By Gautam Banerjee
The economic stirring of the African continent began in the early 1990's through a series of serious structural reforms and improvements in economic management. Important changes were brought in through legislation to develop the private sector by offers of incentives. It is not that risks of doing business in Africa, such as sudden regime changes, violence and logistical nightmares, has disappeared. They remain, but lure of high returns compensate for the risks.
Role of Foreign Direct Investment (FDI)
The physical investment by a company from one country in another country is known as Foreign Direct Investment or FDI. Such investment could be in factories, land and mines. The parent enterprise who invests in the foreign land also has some control over it's foreign affiliate. The parent enterprise and the foreign affiliate form an international business or multinational corporation, popularly known as MNC. The FDI is a measure of foreign ownership of productive assets.
Traditionally developing countries have depended on the developed countries for trade and investment. The developed countries act as a source of foreign capital to the capital scarce developing countries. This often mean an unequal distribution of economic power in favor of the developed countries leading to exploitative behavior in terms of extraction of raw material from the developing countries and to use them to produce and export manufactured goods back to them at huge profits.
For capital scarce less developed countries such FDI from developing countries are welcome as African countries hope that FDI from big developing countries like China and India would be free from the exploitative behavior arising out of FDI from developed countries in the past. Also the trade and investment co-operation will bring significant change in the power imbalance in the international economy.
Destination Africa
There is an increasing realization among companies from developing countries like India and China that they are operating in a global economy and many are induced to develop an international vision. In such a situation, the most logical place for them for business opportunities and growth is Africa.
It provides the much needed presence in a location. Many industries have their presence across the globe by way of subsidiaries to cater to business in a region. Acquisitions such as recent buying out of local hair care brands in Africa by an Indian consumer product company, Marico, allows access to local markets and to obtain a new product mix. This otherwise will require huge investments and a long time to manufacture locally.
Manufacture of many a product require technology that is not available to the Indian and Chinese companies. By acquiring companies abroad, they also acquire advanced manufacturing technologies that further help in reducing cost of production.
Chinese Investment in Africa
Since late 1980's economic and strategic factors prompted Beijing to take an active interest in Africa. It is a potential market for Chinese exporters and a source for new energy and raw material supplies. The Chinese government actively promoted investment in key sectors, namely,
Industrial processing including electronics, machinery and garment
Agriculture
Energy and minerals
Infrastructure and real estate development
It provided concessional aid, debt relief and other economic support. Also used military aid and promoted softer ties in education, science, culture and health. Involvement with various projects from real estates to improving poor infrastructure helped Chinese to secure oil exploration rights which also helped Chinese FDI in Africa. Trade increased from USD 11 billion in 2000 to USD 40 billion in 2005. and estimates suggest that it will top USD 100 billion by 2010
Indian Investment in Africa
Unlike the Chinese push driven by its government, the Indian investment in Africa is led by the private sector. Africa is the new frontier for Indian companies with big-ticket investments and acquisitions. Also it holds promise for Indian FMCG companies. It has a middle class larger than India, estimated between 350 and 500 million and a rising per capita income. The presence of a large Indian diaspora also helps.
There are about 42 odd top level Indian companies that have notable presence in Africa. For example, Tata Group, Mahindras, Ashok Leyland, Essar, NIIT, Marico etc., with a range of products from automobile, telecommunication, IT training to cosmetics. Indian pharmaceutical companies like Cipla, Aurobindo and Matrix have already made their mark in Africa by marketing affordable and good quality drugs which have found wide acceptance.
Indian oil companies in Africa, like ONGC Mittal Energy Ltd. also pursue acquisition oil and gas assets. Africa has proven oil reserves of about 16 billion metric tons and gas reserves of about 500 trillion cubic feet. India's domestic reserves are insignificant and it makes sense for them to establish their presence in Africa
Keeping Up With The Chinese
China's growing presence and aggressive push aided by it's government has generated considerable ill-will and wariness manifested with internal resistance in many countries across Africa. The presence of about a million Chinese who now work in Africa is a potential flash point. China is accused of propping up dictatorships and repressive regimes by direct military aid and favors. Here India has done better as it is not a political engagement for India in Africa.
China's presence has grown in the past ten years. It can take 20-year investment risk with Chinese government's support. It can build huge infrastructure facilities in Africa as a grant. Indian private companies in Africa does not have the wherewithal to compete with it at that scale. They should not run smack into Chinese competition , but must tap countries in Africa where China is not as active.
But India's presence in trade, investment and finance is bound to increase and some direct conflict with Chinese interests may be difficult to avoid in the days to come.//africanaffairs.suite101.com
"China is accused of propping up dictatorships and repressive regimes by direct military aid and favors."
China's economic presence in Africa has been described by pundits as an "economic catch 22" While Africans cherish and encourage mutually beneficial trade relationships,they abhor attempts at neo-colonialism camouflaged as commerce.
Posted by: Dr Peter Vakunta | January 01, 2010 at 07:19 PM
Hallo,
Wirklich schöne Arbeit, Es gibt viele Menschen auf der Suche über die sie jetzt genug Quellen, die von Ihren Tipps.
Auch ich freue mich auf weitere Tipps über
Posted by: Generic Cialis | April 05, 2011 at 11:59 PM