“THE ELEPHANT AND THE DRAGON CHASING THE LIONS” - India and China in Africa

Africa, a continent full of colors but also full of strangers…

As soon the European colonials powers left or loosened their relations with the African continent, the place seemed directly occupied by other economic actors. The interest of Asia in Africa is clearly growing in the last several years.

First came the Chinese…
During the last decade the Chinese expanded their presence all over Africa. At present you can find a Chinese initiative, project or venture in the most remote area of Africa. We are familiar with the information on huge Chinese investments and projects in Africa such as: 

• The China Development Bank's provides a $3 billion dollar credit to Ghana, better than the world bank? 
• More than 19 African countries export oil to China.
• In almost all countries of Africa China is building infrastructure like roads, bridges, harbors, railways, sports stadia, schools...
• The China Congo Pact – a resources guaranteed loan of 6 billion dollars for infrastructural investments, guaranteed by the access to the cobalt and copper mines in Democratic Republic of Congo. 
• Several hydropower projects in Nigeria, Liberia and Sierra Leone.
• China is developing 7 special economic Zones in Africa, based on the model of their SEZ’s in the South (Shenzhen,…). All the infrastructures of the zones will be financed by the Chinese government,( around 1 billion dollars per zone).
• China has 20% ownership in the Standard bank in South Africa (more than 5 billion dollars).

Next to the Chinese, came the Indians…
More silent, but maybe more strategic than its big Chinese rival, the big south Asian power expands its influence in its neighboring continent. In the last five years, Indian investment in certain African countries have increased considerably, some examples:

• India increased massively oil imports from Africa – mostly Nigeria, Sudan and Angola to reduce its dependence on Middle East oil.
• Commercial interests in Africa have been increasing from Indian investors. For example, India's diamond-cutting industry which is largest in the world imports precious stones from South Africa, Botswana, Namibia and Zimbabwe.
• Indian MNCs are exploring new market in Africa to compete with global players; Indian MNCs such as Tata, Bharti Airtel, Kirlosker and others have invested billions of dollars across the African continent.
• India decided to spend $700m to build institutions and establish training programs for Africa.
• There are plans to create an India-Africa virtual university and more than 22,000 higher education scholarships for African students. 
• India plans to contribute $2m to the African Union Mission in Somalia (AMISOM).

Why should we look into this topic?
China and India are huge players on the global economic and political scene. In this period the traditional Western powers are struggling for their survival from the economic crisis, while the influence of China and India is still increasing. They are occupying spaces of the west; for example in Africa. 

China is the main trading partner of Africa and within a short period of time it will also be the biggest investor in the continent. For Africa this could be a chance; the continent desperately need the capital, technology, infrastructure and production capacity which offers this cooperation.
India is emerging as a global service provider with its rapid growth in middle class and their purchasing power. The accruing purchasing power has created a sudden rise in demand for consumer goods, electronics, energy and household commodities in India. Today, India-Africa relations are encircled by political, economic, diplomatic, cultural, scientific and security cooperation. Indian Multinational Companies are enormously increasing investments and acquisitions in African countries.

These two new players in Africa will certainly affect and influence the position of the West in Africa. Will these two Asian rising superpowers provide a basis for development for Africa? Or will they use this continent for their own interest? This article would like to show some light on the opportunities and threats that Africa may face from this engagement. To see a better picture of this, we need to look in detail to this Indian and Chinese strategy for Africa. 

What cooperation do they offer to Africa?
What does China’s Africa cooperation looks like.
The Chinese cooperation reflects its own development path and history, on the way it has developed through its relationship with Japan, the West and South Korea. At that time China swapped technology, know-how and infrastructure to these countries for oil and coal. It facilitates the construction of infrastructure, harbors, oil and gas terminals, schools, hospitals etc in these countries. Focus is given on the development of the country, but on the other hand the exploitation and transportation of the natural resources and other products that China needs deeply are given importance. The Chinese looks at this partnership as a “win-win” situation or “Mutual Benefit” for both partners. 

Trade

Since the economic and financial crisis in 2008 China became the world largest player on trade and commercial exchange. The bi-lateral trade between China and Africa reached in 2010 more than 114 billion of dollars, this is a multiplication of 10 since 2000. This is more than 10% of the total trade figure of whole Africa. The import of China and export to Africa turns more or less around the ratio of 50-50. China exempted more than 95% of all the products coming from the 33 least developed countries of Africa of any kind of import taxation or burden. 

Investment
The Chinese invest mostly in joint ventures and a lot of these investments are backed or supported by Chinese government funds. These joint ventures are active in a broad spectrum of sectors, such as car assembly, steel, cement, pharmaceutical, chemicals, mobile telephones, refrigerators, glass, textile, shoes, leather, hair lotions, etc.

In 2007 the Chinese government has set up the China-Africa Development Fund (CADF), this foundation has a budget of over the 5 billion dollars, to invest in joint ventures and recently allotted 1 billion, to invest in small and medium enterprises in Africa.

China is also very active in the development and stimulation of the African agrarian production. During the last years they reinvested in already existing Chinese agrarian projects, and in the development of new production methods of products such as rice, cotton, sugar etc.

Many African countries can count on new and better infrastructure, thanks to the huge investments from China. Chinese are building roads, bridges, railway lines, irrigation projects, telecommunication lines etc. In the period 2002-2007 more than 5 billion dollars, were invested in infrastructure works. China is also building many hydro dams projects in 9 countries, this will increase the electricity capacity of Africa by 30%. 

Foreign aid

The Chinese foreign aid is almost always used together with trade and/or investments. The huge Chinese diplomatic structure and the foreign aid are oriented on the extension of the influence of China in Africa. It is very difficult to distinguish foreign aid out of the these mixed total packages. The Western definition of development aid is not applicable on most of the Chinese aid.

China uses 3 types of tools in its foreign policy: Grants, Interest free loans and Concessional loans. It offers foreign aid in eight forms: complete projects, goods and materials, technical cooperation, human resource development cooperation, medical teams sent abroad, emergency humanitarian aid, volunteer programs in foreign countries, and debt relief.

The Chinese foreign aid is directly linked to the State budget of China, the majority of the aid programs are coordinated by the Ministry of Commerce and the Exim Bank of China, they also give the agreement to all commercial ventures outside China. Every other Ministry has its own small foreign aid budget.

China provides a huge amount of foreign aid to Africa every year. The exact amount of this aid is unknown. The white paper on foreign aid of China indicates that by the end of 2009, China had provided a total of 40 billion dollars in aid to foreign countries, almost 46% went to African countries, 2.9 billion dollars ODA for Africa (2009).  The last years this amount increased considerably, China’s aid makes out 80% of all aid for Africa coming from Southern countries. In some year it will be the biggest donor to Africa. Since 2005 China cancelled for an amount of 3.6 billion dollars bilateral debt with African countries.

The Chinese aid is not accompanied by a list of economic and political conditions, unlike the Western aid. For this reason most of the African governments prefer China for foreign aid. 

What does India’s Africa cooperation looks like.

India has adopted a more passive or laid back approach while doing business with Africa, for two reasons; one is profit, other is it is careful about building international reputation for its own image in global arena.   

Trade
India has established trade relations with more than 40 African countries and robustly revived the growth from less than $1 billion in 1990-91 to $40 billion in 2008. In 2010, India's imports from Africa were worth $20.7 billion and its exports at $10.3 billion. Bilateral trade between India and Africa crossed $46 billion mark in 2010. India predicted its India-Africa Bilateral Trade would reach US $ 70 Billion by 2015. These investments ranging across various sectors such as oil & gas, automobiles, manufacturing, infrastructure, finance, IT, pharmaceuticals, fertilizer, services etc. India has offered ‘Duty Free Tariff Preference scheme’ for certain African countries to expand its trade.

Around 35 Indian companies have invested in South Africa that allowed South Africa to diversified the option for FDI. In Nigeria and Sudan major investments are from the Indian state owned Oil and Natural Gas Company (ONGC).  

Investments
On the whole the statistics about Indian investment in Africa is unclear, but estimates from India say it touches US $ 33 billion in 2011. Indian investments in Africa mainly are private sector driven and Indian MNCs. For example the TATA group has invested extensively in African continent operating in Ghana, Mozambique, Malawi, Namibia, South Africa, Tanzania and Uganda and their activities are in infrastructure development, energy, hospitality services, financial, communication and automotive production. Vedanta Resources, a MNC owned by a Non-resident Indian, has invested $750 million in copper mining in Zambia. Arcelor Mittal invested $900 million in iron ore reserves in Liberia and $30 million in a Nigerian steel refinery. Other major players from India in Africa are Ranbaxy Laboratories and Kirloskar Brothers. RITES Railway and IRCON, the two largest state-owned infrastructure and engineering companies, have been making inroads into Africa’s rail and road development sector through projects and concessions for several years. In recent years their Investments in Africa have increased considerably.

Over the period 2002-2007 a special Focus Africa Programme administered by the Export Import Bank of India spent around $550 million to enhance commercial links by offering export subsidies to Indian companies trading with African nations. Techno Economic Approach for Africa India Movement (TEAM-9) provides eight West African countries with credit lines worth $ 500 million reflecting India’s political-economic interest. Indian investments in Africa, come in all shapes and sizes from small family firms to MNCs in many different sectors.  

Foreign aid
India’s development cooperation with Africa is also an integral part of its foreign policy and it is being used to facilitate trade and investment. Most often it is impossible to distinguish the aid components of India as it is linked with other financial flows that do not meet the ‘official development assistance’ (ODA) criteria. India has not yet established any development agency for monitoring system and actualization of aid, It makes difficult to have a full view of the actual aid and their implementation.

India has offered a bilateral debt relief by 2008 totaling $24 million. Much of the assistance provided by India is tied to purchases of products and services from India. Trade and credits have taken precedence over development aid in Indian engagements in Africa. The share that African countries receive from Indian development assistance is currently at five percent, very marginal compared to China or the West. Unlike its role in South Asia supporting, internationally politicized contexts in Myanmar and Sri Lanka, India focuses its response in Africa to natural calamities and avoids assistance to internationally politicized contexts or conflicts.

India’s development cooperation comprises several different programs including scholarships to African students for Indian Technical Economic Cooperation (ITEC) training in 200 training courses in financial services, telecommunication, English, management, rural development and specialized technical and environmental courses in institutions across India. The main beneficiaries from ITEC are the countries located near India’s immediate periphery. India also offers scholarships to African students for university and professional courses including study on Indian music, dance and art through the Indian Council for Cultural Relations scholarship scheme. 

Some differences and similarities in this cooperation

• The Chinese intervention in Africa is mainly based on state intervention, or initiatives largely supported by the Chinese government, while the Indian initiatives in Africa are mainly belonging to the private sector.
• China is often accused of supporting “undemocratic regimes” in Africa, India is far more careful and picky in choosing its partners. After the “Sudan-Darfour” conflict case China is much more careful and more strict on its “non-interference policy”.
• In general the Indian initiatives are using more local labor than the Chinese in their projects. Due to international critics China is changing this practice to use and train local staff and labor as a priority in most of their projects. High level staff are still Chinese citizens only. 
• The Chinese are present in all countries and are doing business even they do not know the languages, while India is active in mostly the English speaking region of Africa. For many Indian MNC’s and investors South Africa is the gateway to the rest of East Africa. In the French and Portuguese speaking countries the Indian presence is still very low.   

Why are these Asian powers so interested in Africa…. The economies in Africa are expect to grow during the next years, the African middle class will grow to more than 500 million people. China and India are producing more and more products (consumer and others) for which the huge, new African market opens a lot of possibilities.

China is also moving some of its basic, low value added and polluting industries into Africa, because it wants to clean up these industries in their southern most industrialized region. It could become a high environmental cost for Africa. At the same time the Chinese try to position their large state owned and private companies in Africa with the objective of acquiring experience and expertise with the objective to improve their situation on the world level afterwards.

Next to the economic reasons, both countries have also a huge political interest in moving into Africa. China and India eyes for the support of the African states to give their proposals more leverage. For example China only works with the countries in Africa that agree with its “one China policy” and India quietly lobbies its African partners to get for example a seat in the security council of the UN.

And then there is still the security issue of the Indian ocean… The Indian ocean is a strategic area for all type of sea transport between Asia and Africa. India is very active in keeping a close link with the East African countries neighboring the Indian ocean; India is heavily involved in the battle against the sea pirates and provides training to the marines of its neighbors. China’s is one of the main users of this ocean transport for all its export and import of goods.

Both countries organizes a specific Africa forum, China has its Forum on China African Cooperation, India its India-Africa Forum. Both have the objective to strengthen the ties between Africa and the two respective countries to expand their economic and political influence.

China’s conquest of Africa receives the advantage of huge amounts of capital, a high level of facilities like trade and preferential tariff lines, the effectiveness of the interventions and credit lines etc. At the same time the longer presence and the huge diplomatic force supporting this expansion into Africa are certainly positive elements for China to keep a head lead on India in Africa.

But India’s less aggressive strategy, lead by its private sector could have a more sustainable impact on long term. Elements of proximity, cultural and historical links and a huge diaspora presence in Africa, are playing in India's favor. 

Consequences on Africa

This growing influence and presence of India and China in Africa provides the continent some advantages such as;

• Several countries can count on renewed and important infrastructure, harbors, airports, roads etc. These will play an important role in future economic development of these countries.
• Due to the competition from the new players, like India, China, and also the other BRICS countries, the search for natural resources, the monopoly position of the Western countries is on the international market is broken. Extra demand leads to increased prices for natural resources on the international market, and indirectly several African countries benefit from it. The African export of resources is growing.
• The import of cheap Chinese and Indian consumer goods make it possible for a big part of the African population to access to these goods and services, like refrigerators, radio, tv’s, mobile phones etc. Without the presence of these cheaper, but not necessarily better consumption goods a lot of people would still be deprived of these luxuries. At the same time the opening of this new partnership reduces the African dependence of its old economic partners.
• The implantation of Chinese industries, though polluting and low-level, labor intensive industries, in Africa has a positive spillover effect on the African economy: the African entrepreneurs can copy them, a neighboring economic activity will be created and there can be the advantage of the technology transfer. 
• The spectacular increase of FDI inflow has a positive impact on local employment, and the overall growth of the economy.
• Both of the countries invest in peace and the progress towards the MDG’s in Africa, through health programs, construction of schools, educational programs etc.

At the same time the presence of these foreign powers could endanger African development. If the African countries fail to protect themselves and develop policies that develop their momentary growth potential in a sustainable long term development, the continent could once again miss the opportunity and become prey to new predators.

If the African countries continue to base their development strategies solely on the supply of raw commodities, the national income may increase, but the poverty will not necessarily decrease. Until now the industry does not focus local employment creation and promotion as a priority in its natural resource extraction process and investments in new projects. African countries should capitalize the benefits to promote job-rich sectors and to diversify its economic activities. The African governments should continue to stress the priority of employment creation in the negotiations of new projects or initiatives with their Indian and Chinese partners.

Next to the factor that the Chinese and Indian economic activity in Africa can create a new dependence towards these actors, there is also the new risk of creating a new debt problem for several African countries. Dumping and export oriented agricultural food production could not only threaten African economy, but seriously undermine the right to food and worsen the food crisis.

As well the Indian and the Chinese companies do not have a very high reputation for the respect of the national and international labor laws and standards. If the African countries want to provide and promote decent work to their citizens and workers, they will have to monitor closely the activities and practices of these foreign companies. They will have to strengthen their labor laws and labor inspection policies to better protect their workforce. Of course strengthened African trade unions and a efficient social dialogue including in these foreign companies would help to certainly limit the violations of the labor standards and legislation. 

In conclusion this South-South Cooperation could be a benefit to Africa only if it creates the conditions for local ownership, employment creation, transferring technical skills, respect and promotion of human and labor rights and environmental protection. For that, the Indian and Chinese agreements, contracts and development reports should be transparent and open to public scrutiny.

 

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Dutch version of this article appeared in the november 2011 edition of  a monthly magazine in Belgium