with the implementation of East
Africa’s new fiber optic connection, it will be Wipro and Infosys Technologies that will lead the way
to build outsourcing centers in Rwanda, Kenya and elsewhere. In an earlier era that was once
dominated by networking giants Cisco, Alcatel and Ericsson, Huawei is the dominant player across
Africa’s growing network infrastructure industry. In market after market, sector after sector,
Western companies (except possibly in the oil sector) are being eclipsed by more nimble, lower cost
Indian and Chinese rivals.

“Unlike the standard Western doom-and-gloom analysis of the African condition, China and India
hold the view that Africa is a dynamic continent on the threshold of a development take-off, with
unlimited business opportunities that would serve Chinese, Indian and African interests” – Fantu
Cheru, Research Director of The Nordic Africa Institute
It should not be surprising that Indians and Chinese see opportunity in Africa where the West either
cannot or does not compete. Many of the challenges of doing business in Africa mirror conditions in
India and China where byzantine bureaucracies, widespread corruption and inconsistent
infrastructure can present formidable obstacles. Furthermore, both countries have large and
growing diasporas that create vital business and distribution networks across the demographic
spectrum.

Edmund Balina, founder of Washington, D.C.-based African risk consultancy Stratis Incites has
written several blog posts on the subject where he details a number of factors that contribute to the
growing levels of Chinese and Indian investments on the continent. In particular, Balina contends
that Chinese companies’ higher risk tolerances is a critical factor behind their willingness to invest in
certain African countries and regions that others avoid:

“The FDI is mainly from parastatals that have access to low-cost capital, so that the Chinese investors
have long planning horizons. These firms view the challenging political and economic environment
in such African countries as an economic opportunity. They are able to derive huge profits from
rates of return to FDI that are said to be much higher in politically volatile African countries than
elsewhere.”

For more on Balina’s perspectives regarding Sino-Indian strategic competition in Africa, click on the
audio link below for an extended interview with Balina for the China Talking Points “China in Africa”
podcast:

China in Africa podcast: China & India Strategic Competition in

Africa by ChinaTalkingPoints

It’s not just about money

While the benefits of Sino-Indian competition for the African consumer are becoming increasingly
obvious as once deprived areas now have access to more products and services, regional
governments are also taking advantage of the situation on a political level as well according to Fantu
Cheru, Research Director of The Nordic Africa Institute:

“The Chinese and Indians are warmly welcomed to Africa for very different reasons other than
economics and finance. There has been a titanic shift in attitudes towards the Western world on the
part of a growing proportion of Africans. Disenchantment with the poor track record of Western
development cooperation over 50 years, the double standards that Western governments practice
in their relations with African states, the tendency to give aid with one hand and to retrieve it with
the other through unfair trade practices and debt structures, have generated a lot of debate among
Africans over the past decade, and a rallying point for pursuing an alternative and independent
African development agenda.”

Constantino Xavier is among a number of academics who argue that India’s democratic political
system affords it a slight advantage in its dealings with African states. “As a founding member of the
Community of Democracies, Delhi faces the opportunity to explore this “regime advantage” over
China in Africa, at least in subtle and indirect ways,” according to Xavier. Obviously, there is no
empirical evidence to support this position and if the recent “election” in Rwanda is any indication,
Xavier may have it entirely wrong as more and more countries draw political inspiration from Beijing
over New Delhi.

With his trademark panache, Prime Minister Narendra Modi is hosting the largest gathering of
African leaders ever on Indian soil this week. Though India was indeed marginal to developments in
Africa during the Cold War years, its political commitment to the Non-Aligned Movement and its
emphasis on South-South cooperation in the context of New Delhi’s diplomatic support for African
nationalist movements, left it well positioned to take up engagement across the continent and forge
new ties.

The end of the Cold War presented new opportunities for India to interact with Africa. India’s rapid
economic growth needed new markets and access to resources. As a result, economic engagement
with Africa has become central to India’s new approach. This is related to India’s search for energy
security, in which Africa is playing an increasingly important role.

India is seeking diversification of its oil supplies away from the Middle East, and Africa will be playing
an important role in India’s energy matrix. The search for oil has taken India to various African
states, including Nigeria, Sudan, Cote d’Ivoire, Burkina Faso, Ghana, Guinea-Bissau and Senegal.
Africa accounts for about 20 percent of India’s oil imports, which are likely to grow in the future.

India is now placing new attention on Africa, opening diplomatic missions on the continent as well as
instigating regular high-level political interactions. India is promising loans with easy terms to those
nations willing to trade, and is contributing to education, railways and peacekeeping. India has
substantially increased its aid and assistance to Africa. It is building economic and commercial ties
with Africa even as it is contributing to the development of African countries through cooperation
and technical assistance.

Despite India’s strengths, China has enjoyed a much higher profile in Africa in recent years. It almost
seems as if Africa is the new El Dorado, given the vigor with which China seems to be pursuing the
region. Top Chinese officials have been regularly visiting the continent for the last several years,
underscoring the solid commitment of the communist leadership to make China the principal
external partner of the continent. China organized the China-Africa forum with great fanfare in 2006.
It was attended by the political leaders of 48 of the 53 African countries. It was this event that forced
India to organize its own India-Africa summit in 2008.
For many African nations, the most attractive aspect of Chinese involvement in their continent is its
no-strings attached aid policy. The aid from the West is often linked to good governance and human
rights clauses, which the political leaders in Africa find unpalatable and describe as “neo-
colonialism,” an approach aimed at imposing Western political values on them.

China has so far tended to ignore the global lending standards intended to fight corruption in the
region. Even the International Monetary Fund and World Bank see their years of painstaking efforts
to arrange conditional debt relief being undermined by China’s unrestricted lending. But China has
made “noninterference in other states’ internal affairs” a central tenet of its foreign policy. This has
as much to do with making China an attractive partner for Africans as it has to do with China’s own
sensitivities toward interference in its domestic politics.

China’s soft power has also been ascendant in Africa. It is being viewed as a land of opportunity and
prosperity, replacing the role that the U.S. and Europe have long played in the consciousness of the
people of Africa. African students are going to China in larger numbers than ever. China is leveraging
its soft power — culture, investment, academia, foreign aid, public diplomacy — more effectively
than before to influence Africa and other regions in the developing world.

Beijing’s policy of using financial and military aid to secure oil fields in Africa has resulted in New
Delhi losing out.

The fear of lagging behind China in its quest for global influence is forcing India to shape up. But in
many ways it might already be too late. Despite India’s long-standing cultural and commercial ties
with Africa, India now finds itself playing catch-up to China because it ignored the continent during
the 1990s.

New Delhi has been tardy in seizing new opportunities in Africa and capitalizing on its long history of
engagement with the continent. New Delhi’s failure to secure backing from African nations for its
permanent membership on the U.N. Security Council jolted the government out of its slumber,
galvanizing it to strengthen ties with a continent that has often complained of indifference by New
Delhi. China nudged the African Union into taking a position that demanded not only a permanent
representation on the Security Council but also veto power. This led to the collapse of the nascent
attempts to expand the Security Council.

The fierce competition between China and India for resources, minerals and food to fuel their
economies has been likened to the so-called scramble for Africa among European countries in the
late 19th century. But this is not really a competition. China is far ahead and India is scrambling to
catch up. New Delhi’s diplomatic energies should be invested in regaining India’s traditional
influence on the continent. The India Africa Forum Summit should be the beginning of a long new
journey for India in Africa.
Will Ethiopia become “the China of Africa”? The question often comes up in an economic context:
Ethiopia’s growth rate is expected to be 8.5 percent this year, topping China’s projected 6.5 percent.
Over the past decade, Ethiopia has averaged about 10 percent growth. Behind those flashy numbers,
however, is an undervalued common feature: Both countries feel secure about their pasts and have
a definite vision for their futures. Both countries believe that they are destined to be great.

Consider China first. The nation-state, as we know it today, has existed for several thousand years
with some form of basic continuity. Most Chinese identify with the historical kingdoms and dynasties
they study in school, and the tomb of Confucius in Qufu is a leading tourist attraction. Visitors go
there to pay homage to a founder of the China they know.

This early history meant China was well-positioned to quickly build a modern and effective nation-
state, once the introduction of post-Mao reforms boosted gross domestic product. That led to rapid
gains in infrastructure and education, and paved the way for China to become one of the world’s
two biggest economies. Along the way, the Chinese held to a strong vision that it deserved to be a
great nation once again.

My visit to Ethiopia keeps reminding me of this basic picture. Ethiopia also had a relatively mature
nation-state quite early, with the Aksumite Kingdom dating from the first century A.D. Subsequent
regimes, through medieval times and beyond, exercised a fair amount of power. Most important,
today’s Ethiopians see their country as a direct extension of these earlier political units. Some
influential Ethiopians will claim to trace their lineage all the way to King Solomon of biblical times.

In other words, the process of organized, national-level governance has been underway for a long
time. It was this relative strength of Ethiopian governance that allowed the territory to fend off
colonialism, a rare achievement. It is also why, when you travel around the country, a lot of the basic
cuisine doesn’t change much: Dishes are seen as national and not regional.

It is thus no surprise that once Ethiopia abandoned its 1970s communist ideology and put some
basic reforms into place, its government was able to rise to the occasion. The infrastructure is
remarkably good by regional standards, and the Ethiopian government is known for conducting a
relatively successful industrial policy. The state-owned Ethiopian Airlines is run as a responsible
business, it is becoming a major air power, and standards of service are high.
The Ethiopians I have interacted with express a remarkable degree of enthusiasm for their country
and culture. Maybe that isn’t unusual in a rapidly growing nation, but I’ve been struck by how
historically rooted these sentiments have been. Ethiopians are acutely aware of their past successes,
including their role in biblical history. Like many Iranians, they think of themselves as a civilization
and not just a country. They very self-consciously separate themselves from the broader strands of
African history and culture. And, as in China, they hold an ideological belief that their country is
destined to be great again.

China and Ethiopia intersect in yet another way, with the Chinese helping to build the place up.
There are new and modern apartment buildings scattered around Addis Ababa, built by the Chinese,
a light rail system in Addis that would look nice in any country, impressive dams for hydroelectric
power, and a high-speed rail connection to Djibouti and the coast.

The pride of Ethiopians in their history and freedom from colonialism may help explain why the
nation has accepted so much Chinese infrastructure involvement with little evidence of the angst
that has plagued some other parts of Africa. The intuitive background assumption in Ethiopia is that
foreigners may try to interfere, but the government won’t lose control. There are prominent statues
in Addis Ababa celebrating how the Ethiopians drove out both the Italians and the British.

Just to be clear, Ethiopia is hardly a finished nation-state. There are festering disputes with Eritrea to
the north, a place many Ethiopians strongly feel belongs to them. The southern and more tribal parts
of the country are not always well integrated into the major commercial centers ruled by the
highlanders, and there are clashes with the Oromia and Somali regions to the east. For those
reasons, the national optimisms found in the better developed parts of the country are not found
everywhere.

That said, if you are looking for a special place in Africa, Ethiopia may be your best bet. But to
understand its recent success, you have to go beyond policy – it is also a matter of their history, their
confidence and, above all, their ideas.
“India’s sustained effort is making an impact on Africa… India’s share of announced greenfield
projects grew from 3.3% in 2003-08 to 6.1% in 2009-15. In the same period, the investment from
China decreased from 4.9% to 3.3%,” said finance minister Arun Jaitley at the 52nd annual general
meeting of the African Development Bank (AfDB) at Gandhinagar. Jaitley’s statement suggests that
India has become a dominant economic partner of Africa in comparison to China. A detailed look at
FDI and trade related statistics does not support such a view.

According to the latest World Investment Report published by the United Nations Conference on
Trade and Development (UNCTAD), China’s total FDI in Africa is much more than India’s. Both India
and China were minuscule players in terms of FDI in Africa, and India was ahead of China till 2009.
However, China has surged much ahead of India between 2009 and 2014, latest figure for which
data is available.

Click here for enlarge

To be sure, headline figures on Indian FDI in Africa might have a spurious element because of the
role of Mauritius, which has been known to be a round-tripping destination for bringing back money
as FDI into India. Centre for Monitoring Indian Economy’s database shows that outward FDI from
India to Mauritius between 2008-09 and 2016-17 was accounted for 17% of total outbound FDI from
India. Mauritius also accounted for 31% of FDI inflows into India during this period. It would be
interesting to see whether this number declines after India has signed a double tax avoidance
agreement with Mauritius in May 2016.

Although India is not the biggest investor in Africa, it is not an insignificant player by any means.
Statistics cited in the African Economic Outlook 2017 show that India is ranked second (after China)
in terms of trade share with Africa. Here too, there is a wide gap in actual value of trade, with
China’s total trade with Africa being more than 2.6 times its trade with India in 2015. Interestingly,
both India and China were almost at par in terms of total value of trade with Africa in 2000.

Click here for enlarge

An earlier Plainfacts column which had looked at the trading pattern of India and China with Africa
had found that increasing trade of the two major Asian economies has been accompanied with
import of raw materials from Africa and export of finished products to the continent. The column
also argued that just the fact that this pattern was also observed during the colonial period, did not
necessarily mean that Indian and Chinese capital in Africa was unleashing colonial exploitation like
earlier times. The column also argued that while Chinese FDI has been accused of bringing in a lot of
Chinese labour, which means that a large amount of earnings are repatriated, India’s relatively small
presence might have saved it from a greater scrutiny.

With increasing economic engagement, the fate of India-Africa ties would depend on not just
quantitative factors such as trade and investment, but also a strategy that convinces the African
people that economically engaging with India would be mutually beneficial.

First Published: Mon, May 29 2017. 12 50 PM IST