India Business Frontier

India Frontier Advisory

April 2009 Research & Strategy in and beyond emerging markets

The resilience of India’s investments in Africa

Lisa Brown, Junior Analyst at Frontier Advisory

Contents:
The resilience of India’s 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 Profile............................7
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 flows changing direction,
one has to wonder about the security of
India’s position and the ripple effects on
Africa.
On a domestic level, India’s 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
India’s 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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India Business Frontier
India Frontier Advisory
April 2009 Research & Strategy in and beyond emerging markets

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 deficit 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 India’s healthy economic growth.

Industrial Production Growth (% Y/Y)

Source: Bloomberg

Despite the global economic slump and the changing flows 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 significant consumer parachute in place, comprising of the large
population, many of whom are entering the workforce.

Contribution to GDP growth, FY2003-08 (%)

Private
Consumption Investment
37.2% 45.7%

Net
Exports
Government 13.1%
Consumption
4.0%
Source: Central Statistical Organisation, TS

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India Business Frontier
India Frontier Advisory
April 2009 Research & Strategy in and beyond emerging markets

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 other

emerging economies like China, this could cushion a fall in GDP growth.

But what about Africa?

Many economists see Africa’s close relationships with India and China as becoming
even more beneficial once the global economy starts to recover, mainly because of
the commodity market accounting for 78% of the continent’s export income. India’s
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 for
engineering goods away from China, and towards India. This is due to problems with
expensive and delayed Chinese deliveries and India’s 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 fibre-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 finalised 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 five 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 India’s
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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India Business Frontier
April 2009
India Inc in Africa
Frontier Advisory tracks India’s commercial movements in Africa. This section provides an overview of key investments in the
last two months.
Cameroon
Indian firms to assist
Cameroon with hydro projects
Indian firm, Angelique
International, will build two hydro
power plants in Cameroon, part
of a US$ 251mn aid agreement,
in cooperation with the Export-
Import Bank (EXIM Bank) of
India. The loan will also finance
drinking water and sanitation
projects..
South Africa
Tata Group, Sasol shortlisted for coal conversion
project
The Tata group’s joint venture with Sasol SA and
Jindal Steel and Power, has been shortlisted for
a prestigious US$ 6.8bn pilot project in India to
convert coal into liquid petroleum. The project aims
to produce 80,000 barrels of crude oil per day, by
liquefying coal reserves. The combined venture
pipped Reliance Industries and GAIL, whose
proposals were not accepted due to the processes
put forward.
Tata increases Neotel stake
Tata Communications has bought a 30% stake in
South African company Neotel, resulting in Tata
Comms becoming a controlling shareholder in the
company. The stake was previously held by Eskom
and Transnet, and reaffirms the Indian company’s
commitment to investing and expanding in emerging
regions and allows Neotel to utilise their global
network of technologies.
Tata to manage Seacom International undesea
cable
Tata Comms. also struck a deal for Neotel to become
the ‘anchor tenant’ on the Seacom International
undersea cable. As a result, Tata will manage the
cable, its billing systems and customer relations as
well the management of the landing at Mumbai and
Marseilles. Neotel will manage the South African
landing at Mtunzini. The presence of this cable aims
to decrease bandwith costs and improve connectivity
across Africa, already prompting a 80% decrease in
data costs by Telkom.
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India Frontier Advisory
Research & Strategy in and beyond emerging markets
Mali
Indian company invests in
cement works Kenya
The Malian government and an Opportunities for Indian
Indian company, West African investment in Kenya
Cement SA have agreed on a US$ Indian investors have been
231mn investment in an integrated encouraged to consider
cement works in Diamou. The investment into Kenya, along
project will create 1052 permanent the sides of the recent Vibrant
jobs and aims at an annual capacity Gujarat Global Investment
of at least 1 mn tonnes of cement. Summit. The Economist
projects 3.5% GDP growth for
2009, and with infrastructure
the cornerstone of Kenya’s
future development plans,
opportunities in road and rail
construction and gas and oil
exploration abound.
Zambia
Two Indian firms in bid for
key Zambia mine
Vedanta Resources and Nava
Bharat have both qualified
for the final bid for Zambia’s
largest coal mine, Maamba
Collieries. Both companies
submitted proposals to operate
the mine, and to construct a
thermal power plant nearby. The
latter project aims to improve
the erratic electricity supply,
a result of increased demand
due to new mines and industrial
expansion. Vedanta already has
a strong footprint in Zambia,
as the majority shareholder in
the country’s largest copper
producer, Konkola Copper
Mines.
Africa
CII-EXIM Bank conclave considers US$ 12 billion
projects for Africa
More than 400 delegates from government bodies
and businesses from Africa have gathered in New
Delhi to discuss project partnerships between India
and Africa. Agriculture, minerals, mining and SME
promotion and human capital formation sectors are
the aim of projects worth over US$ 12bn.
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India Business Frontier
April 2009
A view from the CII — Exim Bank India-Africa Project Conclave
Abdullah 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 partnerships
between 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, continuing
the 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 five
years. I would urge this conclave to accept
this challenge and plan out strategies to
achieve it.”
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India Frontier Advisory
Research & Strategy in and beyond emerging markets
He also urged for supplementing
government’s effort with those from
the industry, civil society and private
institutions in order to widen and deepen the
foundation of India’s growing partnership
with the African continent. Mukherjee also
mentioned that India was committed to
helping Africa bridge the digital divide and
help spread the benefits of development,
especially in sub-Saharan Africa.
Pan African e-Network Project
In this connection, he pointed to India’s Pan-
African e-Network Project, the first 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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India Business Frontier
India Frontier Advisory
April 2009 Research & Strategy in and beyond emerging markets

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 Africa’s 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

India’s EXIM Bank also announced a plan to capitalise on infrastructure projects in
Africa that offer lucrative opportunities despite the global financial 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 financial crisis - a very positive sign given
the state of the global economy.

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India Business Frontier
India Frontier Advisory
April 2009 Research & Strategy in and beyond emerging markets

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