A marriage made in heaven? Indian companies in Africa

Anver Versi

While India has had a commercial presence in Africa going back decades, nothing matches the rush of Indian companies to do business in Africa that has taken place over the last decade. Anver Versi looks at the entrepreneurs and sectors leading the field.

“The question is no longer should one in­vest in Africa,” says Rinsy Ansalam, the MD and CEO of the Global Board of Trade (GBOT) based in Mauritius, “the question is can you afford not to invest in Africa?”

GBOT is part of India’s Financial Tech­nologies, an electronic commodities and currency trading system that a dozen or so years ago rudely jerked India’s lumbering commodity exchanges right bang into glo­bal best practice. Having virtually revolu­tionised the centuries-old trading system for commodities such as cotton, grains, gold and various other assets by the liberal application of cutting-edge technology and organisational skills, the system, pioneered by a clutch of young IT geniuses led by Jig­nesh Shah, has been expanding across the globe at a breathtaking pace. It frees buy­ers and sellers from geographical restric­tions and time limitations, and provides a raft of benefits, including the possibility of hedging against an uncertain future, to its members.

The impact in India – in terms of the volume and flexibility of trade – on the whole value chain, from the humble farmer to the largest dealer, has been sensational. The combination of global best practice, advanced technology and entrepreneurial boldness has propelled Financial Technolo­gies into the top rank of international com­modity exchanges. Financial Technolo­gies is typical of the new breed of Indian entrepreneurs who have emerged from the wreckage of the Soviet-style policies that held Indian enterprise in a suffocating grip from independence in 1947 to the era of lib­eralisation that began around 1991.

What Financial Technologies has done in India and elsewhere in emerging markets, GBOT is promising to do in Africa. “Our daily volume of business is around $40 million,” says Ansalam. But this is only scratching the surface: the potential – as similar platforms around the world have proved – is enormous once African traders have woken up to all the possibilities that such a system provides. “Of all the emerg­ing markets, Africa is the place to be,” adds Ansalam. “This is a continent on the move, on the rise. The potential for us, for all In­dian companies, is incalculable.”

Shipra Tripathi, vice-president and head of corporate global marketing and com­munications for Kirloskar Brothers Ltd, one of the world’s largest manufacturers of pumps and valves, is equally enthusiastic about Africa. “Africa is not the next global growth pole, it is already happening now. This really is Africa’s century,” she says.

While India has had a commercial pres­ence in Africa going back decades – the Life Insurance Corporation of India and Bank of Baroda catering to the needs of the continent’s sizeable Indian diaspora, Tata’s vehicle operations in Zambia, and Kirloskar Brothers to name a few – nothing matches the rush of Indian companies to do business in Africa that has taken place over the past decade.

To explain this in terms of India playing catch-up to China’s strident march into the continent is to do Indian companies a dis­service. Unlike China’s state juggernaut underpinning its advance into Africa, the Indian spearhead is led by the private sec­tor and the Export-Import (Exim) Bank, which to date has made some $3.78 billion worth of lines of credit available to African countries.

Rather, the relationship between Indian companies and Africa is a happy coinci­dence of needs. After independence, Indian companies chugged along in the shadow of state-run enterprises, protected as well as hampered by a bewildering raft of Soviet-style regulations and the infamous ‘licence raj’ that bred corruption on a national level. The loosening of the straitjacket in 1991, during the Narasimha Rao administration (with Manmohan Singh as finance minis­ter), finally allowed the private sector to break free from its fetters and ushered in one of the world’s most spectacular growth performances. India’s per capita GDP grew 200 times between 1947 and 2011, and to­day the country is the third largest economy in the world in terms of purchasing power parity.

However, until the liberalisation of the economy in the 1990s, Indian companies produced shoddy and outdated goods, giv­ing rise to the commonly used phrase “desi (local) is fine but foreign is best”. With the lifting of import restrictions, Indian compa­nies found themselves facing a stark choice – compete or perish. In a world dominated by technological innovation, competence was measured by technical and organisa­tional savvy and here Indian companies dis­covered a hitherto unappreciated treasure – a vast pool of qualified engineers, scientists and middle management.

With their innate numeracy skills, Indi­ans glided smoothly into the digital age and before long had begun to dominate the glo­bal software market. Relishing their free­dom from frustrating curbs on size and ac­tivity, Indian firms were able to expand at a giddying pace. Soon the Indian market was not big enough. By the turn of the century, the giants began to look outwards. The Tata Group made one of the largest purchases by any Indian company at the time when it bought Tetley Tea in 2000 and set the pat­tern for most of the subsequent Indian for­ays overseas.

Henceforth, the majority of Indian ad­ventures abroad, including in Africa, would take the form of acquisitions, mergers and joint ventures. Displaying an uncanny sense of timing and shrewd negotiating skills, a number of Indian firms, led by the likes of Ratan Tata (Tata Group), Lakshmi Mittal (ArcelorMittal), Ravi Ruia (Essar Group), Sunil Mittal (Bharti Airtel), Adi Godrej (Godrej Group), Onkar Kanwar (Apollo Tyres) and Mukesh Ambani (Reliance In­dustries) rapidly rose to become leading international players.

Although large global acquisitions – such as Tata’s purchase of Jaguar and Land Rov­er and Mittal Steel’s takeover of Arcelor, which turned ArcelorMittal into the world’s largest steel company – made the headlines around the world, Africa had never been far from the minds of India’s leading entrepre­neurs.

The same decade and a half that saw In­dian firms flexing their new-found entre­preneurial muscles and aggressively look­ing for investment opportunities abroad, also saw a sharp rise in Africa’s economic growth. Renaissance Capital predicted that Africa’s GDP would reach $3.3 trillion by 2016 and that 26 of the 44 Sub-Saharan countries would attain growth levels of around 6 percent. Africa’s middle classes were also growing, and consumer spending was expected to reach $1.8 trillion by 2020. Professor Paul Collier of Oxford University found that the return on capital for over 950 African firms was on average 11 percent higher than in Latin America and Asia, and 70 percent more profitable than for similar Chinese firms. In addition, to a world hun­gry for energy, natural resources and culti­vable land, Africa’s newly discovered oil, gas and coal reserves, and vast tracts of ara­ble land were making the African continent even more attractive to Indian investors.

What Western investors saw as major challenges in Africa did not phase Indians one jot. They had lived with and overcome similar challenges back home. “Many In­dian companies see Africa as a larger, less crowded, version of the Indian market,” says R. S. Modi, MD of Bygging India Limited, who scouts investment opportunities on the continent for Indian firms. “While Western companies have been trying to make Africa more Western, Indian companies are very comfortable with Africa as it is. This is a market they understand, and just as they have helped India grow – and make profits for themselves – they believe they can do something similar for Africa.”

Luis Ceneviz, who runs the African op­erations of Apollo Tyres from South Africa, adds, “In many ways, India-Africa is the perfect fit. Our products, in terms of qual­ity, specification, price and availability, are just what our African customers need – and Africa is just the right market as we grow our overseas presence.”

To date, the total value of recent Indian investment into Africa is estimated to be around $16.5 billion. This includes the record $10.7 billion that leading Indian tel­ecommunications firm Bharti Airtel paid to buy out Middle East telecom giant Zain’s one-network operation in Africa. Bharti now has a presence in 17 African countries and has diversified its products to include money transfers and Internet connectivity. Fierce competition with local networks has driven down the cost of making calls to a fraction of what it was five years ago.

Tata has probably the most diversi­fied footprint in Africa. It set up Tata Af­rica Holdings in 1994 with headquarters in Johannesburg, South Africa. It produces 130,000 tonnes of high-carbon ferrochrome from its plant in Richards Bay, South Af­rica; it has a commercial vehicle assembly plant in the Gauteng province; its Taj Ho­tel Group runs the five-star Taj Cape Town and Taj Pamodzi in Lusaka, Zambia, and Joekels Tea Packers, the second largest tea company in South Africa, forms a signifi­cant component of its Tata Global Bever­ages group. Tata is also involved in clean power projects in Africa, while Tata Chem­icals Magadi in Kenya is Africa’s largest exporter of soda ash.

ArcelorMittal South Africa has become the continent’s largest producer of liquid steel, with a capacity of 7.8 million tonnes per annum from its plants in Gauteng. Arce­lorMittal is also the largest iron ore mining company operating in Africa, with mines in Algeria, Mauritania, Senegal, South Africa and a $1 billion project in Liberia. Essar Steel took over Zimbabwean steel producer Zisco in 2010, and the group is also in­volved in several other projects, including business process outsourcing (BPO) opera­tions in Africa. Other large Indian investors in African resources include Coal India in Mozambique, Vedanta Resources in copper mining in Zambia, Varun Industries in rare earth minerals in Madagascar, and Jindal Steel and Power in Mozambique and South Africa.

Six years ago, Apollo Tyres, one of In­dia’s largest tyre manufacturers and distrib­utors, bought out Dunlop Tyres Internation­al South Africa and in the process acquired Dunlop’s rights in 33 African countries. “We invested $80 million in upgrading and expanding our operations,” says CEO Luis Ceneviz. The company makes tyres for both passenger and commercial vehicles from its plants in Durban and Ladysmith, and distributes several brands, including some imported from India, around Africa.

India is now the world’s largest producer of generic pharmaceuticals and Africa is a natural fit for Indian companies that provide essential drugs, especially anti-retroviral and anti-malarial medication at a fraction of the cost of producers elsewhere. For example, In­dian pharmaceutical company Cipla slashed the per patient drug cost for HIV-positive patients from around $10,000 to $400 per year, earning enormous goodwill in a conti­nent where HIV/AIDS is still rife. Africa ac­counts for 16 percent of total Indian pharma­ceutical exports. India’s pharmaceutical giant Ranbaxy Laboratories, which was the first to set up operations in Africa in 1977, opened its second plant near Johannesburg in 2010. Cipla has announced a $36 million upgrade to its plant in Durban and has recently formed a joint venture in Uganda.

Africa’s large tracts of arable land are an­other attraction for Indian agribusinesses. Karuturi Global is now the world’s largest exporter of roses thanks to its investments in Ethiopia and Kenya. Sai Ramakrishna Karuturi, the founder and MD of the com­pany said, “I was not even a fly on the wall in India, but in Ethiopia, I am the largest investor and the second largest employer after the government.” Karuturi takes its corporate social responsibility seriously, providing schools, pharmacies, housing and sports facilities for its employees. It even runs a professional football team in Ethiopia. “I got in on the ground floor, oth­ers got in on the second floor, but there are a lot of floors left to go in Africa’s economic cycle. Africa offers us a scale we could nev­er reach in India,” Karuturi says.

Even beyond business, Africa offers a lifestyle difficult to replicate elsewhere. South Africa in particular, with its first-world infrastructure, wide open spaces and ‘five-star’ lifestyle, has become a ma­jor draw for Indian expatriates. “I lost my heart to South Africa,” said Ratan Tata. It seems that an increasing number of Indian entrepreneurs are losing their hearts to what Africa has to offer; in return, the Indian presence is delivering just the impetus the continent needs for its own economic trans­formation. This could well be a marriage made in heaven.

About the author:

Anver Versi is Editor of London-based African Business and African Banker magazines


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