India-Africa Ties: Economics and Multilateralism

If India is serious about its Africa initiative, a lot will depend on how it marshals its banking and financial sector there

The Leaders’ Declaration from G20 this year comes with an added annexure. It is called the G20 Africa Partnership, included at the insistence of Germany, which has the G20 presidency for 2017 and is at liberty to set the multilateral grouping’s agenda for the year. The annexure states its purpose: “The Partnership intends to support related initiatives of the G20 and facilitate investment compacts between interested African countries, international organisations and interested partners to support private investment, sustainable infrastructure and employment in African countries.”

Germany, as well as the European Union, have an abiding interest in Africa. The unrelenting waves of migration from North African shores (often leading to loss of lives while crossing the tempestuous Mediterranean Sea) and Europe’s volatile immigration politics are likely to have prompted Germany to rally the international community around Africa’s plight. Hence the partnership document focuses, among other things, on creating sustainable employment opportunities so that African youth do not risk lives in search of livelihood elsewhere.

Ironically, the G20 club includes only one African nation, South Africa. The Partnership document has its fair share of detractors, especially within African nations, and suspicions about its overwhelming reliance on private sector investment.

It also holds out three lessons for India.

The first relates to deeply embedded historical attitudes towards Africa. These rose to the surface again, perhaps unwittingly, while French President Emmanuel Macron was addressing a G20 press conference in Hamburg. Answering a question on why there was no Marshall Plan for Africa, Macron is believed to have said Africa had a different set of problems, which included “civilizational” problems. Some of the unique problems cited by Macron included failed states, complex democratic transitions and African women giving birth to seven-eight children. This predictably triggered a maelstrom of protests and diverted attention to Africa’s colonial past and France’s role in it. Macron’s statement was also viewed as reflecting Europe’s smug (and enduring) belief of civilizational superiority. Macron almost buried the partnership even before it had an opportunity to take off.

India must take note of this public relations disaster. The impact of government’s intensive outreach programmes has often been blunted by violent displays of racism against African students and citizens living in Indian cities. It is indeed an odd occurrence for India, which boasts of a long and shared history with Africa—especially cultural, social and trade ties. If at all, there is a felt need to accelerate the Indian Technical and Economic Cooperation (Itec) programme which provides capacity building for officials from low- income countries.

The second lesson arises from the G20’s internal contradictions and the possible impact on India. The document has a section on strengthening the framework for investments and private finance in Africa, in which the G20 welcomes other partners and “…complementary measures by the forthcoming EU External Investment Plan, the Forum of China Africa Cooperation, the Tokyo International Conference on African Development as well as others”.

Herein lie the conflicts within the G20: China, Japan, Turkey and the US are all independently competing for a foothold in Africa, with each country aggressively courting nations and their heads of state. Germany and the European Union are joining the fray now. India also has its own India Africa Forum Summit, which has been re-energized and supplemented with state visits by Prime Minister Narendra Modi, then president Pranab Mukherjee, vice-president Hamid Ansari and other senior ministers.

Given the multiplicity of competing interests, it has to be seen whether different countries will be willing to subsume their Africa ambitions under an over-arching multilateral approach. India will need to watch this effort closely. If required, India could consider activating the Asia-Africa Growth Corridor (AAGC), its joint initiative with Japan, through the G20 compact. The AAGC, which places significant emphasis on both infrastructure investment and capacity building, aligns well with the G20’s Africa approach.

The third point relates to the implicit assumptions behind private sector investments—that they will automatically generate more trade. Unfortunately, intra-Africa trade accounts for only 14% of Africa’s total trade. It is true that poor infrastructure slows down intra-Africa trade traffic, and therefore higher investments in road and rail infrastructure will surely help. The problem lies elsewhere—the lack of a trade facilitation culture and customs capacity which hinders cargo movement. India and Itec can definitely help here.

More importantly, there are other opportunities for India. Data from the African Development Bank shows only 31% of Africa’s trade is backed by bank-intermediated trade finance. This is clearly an opportunity for Indian banks. India’s banking presence in Africa seems to have lost its relevance over time: The geographical footprint is built around traditional Indian diaspora habitats in east and south Africa, and operations are tailored around ethnic banking services. Late in entering Africa, Chinese banks have already acquired stakes in leading banks. If India is serious about its Africa initiative, a lot will depend on how it marshals its banking and financial sector there.

The above article was published in Mint newspaper on July 26, 2017, and can also be accessed here 

The Chinese Encirclement: Within and Without

The recent geopolitical dispute highlights the fraught and schizophrenic nature of the India-China relationship

The recent border dispute has again raised the spectre of Chinese encirclement. It comes close on the heels of India’s boycott of the ambitious Belt and Road Initiative (BRI) summit in China. What is unfortunate, though, is that the dreaded encirclement may have already occurred and, if anything, the recent dispute highlights the fraught and schizophrenic nature of the India-China relationship.

The fresh skirmish at the tri-junction of India, Bhutan and China is part of on-going border tensions. The stand-off continues with both sides raising the temperature gradually, much like the dial on a thermostat; apart from incendiary statements, China recently increased its fleet presence in the Indian Ocean Region. In the past, many similar border misunderstandings were resolved quietly. The latest one burst into the headlines with impeccable timing during Prime Minister Narendra Modi’s visit to the US.

India ignored the BRI summit because it objects to the China Pakistan Economic Corridor (CPEC) which passes through Pakistan-occupied disputed territory. India’s contention is that CPEC is a unilateral validation of Pakistan’s claim on disputed territory. There are other reasons for India’s nervousness. China’s BRI is viewed as a strategic encirclement of India: Hambantota port in Sri Lanka, CPEC traversing west China via Gilgit-Baltistan all the way to Gwadar port in Balochistan, a road from Yunan province cutting through Myanmar to end at a deep-sea port in Kyaukpyu.

But, apart from the geopolitical squeeze, developments seem to indicate that a Chinese geo-economic encirclement may have already happened. While there is popular concern over the overwhelming presence of China-made idols of Indian gods or cheap toys, these are the proverbial iceberg’s tip. What seems to have gone unnoticed is an insidious China creep within the Indian trade, business and financial landscape.

News from the cricket world provides a glimpse: Chinese handset manufacturer Vivo won rights to cricket tournament Indian Premier League (IPL). Vivo will pay Rs2,199 crore for the next five years, which works out to 267% premium over base price of Rs120 crore a year. The next closest bidder was Oppo, which bid Rs1,430 crore for five years. Vivo’s bid is impressive, when compared to Oppo’s bid or the base price, or even amounts paid by previous sponsors (such as, DLF or Pepsi).

But it’s hard to miss the irony. Brands Vivo and Oppo are actually siblings and manufactured by the same Chinese company, BBK Electronics (which also owns brand One Plus). The IPL bidding process should have treated them as parties acting in concert, though that seems to have been overlooked in the general brouhaha over the money on the table. Chinese handset brands now command over 50% of the Indian smartphone market share.

Here’s another example. Chinese capital goods manufacturers have made deep inroads into India, with some critical sectors now highly dependent on Chinese spares and after-sales servicing. For instance, in the boiler-turbine-generator (BTG) segment, many Indian power producers have installed Chinese BTGs. In the 12th Plan alone, close to 30% of generating capacity was sourced from China, with the trend continuing in the 13th Plan as well. What tipped the scales, apart from shorter delivery windows, was cheap buyers’ credit (through Exim Bank of China), with installation crews and maintenance staff thrown in.

Chinese portfolio investors are the other angle in geo-economic encirclement. Among the list of banks managing the recent Central Depository Services Ltd initial public offering was a curious name: Haitong Securities India Pvt Ltd. Haitong, as per its website, is China’s second largest securities firm. Many of the firm’s senior management members hold, or have held in the past, organizational positions in the Communist Party of China. Haitong gained a toe-hold in the Indian market through its global acquisition of Espirito Santo. But, what is really interesting is that Haitong Securities was the book running lead manager in an IPO in which government-owned banks—State Bank of India and Bank of Baroda—were divesting their shareholding.

The Chinese footprint in the digital economy is also expanding rapidly. Numerous Chinese companies—Alibaba, Tencent, CTrip, Beijing Miteno Communication Technology, Bytedance—have made large investments in the Indian digital ecosystem, a mission-critical segment for Modi and his ministers.

India suffers a trade deficit with China which has increased over the years: from $38.7 billion in 2012-13 to $51 billion during 2016-17. One of the reasons for the large deficit are Chinese tariff and non-tariff barriers which constrain Indian exports; for example, Indian pharmaceutical exports have found it difficult to penetrate the Chinese market. Increased Chinese foreign direct investment was suggested to counter the rising trade deficit. But, there were no discussions on the nature of that investment: whether for manufacturing or for assembly jobs.

It would be hasty, and perhaps imprudent, to advocate slamming the doors or erecting barriers. But it is difficult to ignore the duality in rhetoric from both sides. The high decibel in security and strategic issues seems to be disengaged from trade and investment realities. One key question, therefore, needs to be answered: What kind of cost-benefit is involved in keeping engaged or in disengaging?

The above article was originally published in Mint newspaper and can also be read here