India Business Frontier April 2009

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The resilience of Indias investments in AfricaLisa Brown, Junior Analyst at Frontier Advisory

Research & Strategy in and beyond emerging markets

India Frontier AdvisoryIndia Business Frontier

April 2009

Having been a major cog in the emerging

market growth engine, India has

demonstrated robust growth in the past

few years. With exceptional performance

in global exports of services, India is in

an enviable position, compared to its

fellow rapidly developing economies. It is

particularly its robust internationalisation

efforts which have given India the edge,

especially in Africa. Yet, in the midst of

the global economic downturn, with trade

and capital ows changing direction,

one has to wonder about the security of

Indias position and the ripple effects on

Africa.

On a domestic level, Indias growth is

not without limits. The last quarter in

2008 showed the slowdown in the Indian

economy, with declines in manufacturing

and the auto sector, pushing industrial

production downwards.

In response to the slowdown, the

Reserve Bank of India has, as part of

a small stimulus package, decreased

the reverse repo rate, eased rules for

commercial banks to lend to the real

estate sector and extended the credit

period for exporters. Legislation relating

to overseas investment, mutual funds

and overseas competitive bidding in

forex has also been passed to ensure

Indias attractiveness. In February 2009

alone, 29 foreign direct investment (FDI)

proposals worth about US$ 118.95

million were approved.

Previously restricted sectors of the Indian

economy have been opened to foreign

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Contents:

The resilience of Indias investments in

Africa .......................................................1-3

India Inc in Africa........................................4

A view from the CII Exim Bank

India-Africa Project Conclave

..................................................................5-6

Frontier Advisory Prole............................7

2009 Copyright Frontier Advisory (Pty) Ltd. All Rights Reserved


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India Frontier Advisory

2009 Copyright Frontier Advisory (Pty) Ltd. All Rights Reserved2

India Business Frontier

April 2009

investors. In conjunction with the Export-Import Bank of India, incentives have been

offered to exporters, small and medium enterprises (SMEs) and infrastructure and

construction companies. A luring budget decit does threaten to curb over-enthusiasm

over these supplementary measures, however. What is most concerning is the slight

slowdown in the services sector, the main driver of Indias healthy economic growth.

Industrial Production Growth (% Y/Y)

Source: Bloomberg

Despite the global economic slump and the changing ows of capital, India remains

an attractive FDI destination, boasting a 45% growth in FDI with US$ 23.3 billion

between April-December 2008.

A consumer parachute?

Domestic consumption, the health of which is seen as the key to securing growth

in developing economies, is also slowing, by as much as 2.4% per annum. This is

considerable in one of most populous countries in the world. However, many argue

that there is a signicant consumer parachute in place, comprising of the large

population, many of whom are entering the workforce.

Contribution to GDP growth, FY2003-08 (%)

Source: Central Statistical Organisation, TS

Investment45.7%

Net

Exports13.1%Government

Consumption4.0%

PrivateConsumption

37.2%


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April 2009

Coupled with stimulus instruments like subsidies, farm loan waivers, salary increases

for government employees and declines in interest rates, this could spur demand in

sectors like the automobile industry.

Together with remittances and less of a reliance on exports compared to otheremerging economies like China, this could cushion a fall in GDP growth.

But what about Africa?

Many economists see Africas close relationships with India and China as becoming

even more benecial once the global economy starts to recover, mainly because of

the commodity market accounting for 78% of the continents export income. Indias

growing demand for commodities seems set to accelerate as it addresses much-

needed infrastructure expansion and power demands.

At the same time, African countries have been budging their requirements forengineering goods away from China, and towards India. This is due to problems with

expensive and delayed Chinese deliveries and Indias advantage of stronger SMEs.

This is an ideal time for Africa to participate in India strengthening its position in the

industry.

With the inauguration of the Pan-African e-network last month, a project of the Indian

government to improve connectivity and share expertise between 11 African countries

through a bre-optic network, India has shown its commitment towards development

in Africa, beyond resources and infrastructure.

However, the strong relationships that India has with large African economies like

South Africa and Nigeria could be hampered with liquidity shortages on both sides, if

the February and March legislation does not have the desired effect.

There have been announcements of a preferential trade agreement with the Southern

African Customs Union (SACU) being nalised at the end of 2009, which would allow

South Africa and other SACU members greater access to the Indian market. For

South Africa, this could be an accelerator in increasing trade in especially minerals

and services with India.

If India is to compete more aggressively with China in Africa, it must use an India

Inc approach more energetically as means of increasing investment into the

continent. Indian authorities expect trade with Africa to triple over the next ve years,

announcing plans in January this year to increase lines of credit to the amount of US$

5.4 billion and announcing projects across all sectors.

Despite the overall slowdown in the domestic and global economy, India seems set

to remain one of the fastest growing economies with 6% GDP growth, the highest

after China. But the space exists for this position to be strengthened. Whether Indias

new government directs its advantage of steady stream of investment into improving

infrastructure domestically and in Africa and in favour of strategic industries, will

greatly affect the resilience of that position.


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KenyaOpportunities for Indianinvestment in KenyaIndian investors have beenencouraged to considerinvestment into Kenya, alongthe sides of the recent VibrantGujarat Global InvestmentSummit. The Economistprojects 3.5% GDP growth for2009, and with infrastructurethe cornerstone of Kenyas

future development plans,opportunities in road and railconstruction and gas and oilexploration abound.

MaliIndian company invests incement worksThe Malian government and anIndian company, West AfricanCement SA have agreed on a US$231mn investment in an integratedcement works in Diamou. Theproject will create 1052 permanent

jobs and aims at an annual capacityof at least 1 mn tonnes of cement.

AfricaCII-EXIM Bank conclave considers US$ 12 billion

projects for AfricaMore than 400 delegates from government bodiesand businesses from Africa have gathered in NewDelhi to discuss project partnerships between Indiaand Africa. Agriculture, minerals, mining and SMEpromotion and human capital formation sectors arethe aim of projects worth over US$ 12bn.

CameroonIndian rms to assistCameroon with hydro projectsIndian rm, AngeliqueInternational, will build two hydropower plants in Cameroon, partof a US$ 251mn aid agreement,in cooperation with the Export-

Import Bank (EXIM Bank) ofIndia. The loan will also nancedrinking water and sanitationprojects..

South AfricaTata Group, Sasol shortlisted for coal conversionprojectThe Tata groups joint venture with Sasol SA andJindal Steel and Power, has been shortlisted fora prestigious US$ 6.8bn pilot project in India toconvert coal into liquid petroleum. The project aimsto produce 80,000 barrels of crude oil per day, byliquefying coal reserves. The combined venturepipped Reliance Industries and GAIL, whoseproposals were not accepted due to the processesput forward.

Tata increases Neotel stakeTata Communications has bought a 30% stake inSouth African company Neotel, resulting in TataComms becoming a controlling shareholder in thecompany. The stake was previously held by Eskomand Transnet, and reafrms the Indian companyscommitment to investing and expanding in emergingregions and allows Neotel to utilise their globalnetwork of technologies.

Tata to manage Seacom International undeseacableTata Comms. also struck a deal for Neotel to becomethe anchor tenant on the Seacom Internationalundersea cable. As a result, Tata will manage the

cable, its billing systems and customer relations aswell the management of the landing at Mumbai andMarseilles. Neotel will manage the South Africanlanding at Mtunzini. The presence of this cable aimsto decrease bandwith costs and improve connectivityacross Africa, already prompting a 80% decrease indata costs by Telkom.

ZambiaTwo Indian rms in bid forkey Zambia mineVedanta Resources and NavaBharat have both qualiedfor the nal bid for Zambiaslargest coal mine, MaambaCollieries. Both companiessubmitted proposals to operatethe mine, and to construct athermal power plant nearby. Thelatter project aims to improvethe erratic electricity supply,a result of increased demanddue to new mines and industrial

expansion. Vedanta already hasa strong footprint in Zambia,as the majority shareholder inthe countrys largest copperproducer, Konkola CopperMines.

India Inc in Africa

Frontier Advisory tracks Indias commercial movements in Africa. This section provides an overview of key investments in thelast two months.


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A view from the CII Exim Bank India-Africa Project ConclaveAbdullah Verachia, Head of India Frontier Advisory at Frontier Advisory

More than 400 delegates from government

bodies and businesses from Africa gathered

in New Delhi, from the 22nd to the 24th of

March 2009 to discuss project partnershipsbetween India and Africa. The conference

looked at various projects, worth over US$

12 billion, in an array of sectors including

agriculture, minerals, mining and SME

promotion.

Increase in India-Africa Trade

The conclave also called for an increase

in India-Africa bilateral trade to reach US$

70 billion over the next 5 years, continuingthe growth trajectory that began in 2000-01

when trade was a mere US$ 3 billion and

shot up to US$ 36 billion in 2007-08.

Mr Pranab Mukherjee the Indian external

affairs minister said Given the concrete

opportunities that exist between the two

sides, India-Africa trade could easily be

doubled to US$ 70 billion over the next fve

years. I would urge this conclave to accept

this challenge and plan out strategies to

achieve it.

He also urged for supplementing

governments effort with those from

the industry, civil society and private

institutions in order to widen and deepen thefoundation of Indias growing partnership

with the African continent. Mukherjee also

mentioned that India was committed to

helping Africa bridge the digital divide and

help spread the benets of development,

especially in sub-Saharan Africa.

Pan African e-Network Project

In this connection, he pointed to Indias Pan-

African e-Network Project, the rst phase

of which he had inaugurated last month.

He said this project aims at linking major

universities and centres of excellence in

Africa and India, as well as major hospitals

with super-speciality hospitals in India to

improve higher education and medicine

facilities. The project, which currently covers

11 countries, will be extended to 22 more by

the middle of this year.

The African Drum and the Indian Sitar

In his address, Ambassador Jonathan

Wutaunashe, Dean of the African Group


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of Heads of Mission, emphasized that relations between India and Africa today

represented the growth paradigm. The African drum and the Indian sitar are today

producing beautiful music and this is clearly evident in the growth in bilateral trade

between the two regions.

Pointing out that India was the place where the economic action was taking place,

Wutaunashe said that relations between the two regions had graduated from simple

merchandise trade to investing in assets and jointly working towards achieving the

Millennium Development Goals (MDGs).

Meanwhile, in his welcome address, Chandrajit Banerjee, CII Director-General, noted

that while India remained a key contributor to the development of Africas mineral and

mining sectors, it could now enter into long-term partnerships in several new areas

like agriculture, pharmaceuticals, alternative fuels and energy.

India EXIM Bank to increase lines of credit

Indias EXIM Bank also announced a plan to capitalise on infrastructure projects in

Africa that offer lucrative opportunities despite the global nancial crisis.The bank

which has already provided lines of credit to the tune of US$ 2 billion to Africa, is

considering another US$ 600 million for the continent.

In his address to the conference Executive Director of the Bank, SR Rao mentioned

that Africa is the focus area of our operations. Rao mentioned that credit would

be extended to areas such as infrastructure, power generation and transmission,

construction of roads, agriculture and education.

The conference concluded with a commitment to building trade and investment links

between India and Africa despite the global nancial crisis - a very positive sign given

the state of the global economy.


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April 2009

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India Business Frontier April 2009

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