Diplomacy & Foreign Affairs (diplomacyandforeignaffairs.com) by Maheswaran Gnanaprakasam

Contents 05

Interview: Mr.Vinay Kumar,Joint Secretary (E&SA), Ministry of External Affairs, India

Interview: H.E. Bothata Tsikoane, The High Commissioner of The Kingdom of Lesotho

India’s Africa Policy: Towards a More Coherent Engagement

INDIA – AFRICA : SOUTH-SOUTH Trade and Investment for Development

India’s African Engagement

Investment Opportunities in African Infrastructure

Interview: H.E. Alexandre CECE Loua, Ambassador of the Embassy of the Republic of Guinea in India

THE “MOUNTAIN KINGDOM OF LESOTHO” “THE ROOF OF AFRICA”

Infrastructure Financing Opportunities in Africa

Opportunities for Indian private sector in Africa’s Agro-Food Industry

44 Editor-In-Chief: Maheswaran Gnanaprakasam (mahesh24.creative@gmail.com)

Investment Opportunitites in Africa Across Sectors

Tourism in Africa: Harnessing Tourism for Growth

Diplomacy & Foreign Affairs Magazine

Published by Diplomacy & Foreign Affairs Magazine in association with CII Editor-In-Chief: Maheswaran Gnanaprakasam (mahesh24.creative@gmail.com) Diplomacy & Foreign Affairs Magazine S-442, Shakarpur School Block, New Delhi - 110092 India Tel. No. 011-32316194 Email : editor@diplomacyandforeignaffairs.com Disclaimer The opinions/ comments from writers are their own and Diplomacy & Foreign Affairs magazine does not endorse the claims made therein.

10th CII-EXIM Bank Conclave on India-Africa Project Partnership

Message

Mr Chandrajit Banerjee, Director General, CII The India-Africa partnership assumes new significance as the world becomes increasingly inter-connected and inter-dependent. Over the years, this partnership has successfully retained its “distinct and different” characteristics with both partners maintaining a keen focus on each other’s fundamental strengths while entering into mutually beneficial partnerships. India is strongly committed to Africa’s socio-economic, technological and human resources development and partners African Government in a consultative, participative and responsive manner based on Africa’s own assessment of their needs. Many African nations have diversified and globalised their economies and Indian industry is seeking to deepen its footprint in Africa’s economy through collaborations, knowledge sharing and technology transfer. Given that most African economies are on a high growth trajectory, investment opportunities are coming up both in the traditional and emerging business sectors, covering agriculture, plantation and forestry, physical infrastructure development, renewal energy, power generation and transmission, petro chemicals and mining. Indian companies could play a vital role in Africa’s quest for food and energy security, high-end manufacturing growth, R&D, and value-addition in its key industries. We, in CII believe that as the global economy faces stiff headwinds, deeper India-Africa economic cooperation will provide the growth impetus to global economy. It is in this context that we are happy to partner with the Diplomacy and Foreign Affairs Magazine to present this special edition on the occasion of the 10th CII-EXIM Bank Conclave on India Africa Project Partnership. Chandrajit Banerjee Director General

Diplomacy & Foreign Affairs Magazine | March 2014

Interview

Under the framework of the India-Africa Forum Summit (IAFS), our historical relationship with Africa has been revitalized. Our political support for Africa has been augmented by closer economic cooperation including economic assistance, functional cooperation, soft loans and private sector investment.

Mr.Vinay Kumar,

Joint Secretary (E&SA), Ministry of External Affairs, India

ow do you view the evolution of India's relations with Africa? India and Africa share historic and close ties. These ties predate India’s independence and were established centuries ago. After its independence, India consistently supported African countries in their struggle against colonization and apartheid. This was highly appreciated by African people and leaders. Indian leadership enjoyed close and warm relations with several African leaders. Also, India’s own independence served as an example to many African countries in their liberation struggle. As we consider how these ties have evolved over the past six decade, we can look back with satisfaction at the multifaceted cooperation which has grown between India and Africa. In the new century, we look forward to the future with immense hope that these ties will further expand and deepen. There is immense potential for us to realize. India’s approach to cooperation with Africa is under the rubric of South-South Cooperation, responding to African needs in the development process especially in: i) capacity building; ii) infrastructure development; iii) promotion of trade and industry; and iv) value addition/beneficiation. Particularly as both India and Africa are young societies and want to translate the demographic dividend into effective growth, capacity building has been an area of high importance. The successful utilization of training slots the ITEC and ICCR programmes has been a manifestation of the effective South-South Cooperation that exists between India and Africa.

hat is India-Africa Forum Summit (IAFS)? How has the IAFS mechanism affected India-Africa cooperation? India-Africa Forum Summit (IAFS) is a relatively new mechanism; it was put in place in 2008 to explore avenues for a more structured and enhanced India-Africa interaction. IAFS is held every three years alternately in India and Africa. Africa's participation is based on the so-called “Banjul Formula” wherein a select group of African countries, representing all the regions of the Continent, are invited for the Summit. As I mentioned, under the framework of the India-Africa Forum Summit (IAFS), our historical relationship with Africa has been revitalized keeping in view functional cooperation in the 21st century. The first India Africa Forum Summit was held in 2008 in New Delhi, which adopted the Delhi Declaration and India-Africa Framework for Cooperation. Both documents together defined the future roadmap for cooperation between India and African countries. Following the first India-Africa Forum Summit in 2008, nearly $ 6 billion in new funds were committed for economic engagement with Africa including a significant proportion committed to capacity building and human resource development. In May 2011, the second Africa India Forum Summit (AIFSII) was organized in Addis Ababa. This summit built upon the foundations of the first IAFS meeting, and further contributed to designing structure of an enhanced engagement between India and our African partners. Two documents, the Addis Ababa Declaration and the Africa India Framework for Enhanced Cooperation adopted at the end of the Summit guide our systematic and enhanced engagement with Africa. The Addis Ababa Declaration is a political document that covers issues of bilateral, regional and international interest to India and Africa, including our common position on UN reforms, climate change, WTO, international terrorism, etc. The Africa India Framework for Enhanced Cooperation spells out the agreed areas of cooperation, including human resources and institutional capacity building, education, science & technology, agricultural productivity and food security, industrial growth, including small & medium enterprises and minerals, development of the health sector, development of infrastructure, ICT and the establishment of judicial systems with police and defence establishments under civilian control. The next India Africa Summit may be held later this year and will build on our existing cooperation.

egional integration is high on Africa's development agenda. How has India's relations with various African Regional Economic Communities (RECs) developed over the last few years? The three-tiered structure of the India-Africa cooperation lays strong emphasis on the Regional Economic Communities (RECs) of Africa. Although there are more than 40 RECs in Africa and efforts for their harmonisation are always undertaken with mixed success, 8 RECs are recognized as major and active ones: EAC, ECOWAS, COMESA, SADC, IGAD, ECCAS, CEN-SAD and UMA. The AU Countries chairing these 8 RECs form the part of the “Banjul Formula” and are invited to the India Africa Forum Summit.

March 2014 | Diplomacy & Foreign Affairs Magazine

10th CII-EXIM Bank Conclave on India-Africa Project Partnership

At present, we have MoUs with EAC, COMESA, ECOWAS and SADC under which discussions have taken place at official/ Ministerial level. With IGAD and ECCAS, MoUs have been proposed. Action Plan of the first India Africa Forum Summit (IAFS-I) had certain elements allocated at the regional level. Keeping these elements in mind and the importance given by African leaders to the issue of regional integration, in November 2010, a new initiative was taken to enhance our linkages with the RECs. The 1st India-RECs Meeting was organized in New Delhi in November 2010. Delegates from 6 RECs participated in the Meeting. The 2nd India-RECs Meeting was organized in New Delhi during 8-9 November 2011. The new Action Plan for AIFS-II, which was launched on 6th September 2013, has several regional initiatives. We propose to establish 32 regional institutions the locations of which have been decided in consultation with the RECs. Further, the African Union’s efforts at promoting regional integration in Africa is being supported by extending a GoI line of credit worth US$ 300 million for the Ethio-Djibouti railway line. As part of our overall engagement with Africa, we shall continue to reinvigorate our engagement with the RECs. We also propose to organize the 3rd India-RECs meeting soon.

ndian Diaspora has played an important role in India’s progress especially in the post-liberalization era. How does India engage with her Diaspora in Africa? India and Africa have for centuries had strong people-to-people linkages. The African continent has played host to Indian settlers in modern times for over hundred and fifty years. These settlers were transported to various African countries, whether voluntarily or otherwise, primarily in the wake of the expansion of the British colonial empire into Africa. Indian origin people in Africa play an important role not only in the socio-economic life of their adopted countries but have also accepted the mantle of political responsibility in countries such as Mauritius and South Africa. Today there are 3-4 million People of Indian Origin (PIOs) and NRIs spread all across Africa although an overwhelming majority has settled in Anglophone countries. With over one million people of Indian origin, Durban is considered to be the PIO capital of the world. It is our endeavour to engage with this important resource that we have in Africa. Our Missions and Posts are entrusted with the responsibility of reaching out to the diaspora. Ministry of Overseas Indian Affairs regularly organizes Pravasi Bhartiya Divas, which is a useful platform where PIOs assemble from all over the world, including Africa.

ow would you describe the state of India-Africa relations as far ascommerce, trade and investment are concerned? India and Africa share the mutual desire to expand economic cooperation and trade and investment linkages between them. The trade and investment between Africa and India have increased; both Africa and India have agreed to take further measures to continue to create a positive ambience for such enhanced flows. India-Africa trade touched US$ 68 billion in 2012-13. This is an encouraging development, however, this is still well short of the potential. It is our endeavour to reach the US$ 100 billion mark by 2015. India’s unilateral non-reciprocal Duty Free Tariff Preference Scheme (DFTP) Scheme for LDCs announced at the time of the first India-Africa Forum Summit in 2008 has significantly contributed to the ability of African LDCs to access the growing Indian market and contributed to the creation of complementarity in their export

Diplomacy & Foreign Affairs Magazine | March 2014

baskets. We are currently examining a proposal to further expand coverage of the products, which have now become of interest to several African countries to export to India under DFTP Scheme. According to the latest joint report by the Confederation of Indian Industry (CII) and the World Trade organization (WTO), India's current investments in Africa amount to more than $50 billion. This too can be significantly enhanced provided the right synergy can be achieved between the government policies and private sector entrepreneurship. There do remain certain areas of concern. Trade in most African countries still mostly involves buying and selling of commodities; manufacturing remains stunted amid a deluge of cheap imports. Africa’s infrastructural deficit sits at $93 billion per annum. Intra-Africa trade is only 10 percent as compared to 25 percent in South-East Asia. The integration processes in various parts of Africa have had a mixed result. Nevertheless, in spite of these challenges, Africa continues to grow. Africa today is showing more promise than at any other time since the decade of 1960s when the vast swathes of the continent achieved political independence. In the near future, African economies have to diversify and expand in order to absorb the 10 million new annual entrants to their labour force. This would open up vast opportunities for the Indian corporate sector to participate in Africa’s economic and commercial renaissance.

n the recent past, several of the emerging economies have become active in their cooperation with Africa. How does India see this renewed interest in Africa on the part of China, Brazil, Turkey etc. ? As I said, India's relations with Africa are unique and have been shaped over a long period of historical association. Our cooperation with Africa is not premised on Africa's cooperation with any third country. We strongly believe that there are certain commonalities in the development experience of India and those of our African partners. This originated primarily in our shared colonial past. This, perhaps, puts India in a somewhat privileged position of understanding Africa's needs at this point in time. African leadership shares this view and acknowledges IndiaAfrica relations as “special”. We also welcome the renewed interest of various emerging economies in Africa and hope that our African partners will have the benefit of experimenting with best practices across the development spectrum.

n the recent past, some concern have arisen with regard to African national residing in India. Kindly share your views on the issue. Let me take this opportunity to reiterate that we feel immense pride in hosting people from across the world, especially from Africa. We firmly believe in the millennia-old concept of Vasudhaiva Kutumbakam: the whole world is one single family. Over its long and glorious history, India has always been open to external influence and has never shunned any group or community on their basis of their race, religion or geographic origin. India is fast becoming a favoured destination for many African students. At any given time, we have over 15,000 African nationals studying in various Indian educational institutions. There has also been perceptible increase in the number of medical tourists. As India-Africa cooperation further expands and deepens, we expect these numbers to go up significantly. It remains our endeavour that all our guests from across the world feel at home in India and are provided with a sense of security that a law-abiding society like ours extends to its own citizenry.

10th CII-EXIM Bank Conclave on India-Africa Project Partnership

Interview

H.E. Bothata Tsikoane

The High Commissioner of The Kingdom of Lesotho

Let me thank you very much for this opportunity granted to me to talk to Diplomacy and Foreign Affairs Magazine. First of all, for those who are not familiar with the location of Lesotho, it is a beautiful small independent democratic country centrally located within the Republic of South Africa. Its location gives it access to the market in South Africa and other neighboring countries in Southern Africa region.

ow do you see the relationship building between India and Lesotho in terms of economic and trade cooperation since the establishment of the mission in 2005?

Since the establishment of the Mission in 2005 in New Delhi, India, Lesotho is generally satisfied with the existing friendly bilateral relations with India and wishes to further intensify this relationship. In terms of economic development the Lesotho appreciates the assistance provided by the Government of India in infrastructure project for the construction of Lerotholi Polytechnic Information Technology. India has also granted a Line of Credit worth US$ 4.7 million towards the construction of Vocational Centres for youth and women empowerment. Recently, another LOC to the tune of US$ 10 million for agriculture development has been extended. Government of India continues to assist Lesotho in the area of capacity building under the sponsorship of Indian Technical Cooperation (ITEC) and the Indian Council for Cultural Relations (ICCR). The Indian Army Training Team and the Indian Police Training Team continues to do its good work of reforming Lesotho Defence Force and assisting Lesotho Mounted Police Service in areas such as Forensics, Crime Investigation and Cyber Fraught Investigation. Their efforts are commendable.

Diplomacy & Foreign Affairs Magazine | March 2014

he trade exchange between both the countries are miniscule. What according to you should be done to increase the trade?

I agree with you that the statistics shows that the volumes of trade between the two countries are very low. Our Mission is working very hard to create awareness about Lesotho as an attractive investment destination. Efforts are also made to boost the trade and investment opportunities between the two countries by engaging the public and private sectors in both countries to work together to create strategic partnerships in all sectors of economic development in order to attract investors and increase trade volumes. In September, 2013 Mr Ravi Bangar, Additional Secretary, Ministry of External Affairs, Government of India visited Lesotho to attend the Second India-Lesotho Joint Bilateral Commission of Cooperation meeting for further discussions on the various areas of cooperation between the two countries and such include trade and investment. We remain convinced that JBCC has a potential to deliver the best results for Lesotho. In November, 2013 a high profile Business delegation led by the two Lesotho Honorary Consuls Mr. Kishor Virani and Mr. Surat Singh Malhotra from Mumbai and Hyderabad respectively, visited Lesotho to discuss possible areas of business opportunities. The delegates also attended a Business Forum organized by the Ministry of Foreign Affairs and International Relations in collaboration with the Ministry of Trade and Industries, Cooperatives and Marketing, Government of Lesotho

in Mafeteng district for interaction with Basotho business community. The visits were generally a resounding success. I am also happy to mention that recently, many Indian traders and potential investors are frequently travelling to Lesotho for exploration of lucrative business opportunities that Lesotho holds. I think there should be more interaction between business people through participation in business forums, trade fares, conclaves and summits initiated by either side. I have learnt that Department of Commerce, India through its initiative stages trade exhibition “India Shows” in different countries in Africa. My desire is to see trade exhibition held in Lesotho to showcase Indian products and technologies. This will help promote and strengthen trade between the two countries.

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hat is the progress of the Free Trade Agreement between India and the South African Customs Union, of which Lesotho is a member? Negotiations are still going on but at a very sluggish pace. hat do you think the Government of India’s initiatives and cooperation? Do you have any suggestions? The Government of India’s initiatives in organizing events like concaves, forums and summits through its various organizations to provide a platform for various stakeholders to deliberate and discuss the potential areas of cooperation amongst themselves is praiseworthy. India and Africa’s collaboration seem to be having a brighter future in economic, political and social development. The most critical or crucial areas of development are in health care and pharmaceuticals, skills development, online education, agribusiness, infrastructure development, and Information Technology. India’s efforts in assisting Africa’s economic development though the Ministry of Foreign Affairs initiative under the umbrella of “India-Africa Forum Summit” for implementation decisions made are highly appreciated.

our feedback on the last year’s 9th CII-EXIM Bank Conclave on India-Africa Project Partnership event During the 9th CII EXIM Bank Conclave, Lesotho participated with a delegation led by the Minister of Trade and Industry, Cooperatives and Marketing, CEOs of Private sector, and individual business leaders. This was an opportunity to interact, establish networks and discuss possible projects with the Indian business community.

our expectations from the upcoming 10th CII-EXIM Bank Conclave on India-Africa Project Partnership event In the 10th CII EXIM Bank Conclave Lesotho will be participating as a partner Country with a delegation led by the Rt. Hon. The Prime Minister of Lesotho accompanied by the Ministers of Foreign Affairs and International Relations, Trade and Industry, Cooperative and Marketing, Agriculture and Food Security, Finance, Development and Planning, senior Government officials, representatives from Lesotho National development Cooperation, BEDCO and individual business representatives. I hope following this Conclave Lesotho will be able to attract potential investors to visit Lesotho and explore the business opportunities. We also expect the trade volumes to increase between the two countries.

March 2014 | Diplomacy & Foreign Affairs Magazine

10th CII-EXIM Bank Conclave on India-Africa Project Partnership

Interview H.E. Alexandre CECE Loua, Ambassador of the Embassy of the Republic of Guinea in India

uinea is presently engaged with India is multi-sector cooperation. Could you elaborate on the number of projects and their progress. Of course there are 3 projects under consideration as the feasibility studies have been done or are being finalized by Indian companies. The health improvement project in Guenea, irrigation project for sixty thousand hectors.

hich are the companies.... Political approval has been given but we have not yet selected finalized the project management consultant (PMC) or the project developer. But we have received intimation from the government of Guinea and we have received positive response from the Indian side. So now Guinea would appoint a PMC and this PMC would properly draft the detailed reports. Based of these detailed reports and the feasibility studies we would move forward.

ir can you name a few companies very eager to enter Guinea markets? Yes, one among them is Wapcos, there is one called Angelique International, there is Mohan Energy, there is Lucky Export Engergy etc etc. There are many companies that are interested in entering Guinea markets. Some heads of companies have already visited Guinea to explore possibilities. But so far, no one company has been selected to say, "You will do this project". They came with their proposal to the government and to being their interaction with the government of Guinea. Of course, you know that all projects have to go through open tender process. our Excellency, you had mentioned sometime that there are some activities in the hydro-electricity arena? Yes, one of the projects that has been selected for consideration is one which would yield 100 MW in the form of hydro electricity. My country has tremendous potential for generation of hydro electricity.

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his hydro electricity project would be across which river? This project will be across a river which is next to Niger river. It is not exactly on Niger river. You know that Niger river originates from Guinea. This river for hydro electricity project is a feeder river to Niger river. There are many well know rivers that have Guinea as their origin. So it would be alright to say that Guinea is the water tower of West Africa.

Diplomacy & Foreign Affairs Magazine | March 2014

hich is the Indian company currently engaged in this project now? We have not yet allocated this project to any company as yet, but we are looking at companies that have relevant experience in this sector.

o you are still open to options for this project... Yes, like I said, we are looking at companies which have experience in this sector. A lot of companies have visited me and I have also visited the office of many companies here who might be candidates for this project.

hat are the areas you think have lot of potential of investments for Indian companies? Agriculture, energy, water and infrastructure. Of course health is another priority. Health for us is akin to social infrastructure. We need lots of investment is health sector.

hat are the hindrance points for investments in the sectors you just mentioned? No, nothing is stopping them. You see, we have open market policy and companies can come in from wherever they wish. So there are no hindrances for Indian companies to come and invest in Guinea. We just opened our embassy here in India in 2012. So this is a fairly new embassy in India. From 2012 up to now, I received so many improvements. So many companies from India have gone to Guinea for prospecting purposes. And they are very satisfied with the potential they have seen there and they are very keen to come on board. So you see, there are no restrictions. Political environment is very good. Climatic environment is very good and business environment is very good too. We are not saying that we are the very best, but we do have a very good overall environment for investors.

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hat about security issues? We cannot say that our security situation is 100% but we are much better than many other African

countries.

es Sir, we rarely, if at all, hear about any violent situation in Guinea and that speaks well for Guinea.... The security situation in Guinea can be judged by this fact that there is already strong Indian communities living there. In fact, the largest chunk of private sector investments has been done by Indians. They have been there for more than 75 years. Guinea is a stable country. We do not have civil war like those in many other countries. If you see Guinea in the map, you will see that our country is surrounded by so many countries that are plagued by civil wars.

PRESTIGE ASSURANCE PLC – A

PERSPECTIVE OF A TRUE GENERAL INSURER

Dr. Anand Prakash Mittal Managing Director

While setting a milestone in Indo-Nigeria mutual relationship, The New India Assurance Company Ltd, Mumbai, inaugurated its overseas office in Lagos, Nigeria on 16th August 1952 as expansion of insurance trade in West Africa. This Branch Office of New India was incorporated on 6th January 1970 as a Public Company under the name: The New India Assurance Company (Nigeria) Ltd. However, in order to reflect the majority share holding of the Nigerian public in the Company, its name changed to PRESTIGE ASSURANCE PLC on 24th September 1992, in line with the indigenisation decree passed by government of Nigeria. After successful recapitalisation in 2007, Prestige Assurance currently operates as a Subsidiary Company of The New India Assurance Company Ltd, Mumbai,. New India is a ‘A’ rated company by A.M. Best Company of U.S.A and hold 51% share in ‘Prestige’ in post-recapitalisation era. Today ‘Prestige’ has a pristine glory of 59 years of successful operations in Nigeria and as a key player in the general insurance industry, distinguishes itself by winning three times, the prestigious PEARL Sectoral Leadership Award for the highest Profit Margin Ratio Company among public quoted companies in insurance sub sector of Nigerian economy. ‘Prestige’ also won the following awards as under: 1. Business Leadership Award 2007, by Corporate Press Services Inc. 2. Insidebusiness Commendation on Nigeria Television Authority – Best Insurance Company 2008 (Innovation and Claim Settlement).

3. ‘Prestige’ is rated as one of the Top 100 largest Companies in Nigeria by Businessworld Magazine. 4. International Star Award for Quality, Geneva, 2011 Shareholder’s delight is consistent with progressive dividends and bonus issues since 1970. ‘Prestige’ has a policy of sound underwriting practice and the main emphasis of the organization is security and reliability. The Company has the capacity and technical skills to underwrite traditional as well as most complex risks in Nigeria. Prestige Assurance’s strong and stable Board as well as experienced and sound and professionally qualified management team consisting of Nigerians and Indians has helped to create a niche for the Company amongst corporate, institutional investors and high net worth individuals. New India Assurance’s financial and technical expertise and support acts as a backbone to ‘Prestige’s operations in Nigeria. ‘Prestige’ has come of age and is ready to take its place as number one company in the Nigerian insurance industry through provision of prompt, efficient and qualitative services to its numerous clients’ desired comfort, constantly rewarding our esteemed shareholders with adequate returns on their investments and also contribute to the development of insurance business in the Nigerian Economy. As a proactive organization, ‘Prestige’ has positioned itself as a mega financial supermarket for its esteemed clients, having successfully embarked on Lease Financing, Commercial Papers, Bankers’ Acceptances, and investment in Pension Fund Administrator and hospitality business. We intend to diversify into Real Estate Development which is going to positively reflect in the company’s performance. Prestige Assurance Plc is meeting her obligation in settling all verified claims arising from the crash of Dana Airlines in Lagos on 3rd June 2012 to the families of the crashed victims. The claim settlement is on-going. ‘Prestige’ prides itself in experienced and dedicated staff. Our human resources are the greatest asset that have helped the Company to remain on the path of profitability and growth over the years. The Company has a comprehensive welfare package and a housing policy that affords the staff to build their own houses. Also there is local and overseas training policy and scholarship scheme for brilliant children of staff. Hence the Company has a very low staff turnover. Equally concerned about its corporate social responsibility, ‘Prestige’ has been supporting various cultural, social, charitable projects as well as sports activities in Nigeria in its endeavour to strengthen brotherhood, fraternity and a service to humanity. ‘Prestige’ takes pride in contributing though in a small way, to socio-economic change of Nigeria.

March 2014 | Diplomacy & Foreign Affairs Magazine

10th CII-EXIM Bank Conclave on India-Africa Project Partnership

INDIA – AFRICA : SOUTH-SOUTH

Trade and Investment for Development

ndia and Africa's partnership has entered a new era. Close political relationships are being invigorated by a flourishing trade and investment relationship. This new trade and investment relationship could be crucial in the struggle to lift millions out of poverty. Africa-India trade has followed the upward trend in South-South trade and investments over the last decade. Bilateral trade has grown at a robust 31.8% annually between 2005 and 2011, through the economic crisis. There has been a surge in Indian private investment in Africa with 'big ticket' investments in the telecommunications, IT, energy, and automobiles sectors. Trade growth is being led by a vertiginous expansion in natural resources trade. This expansion tends to mask a wider story of sustained growth in a cross-section of other products groups, some with "value added". The Confederation of Indian Industry (CII) and the Export Import Bank of India (EXIM Bank) initiatives through the IndiaAfrica Conclave and other Government of India initiatives are spurring on the burgeoning trade and investment relationship. In addition to more traditional development approaches, such as through Indian Technical and Economic Co-operation, the businessoriented 'development compact' pioneered by CII and the EXIM Bank seems to be positively impacting directly on bilateral trade. To understand the dynamics of this vibrant relationship, CII surveyed some 60 key Indian and African companies and business associations - a survey undertaken in collaboration with the WTO. Results highlight a number of factors getting in the way of expanded business and investment ties. Access to Indian buyers and trade finance emerges as major concerns for African traders. Transport and logistics costs and poor business environments are cited as major difficulties by Indian traders - a factor also cited as holding back further investment. Further expanding India's investment-led trade approach and addressing trade irritants on both sides could help sustain this dynamic trade growth - and help extend it both in terms of the number of partners involved and also the range of goods and services traded.

to enable African economies to benefit further from expanding trade with India. Exports of value-added products require, inter alia, a positive business environment, access to capital, skilled labour and sustained FDI that can be achieved through mainstreaming of trade in national development strategies. In the short to medium-term, African countries should look to overcome the hurdles faced by African firms in exporting to India. From the CII-WTO Survey, it emerged that for African exporters' access to Indian buyers, trade finance and informal controls and shipment delays are some of the major concerns. The mitigation of transaction costs will have a significant impact in enhancing the export competitiveness of African products. The focus, therefore, should be on trade facilitation. India's DFQF scheme – DFTPI scheme for LDCs, holds great potential in boosting African exports to India. The DFTP-I came into full force in August 2012 eliminating applied tariff rates on about 85% of India’s total tariff lines, particularly, on tariff lines that comprise 92.5% of global exports of all LDCs. This can significantly improve market access for 33 African LDCs. WTO figures for 2010 show that only 5.3% of LDCs' imports into India came in duty-free. Moreover, only 21 African LDCs are currently beneficiaries of the scheme while many LDC exporters may simply be unaware of it. During the latest India-Africa conclave, African leaders have suggested that India’s DFTP-I scheme should be made more comprehensive. Preferential access has not yet been provided to LDC exports of poultry, dairy products, vegetables, fruits, unshelled cashew, coffee, tea, cereals, oilseeds, cocoa preparations, beverages and spirits, chemicals, tobacco, rubber, raw silk, silk yarn, copper, iron and steel, that are of major export interest to many African LDCs. Diversification in African exports of services is also crucial for development of African economies. Tourism, accounting for over 50% of African services exports, still holds immense potential in exports to India by tapping into the growing tourism and business travel sector in India. Bilateral co-operation and promotion of African tourism in India would increase visibility and popularity of Africa as a travel destination.

To Boost Africa's Exports of Goods and Services to India

To Boost India's Exports of Goods And Services to Africa

To sustain the growth in India-Africa trade there is a need to broaden the trade basket, especially for Africa's exports. Greater value-addition to commodities within Africa is necessary

For Indian exporters transport and logistics costs, poor business environment along with access to African buyers are cited as major difficulties. The annual India-Africa Conclave is an

Diplomacy & Foreign Affairs Magazine | March 2014

important forum to bring buyers and sellers together. In addition, dedicated trade meets connected with a particular country or sector will help address information asymmetries as well as bring the growth markets of Africa closer to Indian producers. Due to high shipping costs, and cost of insurance in exports to African countries, many Indian exporters prefer to sell free on-board basis instead of on-delivery basis. This is generally not a good practise when exploring new markets and engaging with newer or smaller buyers. Lowering transaction costs and risks are crucial to enhanced trade between India and Africa. The export credit and trade finance institutions of India are playing a major role in market access initiatives of Indian firms in Africa. EXIM Bank LOCs have historically galvanised India’s exports to Africa. However, there are certain areas that mandate urgent attention, such as, delays in the release of sanctioned LOC, monitoring of projects supported by LOC, greater transparency in the selection of projects to be supported by LOC, and synchronisation of different LOC projects that have received funding from multiple sources. Indian services exporters cite poor business environment and access to buyers as some of the major impediments in exporting services to African countries. Many services firms also find that getting work visas/ permits is particularly difficult in some African countries. This should be addressed at the governmental level to facilitate services trade. The Indian SME sector requires information on the growth prospects in Africa and how their products can find a market there. While business associations can play a role, the commercial wings of Indian embassies in Africa can, and are playing a facilitating role by providing in-country research on market expansion opportunities available to Indian exporters.

Investment-Led Trade Towards Greater Economic Cooperation India's investment-led trade approach could help sustain the dynamic trade growth between India and Africa, and help extend trade both in terms of the number of partners involved and also the range of goods and services traded. Investments for joint ventures between the countries would best open up the route for enhancing goods trade. Removing bottlenecks to Indian investments, including, protection of investments through e.g. BITs, access to capital, improved business environment, is imperative to ensure that Africa moves to a sustainable investment-led development model. Greater cooperation in agriculture and agro-processing would have a great bearing on the food security situation in both Africa and India. Africa’s farm sector is expected to grow to the tune of US$1 trillion by 2030, although this growth will largely depend on adequate technology infusion. Indian companies could help Africa’s agriculture sector in farm mechanisation, agroprocessing and storage, investments in training and development of human resources for the farm sector, Greenfield investments, local vendor development, setting up of agro parks in Africa, setting up of horticulture industries and floriculture units, among

others. In boosting Africa’s agricultural value addition, India too can meet its own food needs through imports, especially in pulses where India faces a major shortfall. Lack of adequate investments is a key reason for the underutilisation of Africa’s hydropower potential and other renewable and non-renewable energy sources. India has proven expertise in energy generation and can partner African countries build their energy infrastructure through manpower, technical and financial investments and engineering inputs. There should be strong engagement among India and African countries across diverse services sectors. India has comparative advantage in many services sectors, including, ICT, education, vocational skills development, health and financial services in which Indian investments will serve the continent well. The Southern African region is an important non-oil trading region for India. To help increase trade India and South African countries are looking to expand the India-SACU PTA towards a comprehensive economic co-operation agreement incorporating services and investments. The plans for a comprehensive economic cooperation partnership agreement with Mauritius, and similar agreements with several other regional communities in Africa should also be studied further. A joint study is also underway to work out a free trade agreement with COMESA.

Strengthening India's Development Assistance in Africa India intends to "intensify aid-for-trade assistance" in the coming years. In view of this, greater institutional mechanisms and global co-operation would help ensure that India's assistance becomes more effective. India could benefit from the expertise of traditional donors on project impact analysis and best practices to improve quality of delivery and introduce mechanisms for better assessment of Indian project assistance. Trilateral co-operation with traditional DAC partners and emerging partners from the South could also complement development assistance in Africa. Key gains can be made in sharing professional skills in the design and delivery of Aid for Trade programmes as well as project finance and technology transfer. The shortage of well-trained trade professionals is a problem for developing countries, which lack the institutional capacity to train them. It should be a priority for India to train trade professionals and to build institutional capacity in the African nations for negotiations at bilateral and multilateral forums.

March 2014 | Diplomacy & Foreign Affairs Magazine

10th CII-EXIM Bank Conclave on India-Africa Project Partnership

The Spiral Aloe

THE “MOUNTAIN KINGDOM OF LESOTHO”

“THE ROOF OF AFRICA”

he Mountain Kingdom of Lesotho is a politically stable and democratic country located in the Southern region of Africa. The country gained its independence from the British Empire on 4th October, 1966. Post its independence very insignificant progress in economic development has been realized. The country has a long way to go to attain industrial progress; hence the Government of Lesotho has recently pledged to aggressively promote Lesotho as a attractive trade and investment destination in all socio-economic spheres. Lesotho is endowed with a few natural resources. Water is a major natural resource often referred to as ‘White Gold’ by the Basotho people and considered as one of the most pure water in the world with very little microbiological and chemical contamination which does not require intensive treatment. Lesotho is also blessed with the finest beautiful diamonds. Indian companies are invited to establish a diamond cutting and polishing institution. Ample opportunities exists development of infrastructure, establishment of a pharmaceutical company. Currently all pharmaceutical products are imported into Lesotho. Tourism sector also has a huge potential to boost employment and the economy of Lesotho. LTDC is responsible for promoting Lesotho tourism industry along with the Kingdom’s rich cultural heritage, as a preferred adventure tourist destination through

Diplomacy & Foreign Affairs Magazine | March 2014

strategic marketing and partnering with the private sector and local community. Lesotho is running short of accommodation facilities for tourist especially within the vicinity of places of attraction. Investors in the field of tourism and hospitality are invited. Invitation for companies dealing with Tour operation and management business is extended to come and develop, manage and operate tour business in collaboration with the local operators. The Vision of the Government of Lesotho is to strengthen and broaden bilateral relations with India by pursuing the long envisaged Trade, Economic and Technical cooperation and increasing flow of Foreign Direct Investment between the two countries by creating a conducive political and socio-economic environment. Joint venture partnerships is encouraged with local companies which cannot only create value addition, but also generate employment and earn foreign exchange for the country, while reviving the talent of artisans in a significant manner. Lucrative opportunity exist in infrastructure development in construction of roads, airports, railways, portable water and waste water treatment plants, solid waste recycling plants, electric power plants, rural electrification, sports facilities, office and shopping complexes. Market access

Afri Ski

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Crystal Clear Water of Lesotho

Lesotho is part of the Southern African Customs Union (SACU) comprising Botswana, Lesotho, Namibia, Swaziland and South Africa. There are about 55 million consumers in the region. Duty free and quota free access provided by the regional trade and investment block of the Southern African Development Community (SADC) – (14 countries comprising 260 million consumers). Preferential market access of Lesotho originating products into the Australian market (22 million consumers), affording them duty free access or reduced rates of duty. Duty free access for a large list of products except for dairy, poultry and egg products granted by Canada (34 million consumers) under the GSP system. A preferential treatment agreement between SACU and MERCOSUR (comprising Argentina, Brazil, Paraguay, and Uruguay (385 million consumers) grants trade preferences on specific products originating from Lesotho as member of SACU. The SACU EFTA gives SACU originating industrial and fish products duty free and quota free access to Switzerland, Norway, Iceland and Liechtenstein. Lesotho can also export all products to the European Union (500 million consumers) duty free provided under SACU EPA Agreement. 99% of Lesotho’s industrial products, including textiles and clothing can be exported duty and quota free to Japan (127 million consumers).

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Lesotho’s products are eligible for duty free access to New Zealand, under a GSP scheme introduced in 1972. • Turkey provides Lesotho’s industrial products duty free access under a GSP scheme. • Lesotho benefits from the lucrative American market (310 million consumers) provided by the African Growth Opportunity Growth (AGOA) Tax Incentives The kingdom of Lesotho offers a wide range of as mentioned below: • 0% corporate tax on manufacturing profit generated from exporting manufactured goods outside of the Southern African Customs Union (SACU). • A maximum manufacturing corporate tax rate of 10% on profits for intra-SACU trade. • No withholding tax on dividends distributed by manufacturing firms to local or foreign shareholders. • No advanced corporation taxes are paid by companies on the distribution of manufacturing profits. • Training costs are allowable at 125% for tax purposes. • Payments made in respect of external management skills and royalties related to manufacturing operations are subject to withholding tax of 10%. • Easy repatriation of manufacturing profits. • A VAT rate of 14% (ensuring harmonization with the RSA). Furthermore, the Lesotho Revenue Authority has introduced flexible VAT payment systems, to tax compliant firms, to ease cash flows.

BASIC FACTS ABOUT LESOTHO Head of State Head of Government Country name Capital city Location Size Altitude Population Country Population (Maseru) Literacy Rate Languages Monetary Unit G.D.P. Growth Climate Natural Resources

: : : : : : : : : : : : : : :

King Letsie III The Rt. Hon. The Prime Minister, Dr. Motsoahae Thomas Thabane The Kingdom of Lesotho Maseru Southern Africa, an enclave of South Africa 30 335 sq. km Lowest 1 400m (above sea level) Highest 3 400m (above sea level) 1.9 million 393,000 86.5% Sesotho & English Loti, plural Maloti; at par with South African Rand (ZAR) 5.2% (2010 est.) 4.9% (2011 est.) 4.3% (2012 est.) Temperate; cool to cold, dry winters; hot to wet summers Diamonds, sandstone, wildlife, mohair, wool and water is one of the strategic projects that Lesotho is aggressively marketing.

March 2014 | Diplomacy & Foreign Affairs Magazine

10th CII-EXIM Bank Conclave on India-Africa Project Partnership

India’s Africa Policy: Towards a More Coherent Engagement by Sharinee Jagtiani

ecently, India has made significant advances toward increasing its economic and diplomatic footprint in Africa1. Heralding Africa as a continent which has the ‘prerequisites to become a major growth pole of the world in the 21st century’, Prime Minister Manmohan Singh stated at the second India-Africa forum last year that India was ready ‘to work with Africa to enable it to ‘realise its potential’. According to statistics provided by the Ministry of Commerce, India’s trade with Africa was around $42 billion in 2011 and India has also extended lines of credit to Heavily Indebted Poor Countries. Despite its impressive rise India’s trade with Africa is still well behind that of other actors like China which are engaging more actively with the continent. China-Africa trade was already close to $60 billion in 2010. While both India and China are significant economic actors in African countries, China remains much ahead of India. India’s Africa policy was given an economic impetus post its

liberalization in 1991. Since then, trade and investment ties between India and African countries have been on the rise. By and large, India’s engagement with African countries is driven by the presence of natural resources, a search for new markets supported by diplomatic initiatives and strategic partnerships. At its current stage, India’s Africa policy suffers from four critical weaknesses. First, the state and the private sector are both active in the continent, but do not necessarily keep each other’s interests in mind. Second, Indian policy is not supplemented by a strong and proactive diplomatic thrust. Third, in some instances, India too appears to be emulating China’s aid for resources strategy (by providing African countries with resource-backed loans), which may not be the best approach to maintaining longterm relations with African countries. Fourth, engaging with politically unstable yet resource-rich African countries could threaten India’s interests in the long run and taint the perception of its engagement with African countries.

As China-built AU centre opens, India focuses on quiet Africa diplomacy

Diplomacy & Foreign Affairs Magazine | March 2014

There are signs of this happening at present. Some argue that India’s democratic framework may serve as a strong base for enduring India-Africa ties. While this argument has its merits, India needs to develop a strong and coherent vision for its Africa policy so as to optimise its strengths and opportunities given the active presence of China in the continent.

INDIA’S STRATEGIC AND ECONOMIC INTERESTS IN AFRICA Historical Relations: Relations between India and Africa are said to date back to ancient times. They were contoured around trade relations between India and the Eastern littorals of Africa. Colonialism brought an end to this trading system, but carried large numbers of People of Indian Origin (PIOs) to African countries as workers and artisans. This added a new dimension to Indo-African ties as several Indian leaders, especially Mahatma Gandhi, took up the issue of discrimination against non-whites. While Gandhi was an icon for Indo-African relations, India’s first Prime Minister Jawaharlal Nehru gave these relations a political foundation. His association with the Non-Alignment Movement, which focused on its anti-racist and anti-colonial agenda, struck an ideological chord among newly independent African countries. India and several African countries were members of the Group of 77 (G77) countries, which voiced concerns about the unequal terms of trade between the North and South. Towards the end of Nehru’s tenure, India-Africa relations took a back seat owing to a number of factors. One was India’s defeat in its 1962 war with China, which was a setback to its image as a leader. Another was its insistence on the adoption of peaceful means by African liberation movements, which were obtaining arms assistance from China.

Post-Cold War Relations: After it introduced an economic liberalisation programme in 1991, India’s foreign policy shifted from Nehruvian and Gandhian principles to pragmatic economic diplomacy. This shaped its relations with African countries as well. India began to view Africa through a strategic lens and realised that economic engagement with African countries could serve its national interests. Africa’s rich energy resources were attractive for a rapidly industrialising India. Further, the strategic location of East African littoral countries fitted very well with India’s need to maintain its traditional influence in the Indian Ocean region. Lastly, African countries were potential new markets for Indian private sector companies that had begun to look for opportunities abroad. In the meantime, China was doing the same following its thrust for economic modernisation in the post-Mao era. With similar histories and similar pull factors drawing them to the continent, India and China inevitably brushed against each other. Despite China’s more moneyed and coordinated engagement with African countries, India has still managed to maintain a significant presence in the continent. However, the manner with which it engages with African countries is fragmented and

ad-hoc. Given India’s economic and strategic interests in African countries, it needs a well-defined Africa policy and to shape its engagement with African countries.

Economic Interests Trade and investment footprint: dangers of becoming the ‘neocolonial scrambler.’ India’s economic activity in Africa has been mutually beneficial. The balance of trade is in favour of Africa, as it exports more to India than it imports. India’s trade with Africa is well behind that of China, yet it is moving in an upward direction. While India’s main imports from African countries consist of primary products, India’s export basket includes a range of manufactured products, such as petroleum products, transport equipment and other forms of machinery. Indian companies have been investing in several sectors in Africa. Apart from energy, private sector companies are investing in telecommunications, agriculture, health, pharmaceuticals, infrastructure and Information Technology. China has also invested in these sectors. According to the International Monetary Fund’s (IMF) 2012 World Economic Outlook, the economies of the oil exporting, middle-income and low-income African countries are projected to grow significantly. The Economist Intelligence Unit forecasts that Africa will undergo rapid urbanisation and ‘consumerisation’ is beginning to grow. This will increase the disposable income of the African people, which will invariably boost demand for telecom and banking services. Thus these are tremendous pportunities for both India and China to capitalise on new African markets, where chances of them clashing are fairly high. While Chinese and Indian firms have similar interests in African markets, they function in completely different ways in African countries. Unlike Chinese companies, which are mostly state-owned or state-controlled, Indian firms operating in Africa are largely privately owned or are under private-public partnership. They are less vertically integrated than Chinese firms and prefer to procure both materials and labour from local governments. Hence, the operation of Indian firms in African countries appears to be less ‘neo-colonialist’ than those of China. While international criticism remains relatively muted on the Indian engagement in Africa, letting the primarily profit seeking private sector guide its way in African countries might change this. This is already being witnessed with India’s private sector engagement in Ethiopia’s agricultural sector. The Ethiopian government under the leadership of Prime Minister Meles Zenawi, has leased vast amounts of land to Indian private sector firms like Karuturi Global, for low prices. While this stimulates agricultural development, several locals have been displaced. Further, the promise of job generation for locals has benefited only few people, while many have been left unemployed. Several contracts given to Indian companies investing in the agricultural sector do not have clear regulations regarding working conditions for labour and there appears to be scant regard toward the environmental implications of projects. Integration with the local fabric is one of India’s key strengths,

March 2014 | Diplomacy & Foreign Affairs Magazine

10th CII-EXIM Bank Conclave on India-Africa Project Partnership

which will soon fade if the private sector is left to engage with African countries without any state-led guidelines.

Energy Security: Risks of Engaging with Politically Unstable African Regimes. India’s rapid growth is producing an ever increasing demand for energy. However, its domestic oil reserves are unable to sustain the rapid pace of its industrialisation and imports have become critically important. Africa’s proven oil sources are almost as large as those of Europe and Eurasia (144.4 billion barrels). The presence of energy sources in African countries has also been of major interest to China, which changed from being a major oil exporter to an importer during the 1990s. India and China have often brushed against each other while bidding for oil deals in African countries. China’s deeper pockets and ability to churn out funds at a quicker pace than India have often enabled it periodically to outbid the latter when pursuing oil deals. A case in point is Angola. In 2004, India lost a deal to China when Angola’s state-owned Sonangol blocked India’s move to buy Shell’s 50% share in Block 18 for about $620 million because China offered infrastructure funding of US $2 billion in return for oil deals. Despite the competition between India and China for oil deals, it need not necessarily be a zero-sum game. In the past decade, India has diversified its sources of energy and energy ties with different African countries. 22% of India’s oil imports come from African countries. Despite losing to China in Angola, India has

still managed to maintain energy ties with the country. India still imports 5% of its crude oil from Angola. Furthermore, India has signed a Memorandum of Understanding with Sonangol, in which both entities have a bilateral collaboration for the purchase of large crude oil consignments. In Nigeria, ONGC Mittal, (a joint venture of India’s public sector Oil and Natural Gas Corporation [ONGC] and the world’s largest steel company, Mittal Steel) struck an oil infrastructure deal worth $6 billion with the Nigerian Government. The deal won it rights to explore in two prosperous oil blocks OPL 279 and 289, in return for building an oil refinery, power plant and a railway line. While these are significant developments in India’s energy ties with African countries, they are very similar to the Chinese approach to securing oil deals. This can become a policy problem in the long run because of the risk aid-for-oil deals carry. Angola, Nigeria, Sudan, and the Democratic Republic of Congo (DRC) are a few of India’s top energy partners in Africa. These resourcerich countries are often plagued with unstable political regimes. They rely on the export of their natural resources to sustain their economies, which makes them vulnerable to economic uncertainties such as oil-price shocks. This can adversely affect Indian interests. India imports 70% of its oil and depends heavily upon Nigeria (11%). Hence, though India has been building up its energy ties with African countries, it carries the risk of relying upon politically unstable and economically vulnerable regimes that may undermine its interests in the long term.

Prime Manmohan Singh with Jakaya Mrisho Kikwete, President of Tanzania

Diplomacy & Foreign Affairs Magazine | March 2014

Strategic Interests Sustaining Regional Influence in the Indian Ocean Region: Countering China’s on-shore economic strategy. With the Indian Ocean as its backyard, and 70% of its trade carried by sea, maintaining a strong position in the Indian Ocean is critical to India’s national interests. Old historical ties have given India a traditional long-standing influence in the region. It has a considerable naval presence in the region and has defence cooperation agreements with Madagascar, Mauritius, Mozambique, Seychelles, South Africa and Tanzania. Coupled with increasing its naval presence, China is engaging in a massive on-shore strategy to enhance its economic influence in the region. In February 2009, Chinese President Hu Jintao travelled to Mauritius and Seychelles. During the visit, he launched a five-point proposal, which underpinned a strategy that straddled government and business interests and was supplemented by a strong diplomatic thrust. This included the need to keep up the momentum of high-level diplomatic meetings between the two countries, continuous support by the Chinese government to Chinese companies investing in Mauritius, reinforcement of cooperation between the two countries during the international financial crisis, and deepening cultural ties. China offered a line of credit worth US $260 million with low interest for the purpose of expanding the island nation’s airport. It also pledged to speed up the construction of an Economic and Trade Zone (ETZ) in the north of the capital, which it intends to use as a base for all its construction and infrastructure projects in Southern Africa. The construction of the ETZ would generate 40,000 jobs, with an agreement to allow 50% of its own labour due to the absence of skilled labour in Mauritius. China’s growing presence in Mauritius reflects its ability to exert influence in a region which has long-standing ties with India, and where 68% of the population is of Indian origin. India still retains strong bilateral trade relations with Mauritius, at around $900 million, well ahead of China, which stands at $545 million. But China’s coordinated engagement is favoured by the Mauritian government. As Vice-Prime Minister and Minister of Finance for Mauritius Ramakrishna Sithanen has observed, Mauritius prefers China’s ‘different’ approach, in contrast to India’s more fragmented style, which has less backing from the state. India’s External Affairs Minister S. M. Krishna visited Mauritius in July 2010 and signed four memorandums of Understanding (MOUs), on defence, tsunami warning systems and building up cultural ties. In contrast with the Chinese approach, there was no concrete proposal based on a detailed plan for economic, cultural and diplomatic engagement with Mauritius in the long run. Similarly, in Mozambique, China is strengthening its ties by changing its approach of engagement and employing more locals in Chinese companies. It has also exempted over 400 Mozambican agricultural and other products from export tariffs to China, thus helping the mainly agriculture-based economy. In

India has a unique position in Africa. Its strength lies in its soft-power capabilities, historical ties and a vibrant private sector that is scouting for opportunities to grow in Africa an investment seminar in Shanghai in 2010, Chinese business interests were reported to have pledged up to $13 billion in investments for the next 10 years. If the target is met, China will become Mozambique’s largest economic partner. Despite India’s strong trade and investment ties with Mozambique, India seems to be lagging behind. Krishna’s visit was long overdue as none of his predecessors had visited the country. In 2010, India’s bilateral trade with Mozambique stood at around $221 million and China was not too far behind, at around $200 million. China is clearly increasing its economic footprint in African Indian Ocean Rim countries at a rapid pace.

Policy Recommendations India has a unique position in Africa. Its strength lies in its soft-power capabilities, historical ties and a vibrant private sector that is scouting for opportunities to grow in Africa. At present, though India is making significant strides in the continent, the lack of an articulate Africa policy has resulted in a fragmented and ad hoc approach, which prevents it from optimising its economic engagement the continent. India needs political will to step this up. The state should drive a coherent multi-actor ‘Africa Policy’. This involves three critical steps. Firstly, it must identify key Indian stakeholders in Africa and assess how each stakeholder should engage with African countries on their own terms, but while keeping the goals of India’s economic diplomacy in mind. Broadly, Indian stakeholders can be divided into three categories: this includes the State, the private sector and the Indian diaspora in Africa. A forum should be formed within which key stakeholders can coordinate and augment a sustainable Africa policy. Secondly, the Government of India needs to set some broad guidelines within which the private sector can act in Africa. Indian firms must be obligated to adhere to labour laws and environmental regulations. They must also pay attention to social issues in the region. For instance, the pharmaceutical sector should be more deeply involved with local health issues and work on eradication of diseases like malaria. Thirdly, the Government should develop a policy on how to engage with People of Indian Origin (PIOs) in East Africa.

March 2014 | Diplomacy & Foreign Affairs Magazine

10th CII-EXIM Bank Conclave on India-Africa Project Partnership

According to Harry Broadman, ‘ethnic networks’ would enhance trade and investment ties by overshadowing the ‘imperfections and asymmetries of market information’, given the fact that PIOs have immense local knowledge. At the same time, India’s engagement with the Indian community in Africa should not be exclusive to an economic elite with political connections. Indian policy on PIOs has shifted away from complete neglect, but only to selective engagement. In South Africa, as Sanusha Naidu observes, many who belong to the Indian community do not have a political or economic affinity to India. India can use its strengths in education and healthcare to help advance this section of society as a means to strengthen ancestral ties and win their affinity. Energy policy should be placed within the framework of sustainable development. India should position its energy policy in Africa within the broader arena of India-Africa relations. This means linking energy policy to trade and investment initiated by the private sector. Furthermore, the optimisation of energy ties should be based on a relationship of mutual dependence. India’s need for energy sources is matched by Africa’s own need for investment, technology and capacity building in order to extract resources. While infrastructure development is something India is already pursuing in countries like Nigeria, these efforts must be supplemented by transference of skill and technical knowhow to develop African oil companies themselves. While India is prepared to share with Africa its knowledge and expertise in exploration, distribution, refining, storage and transportation, it needs effective planning and implementation. One way this can be pursued in the oil and gas sector is through Petroleum India International (PII), which was set up to provide technical, managerial and human resource development (HRD) services in the upstream as well as downstream sectors on a global basis. Dispatching consultants would enable development of local capacity and also assure India of the stability of the sector and thus its energy interests. India must also help African countries to strengthen their governance frameworks in the energy sector. This could be achieved by working in close coordination with the New Partnership for Africa’s Development (NEPAD), under its ‘Economic and Corporate Governance Programme’. This will minimise the risks involved in engaging with energy rich African countries that possess weak and unregulated governance structures. By applying its experience of developing energy governance in a complicated domestic environment, India can help African countries develop their own natural resource sectors and thus assist them in building stronger governance institutions. While India does provide concessional lines of credit to NEPAD programmes, it could play a more active role in assisting African countries to build their local capacity to help stronger and more sustainable energy ties. Indian Policy should be cast within not only a bilateral but also a multilateral institutional framework. India must give as much emphasis to boosting its economic engagement with African Indian Ocean Rim countries as it does to building defence

Diplomacy & Foreign Affairs Magazine | March 2014

By and large, unlike in the case of China, the international community, and the U.S in particular, largely welcomes India’s engagement with Africa ties. At a bilateral level, India needs to enhance the number of diplomatic visits to these countries and develop a detailed strategy of how it aims to enhance its diplomatic, cultural and economic engagement with these countries. India must work toward revitalising the relatively inactive Indian Ocean Rim Association for Regional Cooperation (IORARC). The institution was launched in 1997 to strengthen trade and investment ties between 19 Indian Ocean rim countries. The disparate nature of its membership coupled with the lack of a strong vision has prevented any tangible results from taking shape. India should capitalise on China’s non-membership in the IORARC and use it a platform to augment its economic and defence engagement with East Africa at a regional level. Overall, India needs to envision an Africa policy for longterm engagement with the continent. This requires a comprehensive analysis of India’s strengths, weaknesses, opportunities and threats in African countries. With a similar range of interests, both India and China inevitably cross paths in Africa, and while China may have deeper pockets, India’s strengths lie in her own experiences of economic development and democracy. With its emphasis on training, capacity building and locally-integrative business structures, India’s engagement seems more true to its rhetoric of South-South cooperation than that of China. By and large, unlike in the case of China, the international community, and the U.S in particular, largely welcomes India’s engagement with Africa. Nonetheless, China is enhancing its profile in the region rapidly. India needs to ensure that its engagement with African countries is aligned to their developmental needs and social concerns. This will legitimise India’s presence in the region in the eyes of the African people, which will pave the way for stronger long-term ties.

about the author Sharinee Jagtiani, Visiting Research analyst with the South Asia Programme of the S. Rajaratnam School of International Studies, Singapore.

Many African countries are buoyed by new oil and gas finds

India’s African Engagement

by Daniel Large

ndia’s African engagement has become more organised in the past five years as New Delhi has sought to fashion a rejuvenated role in the continent on the back of expanding business. Following on from a distinctive history of connections, the key drivers of India’s more recent relations with Africa feature strategic objectives linked to political goals of Indian foreign policy and wider international politics, coupled with the imperatives of sustaining and expanding economic growth amidst high external resource dependence. While the government has become more involved in organising India’s Africa partnership, Indian business has been more actively pursuing economic gains on the continent.

India’s development cooperation, including emphasis on training, is deepening at the same time as India seeks to reposition itself and become more involved in African development.

Key Drivers Of India’s Africa Engagement The main drivers of India’s relations with Africa feature an assorted mixture of inter-related political, strategic and economic factors related to its national and international ambitions. While such drivers can be ascribed to the government of India and its foreign policy, the term ‘India’ clearly encompasses a much more complex set of internally diverse actors. Despite efforts to enhance the coherence of India’s engagement, these do not always cohere

March 2014 | Diplomacy & Foreign Affairs Magazine

10th CII-EXIM Bank Conclave on India-Africa Project Partnership

in the pursuit of common goals. This is indicative of how Indian relations with Africa now mix government engagement with various other actors, to which Indian business is central. A defining overarching driver is India’s pursuit of strategic autonomy in new, global circumstances characterized by economic interdependence and the pursuit of status and influence in the international system. The ideal of strategic autonomy, which reprises the old doctrine of non-alignment, has recently been the subject of much debate but continues to be promoted as the core of a renewed Indian global engagement seeking to ‘enhance India’s strategic space and capacity for independent agency’. Such an aim is couched within efforts to forge a new India’s historic promotion of its own form of alternative universalism based on the moral and democratic political credentials pioneered by modern India’s founding fathers, like Gandhi, Nehru or Ambedkar. India has sought to develop and pursue a long-term strategic partnership, while at the same time following other bilateral foreign policy objectives. One area where this is seen, if not always publicly acknowledged, is in India’s relations with China. Made more competitive and compelling due to neighbourhood proximity, these have developed into an unstated form of rivalry projected onto Africa. This motivation for India’s Africa policy has been especially important in the process whereby a formerly distant continent has come to be more noticed within India by a slightly wider, though still restricted domestic audience. Only in the last decade, especially since 2008, have more people within India started to take an interest in Africa, a process significantly catalysed by China’s visible irruption into the continent after the globally visible third Forum on China-Africa Cooperation (FOCAC) in Beijing in November 2006. Second, India pursues wider international objectives via its African relations. Africa features in India’s efforts to position itself as an aspiring smart power with global reach, trying to reconcile global aspirations with its domestic developmental imperatives and the need to balance development assistance with the promotion and expansion of its own interests in Africa. New Delhi’s commitment to reforming and democratising international relations dovetails with its aspiration to become a permanent member of the UN Security Council. Africa is seen as a support base for this ambition, mirrored by India’s support for the Security Council’s ambitions for key regional African states. Collaboration with Africa is bound up in India’s wider international roles in other senses. This is seen in India’s contribution to international peace and security via its active UN peacekeeping role in Africa, from which India can claim and receive credit. This is also evident in India’s role in different forms of regionalism, of which the BRICS framework is today perhaps the most prominent (India hosted the BRICS Summit in March 2012 in New Delhi). However, there are other forms of engagement. One example is the trilateral IndiaBrazil-South Africa (IBSA) Forum, which was agreed in 2003 and seeks to promote South-South cooperation. Third, economic interests are a further and important driver in India’s relations with Africa. Energy security clearly demonstrates this point. Holding 0.3 percent of the world’s total oil reserves and

Diplomacy & Foreign Affairs Magazine | March 2014

a fifth of its population, India has been importing on average more than half of its crude oil needs since 1965. The ‘India Hydrocarbon Vision 2025’ of February 2000 called on India ‘to assure energy security by achieving self-reliance through increased indigenous production and investment in equity oil abroad’.5 While outlining a greener, cleaner India using renewable energy, oil was at the core of this vision, galvanising efforts to find new overseas sources. India’s dependency on foreign oil stood at around 75 percent in 2010 and was projected to rise to 90 percent by 2025.6 As a result, it is compelled to engage resource endowed African states to continue its economic growth. This is then a vital domestic driver: India’s outstanding challenge continues to be lifting millions of impoverished Indians out of poverty. This is an immense challenge, especially in the face of India’s recent economic slowdown to five percent growth in 2012. Finally, a related factor concerns the geostrategic propulsion behind India’s mounting interest in and engagement with the strategically important African Indian Ocean Rim. India’s maritime doctrine, published in 2004 and revised in 2007, spelled out the immense importance of the Indian Ocean to India’s security and economic development, manifest in the high dependence upon seaborne supplies of natural resources (for instance, nearly 90 percent of its oil supplies are seaborne). New Delhi’s quest for natural resources — especially oil and natural gas — to power continued economic growth renders its interdependence with overseas supply sources a strategic matter.

India’s Africa Partnership: Incremental Engagement From the outside, India’s Africa partnership looks well calibrated, expressed as it is in a noble and fluent language of South-South cooperation and all the impeccable credentials of mutuality and partnership that flow from this. However, even a cursory genealogy of its recent genesis and development reveals a different story in which growing links with Africa started and developed in a much more organic, ad hoc manner led by corporate and corporate-related bodies that first championed greater connections and the cause of investing in Africa. These were later institutionalised by government entities into red carpet summits. Indian business, albeit with some support from government departments, mobilised before the Indian government in pursuing a more organised, ambitious and active outreach to Africa. In other words, the government of India did not lead, but was led to Africa, and remains beset by a policy-making capacity deficit. The first high-level India-Africa business conclave, following earlier business efforts, was organised by the Confederation of Indian Industry and India’s Export Import (Exim) Bank (in association with other government ministries and the African Development Bank) in March 2005. This has become a vibrant, popular and busy annual event. The first ‘India Africa Forum Summit’, attended by 14 African heads of states, was held in New Delhi in April 2008. It concluded by declaring an ‘Africa-India Framework for Cooperation’ — an ambitious set of commitments to advance the breadth and depth

Prime Minister Manmohan Singh at the Dar es Salaam Institute of Technology in Tanzania

of an Indian-African partnership formally predicated upon mutual benefit. The second India Africa Forum Summit was held in Addis Ababa in 2011 and produced the Addis Ababa Declaration and the Framework for Enhanced Cooperation. Whereas once the far-sighted internal champions of enhanced African economic relations had to work hard to get government attention, now the government is more focused on Africa.7 For India, its politics is held up as a comparative advantage. A notable self-articulation by Indian leaders, intellectuals and corporate CEOs is the notion that India has a benign positive image and is not regarded as a threatening power. Linked to its domestic democratic record, and other achievements such as in agriculture, this is expressed as the power of India’s example and, with the ideological capital it is perceived as holding, is seen as ‘India’s great advantage.

Economic Ties Following the period of neoliberal reforms of the 1990s, and in the context of pressing concern about strategic questions like energy security, Indian foreign policy became more oriented toward economic concerns, even though it has never jettisoned the more normative principles of its foreign relations. It has allowed the expansion of new economic ties at the same time as the continuation and evolution of more established forms of economic and developmental interaction. Overall trade between India and Africa more than doubled

from $25 billion in 2006-07 to $57 billion in 2011 — the official target for 2015 is $90 billion. This meant that India accounted for a comparatively small proportion of Africa’s trade (some 5.8 percent of in 2012), but the rate of growth in India’s trade and investment has been such as to be comparable to China’s. India’s economic profile in Africa is characterised by a number of aspects that conform to wider patterns. First, trade geography is concentrated: India’s leading four African trade partners (Nigeria, South Africa, Angola and Algeria) account for some 68 percent of total trade (Nigeria alone accounted for 29.4 percent in 2011 and South Africa for 21.3 percent). Second, the composition of trade rests on a commodity base. Oil dominates overall trade. Africa supplies some 20 percent of India’s fuel imports. African imports from India are dominated by manufactured goods. Africa had a trade surplus with India of some $14.8 billion in 2011, mostly due to primary commodity exports (making up 91 percent of Africa’s exports to India in 2010). Third, Indian investment has increased markedly in recent years, especially in agriculture, infrastructure, telecoms and mining. The majority has been concentrated in India’s top ten trading partners. Finally, financial credit mechanisms are the centre of India’s economic engagement, underwriting business expansion and funding a plethora of projects. The leading mechanism is Exim Bank credit lines. In May 2011, Indian Prime Minister announced a further credit of $5 billion for Africa. Africa is the largest regional recipient of Exim Bank’s total line of credits. There have been efforts

March 2014 | Diplomacy & Foreign Affairs Magazine

10th CII-EXIM Bank Conclave on India-Africa Project Partnership

to promote economic links and enhance business connections. In 2008, for example, India launched a Duty Free Tariff Preference scheme. Indian corporations have stepped up operations, with the likes of Tata Motors, Dabur, Marico, Essar Group, Godrej, Bharti Airtel or Kirloskar Brothers increasingly active in targeting Africa as a market or centre of resource extraction, like Vedanta Resources in Zambia’s copper industry. Overall, India has been most active in the areas regarded as its comparative advantages such as agriculture, information and communication technology, communications infrastructure and petroleum refining. As the 2011 Summit emphasised, agriculture was one area designated for the expansion of ties, including through the Comprehensive Africa Agriculture Development Programme. When it comes to the operations of certain Indian companies in this sector, however, it has not all been plain sailing. Notably, in Ethiopia, the likes of Karuturi Agro Products, a subsidiary of Karuturi Global Ltd., along with other Indian companies have attracted criticism for the nature of their work in the Gambella region from without India. There has been a small debate about ‘agro-imperialism’ within India as well, indicative of emerging questions about the conduct of Indian corporations in Africa. Energy security has influenced India’s moves into the African oil sector. Partly facilitated by the Indian government and its leaders, the strategic importance of this predictably meant that hard commercial considerations have trumped the normative thrust of Indian foreign policy. Debate within India over the risks of the engagement in Sudan by its leading national overseas oil company, ONGC Videsh (OVL), predominantly focused not the morality of investing but on the company’s safety. India’s petro-partnership with Sudan began in 2003 when Export-Import Bank of India, 30th Annual Report 2011-2012, 47. Of a total of $8,160 million, operative LOCs as of 31 March 2012, Africa accounted for $4,313 million (and Asia for $3,458 million). Ethiopia was the top African recipient with $705 million. OVL bought a 25 percent stake in Sudan’s main oil consortium. Further investments made Sudan one of the largest destinations for Indian foreign investment between 1995 and 2005. Following a hugely profitable peace dividend from 2005, Sudan’s financial importance for OVL began to decline in 2010-2011 as growing assets in Russia began to produce significant amounts of crude. OVL encountered diminishing returns amidst declining production, insecurity, political uncertainty and then South Sudan’s secession. India has been working hard to nurture its relations with other major oil-producing African countries, including Nigeria, Ghana, Equatorial Guinea or Côte d’Ivoire. The Indian business engagement in Africa extends significantly beyond energy. More than oil, India imports a range of other commodities such as coal from South Africa. One area where India stands out in its economic relations flows from Africa is its position as the world’s largest customer of gold bullion (important in its relations with South Africa), and as the leading processor of diamonds, making up some 86 percent of the world market. In terms of Indian exports to Africa, there are strong links in such sectors as automobiles, with Tata buses, Maruti cars, or Bajaj

Diplomacy & Foreign Affairs Magazine | March 2014

motorbikes and auto-rickshaws leading operators, and the active pharmaceutical business, as a range of Indian companies look to Africa to increase overseas sales and the government plans to further ‘Pharma India’ promotion.

India’s Development Cooperation India’s development assistance has become more intertwined with commercial considerations. This is partly seen in how either the Ministry of Commerce or Exim Bank has assumed more important roles in overseeing concessional finance agreements with African states. The Ministry of External Affairs had previously been the principal coordinator of Indian development assistance. Development cooperation policy is based on the twin foundations of economic and technical cooperation, with the former focusing on trade, investment and other linkages together with efforts to promote business regulation and opportunity. The latter engages with capacity building and human resource development. A notable area where India styles itself as different in Africa is human resource development and capacity building support. This has deep roots, notably in generations of Africans educated in India, and in the Indian Technical and Economic Cooperation (ITEC) programme dating to 1964 (its corollary is the Special Commonwealth Assistance for Africa Programme). India’s role here is held to be different on account of its approach, including emphasis on local skills development and emphasis on ‘a people centric development approach in Africa’.16 Human resource development is seen by India as a distinctive aspect of its engagement, which is competitive also through the advantages it has of a good quality affordable higher education sector and advanced IT. The 2008 India-Africa Summit launched a plethora of new training initiatives. Particularly, India committed to establishing new institutions for capacity building. How far this agenda advances will rest partly on the extent and manner by which this programme is realised and carried out in future years. Indian business has also been involved in technology transfer, pursuing approaches held to be applicable like the ‘Triple A’ strategy championed by the Confederation of Indian Industry for affordable, adaptable and appropriate technology. In 2004, India launched the Techno-Economic Approach for Africa-Indian Movement, a special credit facility for eight West African countries, to promote socio-economic development through access to Indian technology. It has also been extending support for cotton sector development in Benin, Burkina Faso, Chad and Mali and, since May 2010, Nigeria and Uganda. India’s Pan African E-Network Project, with African Union cooperation, uses Indian IT expertise to link academic institutions and hospitals in 47 African countries with counterparts in India via a satellite network enabling ‘teleeducation’ and ‘tele-medicine’. India’s new development cooperation phase is proceeding amidst the on-going reality of domestic poverty and on the back of moves to reposition India in international development. India ranked 134 (out of 187 countries) in the 2011 UN Human Development Index. This places it in a medium category, but it is

still is beset by severe poverty. Following government insistence that all donors apart from the main six stop official flows to India in 2003, New Delhi moved to announce debt relief for seven African states. An excess of development initiatives followed. India has also been engaged in efforts to mobilise support at international bodies like the UN for its development cooperation. India’s development cooperation with Africa follows on from and contributes to New Delhi’s efforts to move from a former aid recipient to a more active development actor with a wider international voice. While such ambition may for now exceed the present capability of an already overstretched government machinery, persistent debate about establishing a ministry for international development is indicative of how being more active in developing others, albeit through the mutualism of South-South means, is bound up with India’s changing international stature. India’s development cooperation is far more significant than its narrowly defined aid per se. In January 2012, the government of India created a new Development Partnerships Administration to harmonise the work of Indian agencies involved in development assistance under the Ministry of External Affairs and streamline aid spending. While partly indicative of the growing scale of development assistance and future aspirations, this also underlined ‘the intent to manage them more effectively and strategically, including in terms of public diplomacy — building India’s image around the world’

Conclusion India is neither a new actor in Africa, nor is it merely ‘emerging’. In 2010, the US President Obama drew applause from the Indian parliament not only by declaring that ‘India is not simply emerging; India has already emerged’ but also by calling it ‘a rising global power’. The language of India as a ‘rising power’ or ‘emerging actor’, folded as these are into the wider meta-narrative of a ‘rising Africa’ and Asian global economic ascendancy, is convenient. However, this is also unhelpful in conveying a simplistic uni-linear trajectory, eschewing complexity and taking official rhetoric at face value. It is revealing that some in New Delhi oppose such terms, arguing that it creates a psychology of its own for leaders out of touch with gravity. At a more basic level, this entry point neglects the much more deep rooted, interesting and problematic histories beyond a multifaceted and diverse Indian role in the African continent and, concomitantly, the new histories in the making. While India has avoided direct competition with China in Africa, instead positioning itself to exploit its niche areas, it has been looked to more as a collaborator in African development, not only from within but also from outside the continent. Established development agencies from the US, the UK or Japan are increasingly seeking to engage and work with India on African development cooperation, even while adjusting their own development relations with India. Following the Fourth High Level Forum on Aid Effectiveness in late 2011 in South Korea, India endorsed the Busan Partnership for Effective Development Cooperation and appeared set on a more prominent international role should it choose to pursue such a path and participate more

India’s development cooperation with Africa follows on from and contributes to New Delhi’s efforts to move from a former aid recipient to a more active development actor with a wider international voice actively. For now, in its Africa relations, it appears to prioritise its own approach and prefer the South-South partnership track. In previous decades, India’s economic relations with Africa never went ‘beyond a verbal repetition of [the] South-South cause’. The recent phase of enhanced business relations, expanding investment and more involved government engagement has marked a departure that if continued and sustained looks set to have an increasingly consequential significance. Whereas India’s relations with the continent were previously stronger on ideology than on substance, this new underlying change has pointed to the opposite: an increasingly substantive, business-led engagement over which official rhetoric of South-South partnership is overlaid and subject to increasing strain by virtue of the nature of emerging Indian relations with Africa. India’s Africa relations in their current form remain a comparatively recent rejuvenation as an area of deliberate government attention and activity. Having moved to a more important position within India’s foreign policy, yet still not a clear priority, Africa has been elevated as a policy concern sometime after Indian business mobilized into more active forms of engaging various opportunities. The government of India was widely being urged to move ‘from agreement to action’ in its Africa relations. This begged the question of how, in the context of the Indian government’s capacity constraints and practical limitations on its Africa endeavour, India can not only articulate but also pursue an engagement with Africa that delivers and more effectively realises the substantive principles and commitments upon which it is based.

about the author Dr. Daniel Large, teaches at the School of Public Policy, Central European University, is a research associate with the South African Institute of International Affairs' Global Powers and Africa programme, and is also director of the Rift Valley Institute's Sudan Open Archive (www.sudanarchive. net).

March 2014 | Diplomacy & Foreign Affairs Magazine

10th CII-EXIM Bank Conclave on India-Africa Project Partnership

Investment Opportunities in

African Infrastructure At last, this is Africa’s time.

by Gordon Brown

y virtually any metric important to economic development, African countries are making stunning progress. Between 2000 and 2009, real GDP growth in sub-Saharan Africa outpaced that of most other regions of the world. A number of African countries—among them Angola, Ethiopia, Mozambique and Rwanda—saw inflation-adjusted growth rates that were higher than India, Russia or Brazil. African economies are not only growing but also becoming more favorable environments for businesses and investors. The World Bank rates Mauritius a better place to do business than Germany, and South Africa ranks above Chile. Botswana, Tunisia, Rwanda, Ghana, Namibia and Zambia all offer a more favorable entrepreneurial environment than China, according to the Bank’s surveys. Meanwhile, economic freedom—the ability to work, earn, invest and spend without interference from the state—has improved markedly over the past 10 to 15 years in Angola, Burkina Faso, Cape Verde, Ethiopia, Guinea-Bissau, Madagascar, Mozambique and Nigeria. The skills and capacities of the African people are improving as well. In some African countries, school enrollment is rising at the fastest rates in the world. Life expectancies are increasing thanks to improving health systems and control of epidemics.4 There is still room for improvement in both areas, but the gains of recent years suggest that Africans will be more productive workers and more powerful consumers in the decades to come. Already, aprofessional class is developing that will be a strong anchor for growth. Investing in Africa has the potential both to generate returns and to create beneficial long-term relationships. Companies whose brands gain the trust of African households will find an ever-larger market as incomes increase. By the same token, companies that gain the trust of African governments and businesses will find more demand for long-term projects as tax revenue and profits pile up.

Diplomacy & Foreign Affairs Magazine | March 2014

Building infrastructure can help to boost employment as well. For instance, the private equity firm Actis estimates that its investment in a toll route between South Africa and Mozambique helped to create 13,000 jobs

improved sanitation and drinking water could reduce diarrheal diseases by nearly 90 percent. Building infrastructure can help to boost employment as well. For instance, the private equity firm Actis estimates that its investment in a toll route between South Africa and Mozambique helped to create 13,000 jobs.13 A World Bank review of projects in Latin America and the Caribbean suggests that the short-term potential of infrastructure capital investment projects to generate employment (both directly and indirectly) could be 40,000 jobs per US$ 1 billion. Private companies may see investing in Africa as a gamble, but the risks are often more perception than reality. Moody’s analyzed the performance of 20 years of project finance loans (accounting for about 45 percent of all projects financed since 1983) and found that only one project out of 92 in Africa had defaulted.

Specific opportunities in the infrastructure sector Africa’s own companies are underlining this potential as they expand at an accelerating pace across the continent. The time to join them is now.

Why infrastructure? One of the most promising areas for investing in Africa’s boom is infrastructure. Economic growth on the continent is increasing demand for energy, water, sanitation, transport and information and communications technology (ICT). For instance, power generation capacity— currently 68,000 megawatts in subSaharan Africa—will need to grow by more than 7,000 megawatts a year to keep pace with demand.6 Markets for ICT services are also expanding rapidly; broadband services, for example, are expected to increase from 0.04 lines per 100 inhabitants in 2006 to 2.54 lines in 2015. Improved infrastructure will set the stage for further growth on the continent, creating large markets and investment opportunities. According to the World Bank, addressing Africa’s infrastructure gap could add two percentage points to its rate of GDP growth. Africa’s growth is already creating new business opportunities in the infrastructure sector. For private companies, infrastructure will be worth US$ 200 billion in annual revenue by 2020.Returns on foreign investment in African infrastructure are higher than in any other developing region; African independent power projects (IPPs), for example, have earned their investors internal rates of return of up to 25 percent, compared with 15 percent in Latin America and 12 percent in Eastern Europe. Investments in cross-border power transmission have exceptionally high returns, typically paying for themselves in less than a year. Improving Africa’s infrastructure is also critical to the region’s longterm social and economic development, including achieving the Millennium Development Goals (MDGs). Across the continent, health centers struggle to function without electricity, and the lack of safe and convenient water supplies facilitates the spread of disease. According to the World Health Organization,

African governments are increasingly recognizing the importance of the private sector for the provision of infrastructure. Many have made serious efforts to create the right legislative, regulatory and institutional environment for private investors to come on board. And a number of compelling projects have already moved from the conceptual to the fundraising stage. The Government of Kenya, for example, is spearheading the Lamu—South Sudan—Ethiopia Transport Corridor (estimated value: US$ 22 billion). This project includes the construction of a port in Lamu, Kenya and a rail line and highway linking Ethiopia, South Sudan and Rwanda to the port; it will be one of the biggest regional integration i nitiatives in East Africa. China has already shown interest in financing the construction of the port, and an investor conference is being planned in India to encourage additional investors to come on board.17,18 Simulations suggest that rehabilitating the infrastructure of East Africa’s northern corridor would yield a total rate of return of at least 20 percent. In nearby Burundi, Rwanda and Tanzania, governments are ready to partner with private companies to fund the construction of the East African railway, estimated to cost between US$ 3.5 and 5.1 billion. A feasibility study completed in December 2008 estimated the project’s rate of return at around 30 percent. At a broader level, the African Action Plan 2010-2015, developed by the African Union (AU) and the New Partnership for Africa’s Development (NEPAD), showcases 80 flagship programs and projects for economic integration in Africa. Among these, the AU has given priority to seven infrastructure projects. One is the Nigeria- Algeria gas pipeline. Nigeria’s gas reserves are the seventh largest in the world,23 and the planned 4,128 km pipeline will send Nigerian gas to Europe through Niger and Algeria. The project is estimated to cost between US$ 13 billion and US$ 20 billion, and Russia’s Gazprom, India’s GAIL, France’s Total, Italy’s Eni S.p.A and Royal Dutch Shell have all expressed interest in participating.24 After some earlier delays, the project is back on track.

March 2014 | Diplomacy & Foreign Affairs Magazine

10th CII-EXIM Bank Conclave on India-Africa Project Partnership

Lamu—South Sudan—Ethiopia Transport Corridor Project

The AU priority projects offer different balances of risk and reward. Estimates from the African Development Bank suggest that companies participating in infrastructure investments in Africa can earn commercial rates of return from 5 to 10 percent in the water sector, 17 to 25 percent in the power sector and 25 to 30 percent in telecoms. Across sectors, infrastructure investments average returns of between 15 and 20 percent, though sessions at the recent World Economic Forum on Africa 2011 heard mention of even higher returns—up to 40 percent in the power sector and 80 percent in roads. Competition for these rewards is increasing. Though Western Europe is still the leading investor in Africa, companies from China, India and Malaysia are also active investors and operators in infrastructure projects across the continent. FDI projects by Asia-Pacific countries in Africa increased by 11 percent in 2010, and projects from Indian companies increased by 74 percent in 2010, mainly in telecoms. Africans themselves are also optimistic about the opportunities the continent has to offer; intra-African investment into new FDI projects showed a 21 percent compound annual growth rate between 2003 and 2010.

A continuously improving environment African infrastructure presents profitable business opportunities that offer both economic and social impact—not only for investors seeking financial returns, but also for construction firms and infrastructure network operators in search of new business. Indeed, there are opportunities in every sub-sector, and the environment for investing is continually improving. Governments in Africa are taking steps to improve the investment climate and attract new pools of investment. They have taken the lead in reforming legislation and creating structures for low-risk, profitable investment partnerships. They

Diplomacy & Foreign Affairs Magazine | March 2014

are also working together to lower the barriers that prevent working across their borders. Meanwhile, partners such as development finance institutions and donor organizations are helping to structure deals and investment funds. The African Development Bank, for example, teamed up with investors to generate up to US$ 450 million to finance a Pan-African Infrastructure Development Fund. The Bank contributed US$ 50 million to the fund and US$ 1 million to its management. Development partners are also ready to finance technical assistance, provide guarantee instruments to mitigate risk and take on some of the upfront costs of early-stage project development. As investors and multinationals get involved, they, too, will play a pivotal role in Africa’s development. They will not only provide capital and improve efficiency in utilities; they will also bring their experience, management expertise and technological know-how to Africa’s infrastructure sector. These extra benefits will contribute to faster growth in the long term, and eventually create even more opportunities to invest. Investing in Africa offers a wealth of potential. With governments implementing reforms to improve the investment climate and development partners ready to shoulder some of the risk, this is an opportune time for the private sector to increase its participation in Africa’s economic growth. African infrastructure offers private investors, financial institutions, construction firms and network operators a window of opportunity to earn an attractive return while making a long-term impact that will yield even more social and economic benefits in the future.

about the author Gordon Brown, Member of Parliament for Kirkcaldy and Cowdenbeath

SONALIKA- ‘INCREASING FOOTPRINTS IN AFRICA’ Sonalika International is among the top tractor & farm equipment manufacturing company in India. The group caters to the wide product gamut through its tractors range (20hp-90hp), farm machinery attachments, multi-utility vehicles, engines, diesel gen-sets, auto components and pick & carries cranes. The company is presently exporting to more than 75 countries worldwide. Sonalika is one of the most trusted brands in Africa and has very strong relations with the African countries, which is evident from the fact that the company is the leading exporter of Tractors and Agricultural Equipment to the continent from India and further growing at exponential rate. Africa is, and has always been the popular business hub for Sonalika, and a major contributor to the company’s international business. Sonalika always marks a respect to the day when the first Sonalika tractor landed in Africa, in the form of AGRI DAY celebrations every year. Sonalika is already having a stronghold in more than 25 countries in Africa namely Algeria, Egypt, Morocco, South Africa, Cameroon, Tanzania, Ghana, Uganda & Mozambique to name a few. Presently, Sonalika is the market leader in Algeria, where the brand has gained accolades and customer faith at a much faster pace since its inception almost a decade ago. Sonalika has always looked beyond supplying tractors to the continent, and therefore, the company has further plans of opening up training centers, localization of parts and assembly lines in various African countries. This will contribute towards continent growth through employment generation, infrastructure development, better farming practices by way of advance mechanization, increased agriculture output yield & revenue generation which will prove to be beneficial not only in monetary terms, but will also uplift the overall morale of the farming community and the countries as a whole. Selling under the brand Sonalika & Solis, the tractors are popular for their low maintenance, robustness, high fuel efficiency and superior performance. Sonalika Engines and Tractors also comply with tough American EPA norms as well as Euro Homologation which has been done for several models to enable entry in the European markets thus making them eligible and certified in terms of global quality standards. LANDINI-SOLIS, another popular brand in South Africa, has been performing exceptionally well, has earned several key government orders, and already established sales facilities at over 60 points in South Africa itself. Sustained leadership with LOC Projects- Sonalika has successfully supplied tractors and implements to Malawi govt. and Cameroon under the Indian Line of Credit (LOC).The government of both these nations extended a successful cooperation to the company in implementing its LOC business & helped in attaining Green Revolution. The company has also been an active participant in various international agricultural exhibitions in Africa. Besides corporate activities, Sonalika is also popular for various CSR activities it has done in India and other parts of the world, including Africa. Owing to its superior quality with the zest to become a truly International Agricultural Equipment Manufacturer has made Sonalika become a ‘COMPLETE AGRICULTURAL SOLUTION PROVIDER’.

March 2014 | Diplomacy & Foreign Affairs Magazine

10th CII-EXIM Bank Conclave on India-Africa Project Partnership

Infrastructure Financing Opportunities in Africa by Taiwon Adeniji

Roles and opportunities for Indian Businesses •

Africa’s Infrastructure Deficit •

•

Africa’s largest deficit is in the power sector, including generation capacity, electricity consumption and security of supply. E.g. SSA with 48 countries and 800 million people generates about the same amount of power as Spain with 45 million people.1 Other key areas include transport infrastructure and water resources.

The IMF projects SSA’s real GDP growth rate at 5.0% in 2013 and 6.0% in 2014, (compared to 2.9% and 3.6% respectively for the world); backed by continuing investment in infrastructure and productive capacity.2

•

This creates a wealth of opportunity for developers and investors, especially with

Economic Potential

improvements in macroeconomic policy, structural reforms and reliable long term financing •

Africa’s Infrastructure Deficit

• •

The estimated financing requirement to close Africa’s infrastructure deficit amounts to USD$93 billion annually until 2020. This represents about 10% of GDP pa for medium income countries, and 15% pa for low income countries.3 Home governments cannot finance the investment requirements and are looking to external sources and private sector investors through PPPs. China, India, and a few Middle Eastern Gulf nations are already financing a record number of infrastructure projects across Sub-Saharan Africa.

Diplomacy & Foreign Affairs Magazine | March 2014

Dimensioning the opportunities Sample initiative Initiative

Programme for Infrastructure Development in Africa (PIDA)

Key Parties

•

NEPAD Planning & Coordinating Agency; African Union Commission;

•

African Development Bank; Regional Economic Communities; Member States •

Total of US$360 billion required to implement identified projects to address Africa’s projected infrastructure needs by 2040.

Key Objectives

•

51 projects in PIDA Priority Action Plan (PAP), with total investment of US$68 billion by 2020: 60% in energy, 37% in transport, 2.5% in water and 0.5% in ICT.

Sector

Number of Cost US$ projects billions

Region

Number of Cost US$ Prajects billions

Transport 24

25.400

Continental

Energy

40.300

North Africa

1.3

TWR

1.700

ICT

0.5

Total

67.9

Central Africa 9

21.5

South Africa

12.6

East Africa

23.3

67.9

Projects & Estimates by Sectors and Regions

Africa’s Infrastructure Deficit: Opportunities for Financiers • • •

Project Sponsors/ Infrastructure Developers •

Green-field or brown-field project development across sectors Privately sponsored or Public-Private Partnerships Development cost and risk sharing

Feasibility Studies, Engineering Designs, Works Supervision,

Consultants and Specialised Service Providers

Project Management, Pre-investment due diligence •

Specialist surveys, audits and related services

•

Research, benchmarking and advocacy

Original Equipment Manufacturers (OEMs)

•

Supply & installation of equipment

•

Operations & Maintenance service contracts

•

Own Government/Export Credit Agency Support

•

Engineering, Procurement Construction Contracts

•

Local firms: Sub-Contracting/Joint Ventures

Logistics and Last-Mile Service Providers

•

Contractors

Development and maintenance of infrastructure to support last mile service delivery, e.g. gas pipelines, tank farms, etc

•

New market creation/exports

March 2014 | Diplomacy & Foreign Affairs Magazine

10th CII-EXIM Bank Conclave on India-Africa Project Partnership

Sample Infrastructure Transactions Across Africa Total Investment in Infrastructure projects by primary sector - Sub-Sahara Africa (US$ million) Investment Year

Energy

Telecom

Transport

Water and Sewerage

Total Investment

2012

4,970

7,726

126

12,822

2011

1,205

9,040

851

11,097

2010

472

12,042

250

12,763

2009

945

11,507

912

13,364

2008

668

11,870

1,255

13,793

2007

1,471

10,406

260

121

12,257

2006

675

7,147

4,239

12,061

2005

1,160

4,918

2,549

8,627

Sample Projects (2012) Country

Project Name

Primary Sector

Total Investment

Nigeria

MTN Nigeria

Telecom

1453.8

South Africa

Abengoa KaXu Solar I CSP Solar Plant

Energy

844

Cote d’Ivoire

Henri Konan Bedie Toll Bridge

Transport

365

Cape Verde

Cabeolica Wind Power Project

Power

Ghana

Takoradi 2 and 3

Energy

440

South Africa

Abengoa Khi Solar I CSP Solar Plant

Energy

430

Nigeria

Emerging Markets Telecommunications Services (EMTS)

Telecom

417.2

South Africa

Kathu Solar Plant

Energy

394

South Africa

ACED Cookhouse Wind Farm

Energy

300

Sources: http://ppi.worldbank.org/explore/Report.aspx?mode=1

about the author

Taiwon Adeniji, Director, Financial Institutions and Advisory Services, Africa Finance Corporation 1 “Fact Sheet: Infrastructure in Sub-Saharan Africa” web.worldbank.org ; 2 “Regional Econmic Outlook, Sub Saharan Africa”, IMF, Oct 2013 3 “Infrastructure Deficit & Opportunities in Africa” AfDB Economic Brief, Sep 2010’

Diplomacy & Foreign Affairs Magazine | March 2014

Opportunities for Indian private sector in Africa’s Agro-Food Industry by Dan Acquaye

hough government and public sector institutions engage in the development of agro-food industry in SSA, the private sector remains a critical driver with the highest level of investment and impact in the agro-food industry. Despite the numerous challenges and high level of risk involved in agribusiness investment in the region, there has been a significant increase in private sector investment and engagement over the last decade. With nearly 70% of Sub-Saharan Africans involved in agriculture or agriculture-related business and as much as a third of GDP being derived from agriculture, growth in Africa is founded upon growth in agriculture. Sub-Saharan Africa’s agricultural exports increased from $14.7 billion to $25.3 billion in 2006 and while global foreign direct investment inflows worldwide fell by an estimated 21% in 2008, FDI inflows to Africa grew by 15% to $61 billion in 2009 (Business Trends 2009). To feed the world in 2050, some US$9.2 trillion in cumulative investments will be necessary worldwide. The population of Africa could by then nearly be doubled, and reach 2 billion. Sub-Saharan Africa alone will need some US$940 billion of investment. About 66 per cent of these will be required for agribusiness and agroindustries capital outlays (High Level Conference on Developing Agribusiness and Agro-Industries, Abuja 2010). Though agribusiness is seen to be one of the risky business ventures in Africa, most Chief Executive Officers (CEOs) who have invested in the sector are seen to be motivated by growing market demands, increasing profits and are willing to expand operations despite perceived unfavourable investment climate. Within a particular agro-food value chain, it is common to see varying scale of operations and investment ranging from a $1,000 agribusiness investor to a multi-million dollar company, all operating in specific segments along the chain and feeding into one another. However

the key segments of the industry that drive and control growth in the sector are: agro-dealers, food processors, supermarkets, support service institutions and financing companies. The role of support service institutions to the agro-food industry is as significant as the role of the key value chain actors themselves. Key agro-food participants are: Agro-dealers, Producers, Processors, Wholesalers and Retailers (including supermarkets), Value Chain Facilitators and Aggregators.

Role of Agro-dealers in the Agro-food Industry Sub Saharan Africa has the lowest world record of agroinputs application and utilization (Africa Fertilizer Summit, June 2006). It is a cruel irony that a farmer in Sub-Saharan Africa, where half the population survives on less than $1.25 a day pays two to four times the average world price for fertilizer. African farmers apply only five to ten percent of the fertilizer amounts used in other developing regions, such as Asia and more than 90% of fertilizers used in SSA are imported (Arie Kuyvenhoven 2007). Key agro-dealer companies in the region are YARA and Chemico – Ghana, Amiran – Kenya, Swiss Biostadt-Nigeria, NANKOSEM Burkina Faso and HygrotechSouth Africa. All the major agro-dealers in the countries visited played several roles beyond the traditional supply of inputs, in order to increase their sales. In most cases, the agro-dealers have become key value chain service providers. Their activities range from research through extension support to market linkages and infrastructure development. Supply of agro-input: The fundamental function of agro-dealers is to sell and distribute agro-inputs to every potential buyer even at the remotest part of the country of operation. Agro-dealers are motivated by profits through margins and volume of sales. By selling

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these products, they provide producers the necessary fertilizers, seeds, agro-chemicals, farm equipment, machinery and irrigation systems to increase production and productivity. Various strategies are adopted by the agro-dealers to meet their primary and secondary objectives. Applied Research and Trials: Almost every major agro-dealer engages in research activities with existing in-country research institutions. Seeds and fertilizers are tested to determine optimum levels of applications, efficacy and utilization cost. YARA for example conducts fertilizer trials with in-country institutions and its research centres in Malawi, Tanzania, Ivory Coast, Mozambique and Ghana. Extension Services and Transfer Technologies: They also provide extension support and technology transfer to farmers on efficient utilization of the agro-inputs. In most cases, agro-dealers have had to directly pick up the role of extension provision, and have extension officers on their payroll, as they recognize it as the weakest support service within agribusiness value chains. Backward Integration: To ensure repayment for agrocredit, agro-dealers have developed backward integration models; they provide inputs to farmers, train them on proper application and in the end buy the produce from farmers. The system offers guaranteed market to producers, an incentive to re-use agro-inputs for subsequent seasons. In certain instances, the agro-dealer has collaborated with farmer associations to construct warehouses for farmers’ produce.

Key Challenges and Development Areas Poor infrastructure and high transportation cost are among the key challenges confronting private sector in the agro-dealer industry. For example transporting fertilizers from an African seaport to a farm 100 km inland costs more than to ship the same fertilizers from North America to Africa. Also the current low demand for fertilizer in Africa reduces potential benefit of economies of scale in procurement. Poorly managed fertilizer subsidy programmes across Africa fuels smuggling and ultimately results in higher fertilizer prices for farmers. Inputs sometimes become political commodities with interventions, which destabilize sustainability measures, create inefficient utilization and make the private sector uncompetitive. Lack of harmonized regional regulations and standards make cross-border trade in fertilizer difficult. Donor-driven projects are not coordinated and more often, farmers are left confused with the different products offered. It is also difficult to eliminate charlatans who supply sub-standard products at lower prices to farmers.

The Role of Producers Producers form the largest component of the agro-food value chain. They can constitute over 80% of the actors within the agrofood value chains. Producers invest in land and provide labour and resources to generate the needed raw materials for processors and supermarkets. Regional farmers’ federations such as ROPPA, SACAU and KENFAP represent over 1million farmers each and transfer

Diplomacy & Foreign Affairs Magazine | March 2014

production technologies, advocate for sound government policies and help provide the critical mass of produce for processors and supermarkets.

Role of Agro-food Processing Companies Food processing companies drive the agro-food industry in Africa. Considering the high incidence of post-harvest losses in Africa, agro-processing companies have a vital role in turning primary agricultural products into consumable commodities. They range from cottage-level small-scale processors to state-of-the-art multinational companies. It is the subsector within the agro-food industry that creates the needed agribusiness opportunities for investment as well as reliable and sustainable livelihoods from small-scale producers. In South Africa for example, the government has identified agro-processing as a key sector for the creation of sustainable jobs and enterprises, thus a number of government export and investment promotion initiatives exist to support the sector. The agro-processing sector (also known as agri-processing) contributes about 10% to South Africa’s gross domestic product (GDP). Food and beverages is also the third largest sector under manufacturing after the petroleum and chemicals, iron and steel sectors. Agro-processing contributes 10% to South Africa’s GDP. The food market is largely controlled by multi-nationals, only 10% of the agro-processing companies are responsible for 70% of industry turnover. Of the 5 top brands listed on JSE, TIger Brands holds 50% market concentration (Gauteng Enterprise Propeller, March 2009). Other multinational companies include Nestle and Unilever. Kenya boasts of large agro-processing industries reflecting the importance of the agricultural sector in the Kenyan economy. Food processing is thus one of the key activities in Kenya’s agroprocessing industry. Del Monte, one of the leading world suppliers of pineapple, has operations in Kenya and exports almost all its pineapple concentrate. Other multinationals within the country include Unilever, Nestle and Coca-cola. There are however other large-scale African agro-processing companies whose operations span across and within regions. For example BIDCO, an edible oil processing company headquartered in Nairobi-Kenya, has operations in Uganda. BIDCO has asserted itself into a leading position as East and Central Africa’s largest and most advanced edible oil, fats and hygiene products manufacturer and presently works with over 10,000 small scale producers, processing over 25,000 tons of grains annually. East African Breweries located in Kenya also has operations in Uganda and Tanzania. Zambia and Malawi are noted for spice processing companies like Cheeteh Malawi, an indigenous spice processing company, that exports processed spices like Paprika and Nali across East and Southern African countries. Nali has strong presence in Zambia, Zimbabwe, Tanzania, Kenya, Mozambique and South Africa. The products of Nali can also be found in America, Europe and Asia markets. FreshPikt Zambia is the leading fruit and vegetable processing company within Zambia, Malawi and Mozambique. In West Africa, most countries initiated agro-industrial economy in the colonial era as state-owned enterprises. For example, in Ghana and Cote d’Ivoire, there are several fruit and food processing

companies which were vibrant and functional in post-independence era. However, most of these companies were privatized as part of the structural adjustment programmes instituted in the 1990’s. Blue Skies in Ghana is a leading exporter of processed and packaged fruits to high-end markets in Europe. The company has diversified and integrated its operations from an exporter of raw fruits, mainly pineapple, to the EU market to a food processer competing in Ghana in the processed fresh fruit market with other giants like Coca-cola. Ghana Agro Food Company Limited – GAFCO is a leading company in Tuna canning, wheat milling; feed milling and fishmeal production in Ghana. Ghana has commercial scale agri-feed industries that supply most of the West African poultry industry, notable among them being Afariwaa Farms, Agri-Feeds and Darko Farms. In Burkina Faso, ETALON is a flour processing company with over 58 bakery outlets producing close to 350,000 loaves of bread daily. It is important to mention that whereas global multinational and large scale processing companies dominate the formal markets, Sub-Saharan Africa is rather dominated by medium and small scale agroprocessing companies who serve most urban (district and municipality) markets. These enterprises could account for close to 80% and 30% of the informal and formal markets for processed foods respectively. These enterprises rather have relatively low quality of produce, average-to-poor packaging and limited distribution outlets. Their operations are characterised by the use of un-sophisticated technologies, minimum quality standards and limited product ranges.

Role of Supermarkets in the Agro-food Industry In recent times, there seems to be a “movement” of supermarkets in Sub Saharan Africa spearheaded by a chain of South African supermarket giants such as ShopRite, Pick ‘n’ Pay, Woolworth, Spar, Massmart and Metcash. This growth has been fuelled by increased globalization, increased urbanisation, trade liberalization, increased economic growth, positive political changes, regional integration arrangements, increased per capita income and middle class population groups with more sophisticated taste and preferences and liberalization of foreign direct investment (University of Cape Town, 2000). In South Africa, for example, supermarkets already account for more than 55 percent of national food retail (FAO 2003). Their impact can be felt in the fruit and vegetable markets in the region which has become integrated into a single, larger market. The Shoprite Group of Companies, Africa’s largest food retailer, operates more than 1,068 corporate and 275 franchise outlets in 17 countries across Africa, the Indian Ocean Islands and Southern Asia. It employs more than 75,000 people across 9 trading and 7 operational divisions, serving over 55 million customers a month translating

into serving the entire population of South Africa and more than twice that of Ghana every month (http://www.fastmoving..co.za/ 2011). Over the past 12 years, Shoprite has expanded its thrust northward beyond South African borders. Currently, 198 corporate outlets serve consumers in 16 countries outside of South Africa. In each of these countries (Angola, Botswana, Ghana, India, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Nigeria, Swaziland, Tanzania, Uganda, Zambia and Zimbabwe) the company is exploring the opportunity to source produce locally. Woolworths (Proprietary) Limited – is also a chain of over 330 retail stores (including more than 150 franchise stores) offering a selected range of quality clothing, food, home ware, beauty and financial services under its own brand name in South Africa, Africa and the Middle East. Between 2003 and 2007, the company increased its number of stores from 226 to 345 (http://www. fastmoving.co.za/2011). Massmart manages portfolio of nine wholesale and retail chains each focusing on high volume, low margin, low cost distribution of mainly branded consumer goods, in 13 countries in sub-Saharan Africa through four divisions comprising 235 stores, and one buying association serving 480 independent retailers and wholesalers. The Group is the third largest distributor of consumer goods in Africa, the leading retailer of general merchandise, liquor and home improvement equipment and supplies, and the leading wholesaler of basic foods (http://www.fastmoving.co.za/ 2011). Kenya alone has some 200 supermarkets and 10 hypermarkets, equivalent in sales to some 90 000 small shops and accounting for up to 30 percent of food retail in the country. “Supermarkets in Kenya are already buying three times more produce from local farmers than Kenya exports to the rest of the world indicating the significant role of urban market in the agro-food industry.” Propelled by the forces of globalization and urbanization, the rise of supermarkets across the developing world is an inevitable reality. Nakumatt and Uchumi are the leading supermarkets operating in Kenya. Nakumatt Holdings Ltd is the leading East Africa supermarket and the largest retail market player in East Africa and Rwanda, and still expanding to the wider East African region. Wal-Mart will be entering the African market through South Africa. This confirms the growing importance of agro-food industry in the region, improvement in agribusiness environment and opportunities within Africa agro-food sector. This trend is expected to continue because African consumers are becoming increasingly health conscious and convenient and ready-to-eat food is becoming popular and will continue to grow. According to United States Department of Agriculture (USDA) Foreign Agricultural Services Report May 2011, consumers in South Africa and in factentire urban areas in Africa are demanding

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longer store hours or even 24hour shopping. The report indicates that fresh fruits and vegetables, nuts, grains and legumes are increasingly part of the daily diets for the middle to high income consumers. The rapid spread of supermarkets in terms of market penetration and geographical reach has resulted in an important restructuring within the agro-food system in many countries around the world. Supermarkets have increasingly become the dominant outlets of agricultural products, from fresh vegetables produced by farmers to foods processed by multinational companies (MNCs).

Role of Value Chain Facilitators/ Champions Agricultural markets in Africa have increasingly become dynamic and complex thus making it difficult for smallholders or agri-firms to make their debut in the agro-food industry without the support of a facilitator or ‘champion’. Facilitators can be classified as private, government, donors (NGOs & regional initiatives) who lead the efforts in providing resources and needs. Their roles in the value chain include market linkages; engaging stakeholders to strengthen and deepen investment in value chains, supporting formation of Farmer-based Organisations (FBOs) and Trade Associations necessary for development and providing platform for information sharing; dialoguing and technology transfer. The role of the facilitators represents a new frontier of practices leading to more sustainable agro-food value chains. The significant role of value chain facilitators and champions is how they are able to analyse needs, identify potential stakeholders and bring everyone on-board to address challenges and exploit opportunities. Business to business linkages, public private partnerships, farmer-to-farmer exchanges and institutional linkages are the key roles of the value chain facilitator. Agribusiness in Sustainable Natural Africa Plant Products (ASNAPP), an NGO in Africa, has over the last 10 years assisted development of markets for speciality vegetables, teas, spices and medicinals for farmer groups. ASNAPP has consistently linked producers to markets and acts as the honest broker ensuring that suppliers’ meet buyers’ quality requirements and specifications and buyers pay for goods supplied. Through facilitation, export of the natural products increased from $3m to $15m in four years (www.asnapp.org). Similarly, the West Africa Trade Hub with funding from USAID has established the Cashew Alliance, Shea Alliance and the Borderless Alliance programmes with the view to stimulate and smoothen the value chain for further investment. Value chain champions and facilitators bridge the knowledge gap between buyers and producers.

has increased from 28% in 1980 to 40% in 2010, a proportion close to China and larger than India. It is estimated that by 2030, the continents’ top 18 cities could have a combined spending power of $1.3 trillion and the number of households with discretionary income over $5,000 will increase from 85million in 2008 to 128million by 2020 and have a middle class far more than India. Food and beverage spending is projected to increase more in absolute terms than any other consumer category. A study conducted by NEPAD secretariat estimates that urban market in Africa will increase to $150billion between 2005 and 2030. Today, the demand for soya bean, maize, rice, sorghum, oil palm and sugar cane far outstrips supply. High grain post-harvest losses coupled with demand by the World Food Programme offer additional opportunities for in-country agro-processing companies. The current surge for bio-fuel demand using sugar cane, maize and other agricultural commodities presents industrial agroprocessing opportunities for companies that will invest in agro-processing in Africa. Similarly, Africa remains a net importer of fish and livestock products. Nigeria alone spends about $900 million per annum to import 1.2 million tonnes of fish to meet the country’s demand (GAIN, 2010). Macro-Economic and Political Stability: For the last three decades, an increasing number of countries in Sub- Saharan Africa are showing signs of economic progress, reflecting the implementation of better economic policies and structural reforms. These improved political and macro-economic developments have created an improved business climate. In 2007, according to the World Bank’s annual Doing Business report, Africa ranked third in the world (trailing only the Eastern Europe- Central Asia group and the OECD countries) in the pace of economic reform. Two-thirds (2/3) of Sub-Saharan African countries made at least one significant economic reform in 2006, with Tanzania and Ghana being ranked among the top ten reformers in the world. The evidence for SubSaharan Africa suggests that the recent economic recovery was underpinned by a positive economic environment influenced either directly or indirectly by improvements in macroeconomic policies and structural reforms. Foreign investors have taken note of these changes. The net inflow of foreign investment increased from $6 billion in 2000 to $18 billion in 2005 (Health In Africa), an increase from less than one half of one percent to around two percent of global foreign investment. Close to half of the world’s major investment groups now express interest in this region. With an overall increasing investment in the continent, demand for agro-food will go high, there will be more discretionary spending money and agro-food industries tend to be highest gainers with this trend.

Opportunities in the Agro-Food Industry Market Opportunities (The Rise of the African Urban Consumer): According to McKinsey report (Lions on the move, 2010), Africa’s long term economic expansion will create new domestic engines of growth through urbanization, an expanding labour force and the rise of middle-class African consumer. The report indicates that the number of Africans living in urban cities

Diplomacy & Foreign Affairs Magazine | March 2014

about the author Dan Acquaye, United Nations Development Program

Investment Opportunitites in Africa Across Sectors by Moses Kgosana

Overview Home to over 1 billion people, Africa has been referred to as ‘the continent whose time has come’. Before the global economic downturn of 2009, the majority of African economies had enjoyed notable economic growth. Average annual growth in 2006 - 08 amounted to about six percent, while the Gross Domestic Product (GDP) per capita grew by almost four percent. The growth can be ascribed to a combination of favourable factors, some of which include: • high commodity prices • growth in export volumes • generally sensible macro policies • debt relief • sustained aid • Foreign Direct Investment (FDI) inflows. Moves towards more market-friendly economic policies have also aided growth. The world economic crisis brought this period of relatively high African growth to an abrupt end. However, although the African economy has also been negatively impacted by the global economic downturn, the continent has, on average, maintained positive economic growth. Due to the relatively low degree of integration of African banks with international financial markets, the impact of the global economic downturn on Africa has happened through other

transmission mechanisms. Some of these include: • the collapse of commodity prices, which impacted the mining sector • the reduction in export volumes, impacting the manufacturing sector • the decline of workers’ remittances due to job losses or wage declines • the decline of FDI due to a reduction of the investments of global firms, in particular in the mining and tourism sectors. On the positive side, donor countries have generally maintained their aid commitments and disbursements to Africa, despite substantial fiscal pressures at home, and debt relief has reduced debt service costs and helped African countries to deal better with the crisis. It appears that the African economy has been more resilient to the global crisis than other emerging economies, except those in Asia, notably China and India. The effect of the crisis, although less severe than on most other continents, was nonetheless significant. The global expansion remains unbalanced during 2011. Growth in many advanced economies is still weak, with the growth in most emerging and developing economies continuing to be strong. Overall, the global economy expanded at an annualised rate of 4.3 percent in the first quarter of 2011, and growth forecasts for

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2011 - 12 are broadly unchanged, with offsetting changes across various economies. However, greater than anticipated weakness in US activity and renewed financial volatility from concerns about the depth of fiscal challenges in the euro area periphery, pose greater downside risks. Market concerns about possible setbacks to the US recovery have also surfaced. If these risks materialise, they will reverberate across the world, possibly seriously impairing funding conditions for banks and corporations in advanced economies and undercutting capital flows to emerging economies. Key among the negative surprises for the world economy, was the devastating effect of the earthquake and tsunami on the Japanese economy. Supply disruptions weighed heavily on industrial production, and consumer sentiment and spending. Africa’s economies are also recovering from the slump caused by the global recession, and are mainly driven by higher commodity prices and export volumes. In 2010, Africa’s average rate of growth amounted to 4.9 percent, up from 3.1 percent in 2009. The current economic recovery in Africa is likely to reduce the cyclical component of unemployment, but structural unemployment remains high in many countries. Driven by the expansion of global demand, commodity prices continued to increase in 2010, and in the first months of 2011, some prices reached a historical peak. Changes in the price of oil depend, however, on further political developments in oil-producing countries, notably Libya, and on the supply response to the recent hike in oil prices to between US$110 and US$120. The political events in North Africa are likely to depress the continent’s growth to 3.7 percent in 2011 and to result in sub-Saharan Africa growing faster than North Africa. However, considerable uncertainty surrounds this forecast. With the assumption that economic normality returns to countries such as Libya and Côte d’Ivoire, Africa’s average growth is expected to accelerate to 5.8 percent in 2012. Africa is becoming more integrated with the world economy and its partnerships are diversifying, revealing unprecedented economic opportunities. In 2009, China surpassed the US to become Africa’s main trading partner, while the share of trade conducted by Africa with emerging partners has grown from approximately 23 percent to 39 percent in the last ten years. Africa’s top five emerging trade partners are now China (38 percent), India (14 percent), Korea (7.2 percent), Brazil (7.1 percent), and Turkey (6.5 percent).

Africa: The opportunities Infrastructure development: physical and people It is evident that the unique needs in Africa all present opportunities in one way or another. Some of these opportunities are more recognised than others, as seen in the investment in the oil and gas sector in West Africa. Studies performed on the investment requirements for Africa as an emerging market provide interesting feedback on African infrastructure needs: the three sectors with the biggest needs are energy, water, waste and sewage (WWS) and irrigation. Clearly, infrastructure development continues to be significant in Africa. However, it is important to focus on the dual nature of infrastructure development – namely development of the people (in

Diplomacy & Foreign Affairs Magazine | March 2014

areas such as health and education) as well as physical development (such as roads and ports). According to the United Nations Development Programme (UNDP) Regional Bureau for Africa, “Prioritising health, education and basic services is key to ensuring that the most vulnerable are not left behind”. Growth alone is not enough for human development. Growth must be broad-based and bring down high levels of inequality. At the Climate Investment Funds Partnership Forum recently held in Cape Town, the African Development Bank (AfDB) described the opportunities for Africa in developing a clean energy industry. The AfDB indicated that this development can create a whole industry, providing good quality jobs for local populations and can ensure the sustainability of renewable energy in Africa.

Population and Growth • Africa’s population is vast and, when compared to the developed world, relatively underserviced. • Africa is expected to grow more than seven percent annually in the next 20 years, due to an improving investment environment, better economic management and China’s and India’s rising demand for Africa’s resources. • More than 100 African companies have revenues in excess of $1 billion. One priority for Africa is realising that it cannot just be a source of natural resources, that it has to start industrialising, producing agriculture services. Wages are rising in Asia and people are asking, ‘Where can we start producing in a competitive way?’ Africa provides an example of one of the important areas.

Growing Middle Class • Another side of Africa is gradually emerging with the development of capital markets, consumerism and technology (ie opportunities created by the private sector). • The number of middle-class Africans has tripled over the last 30 years to 313 million people, or more than 34 percent of the continent’s population, according to a new report from the African Development Bank (AfDB) – July 2011. • Increase in size and purchasing power of the African middle class is due to strong economic growth, and a move towards a stable, salaried job culture and away from traditional agricultural activities. • Africa’s steadily growing per capita income drives the emergence of aspiring African consumer markets with a surprising level of sophistication and growing spending power. Yet these consumers are not yet being offered products or services commensurate with their lifestyle and aspirations. Therefore, there are significant opportunities across many sectors.

Natural resources/mining • As global demand for hard and soft commodities grows, Africa is in an enviable position with its vast natural resources. • Africa has impressive stores of resources, not only in minerals but also in food — 60 percent of the world’s uncultivated arable land is in Africa. • Substantial wealth in natural resources: gold, oil, platinum, iron ore, copper and large areas of arable land means Africa is well-placed to benefit from increased growth and higher demand in emerging markets such as China and India.

• Africa holds significant reserves of the world’s metals and minerals and is therefore of key importance for mining groups.

Other sectors: telco, retail, manufacturing,infrastructure, etc • Natural resources generate only a third of Africa’s GDP growth. • The remainder comes from other sectors: wholesale and retail, transportation, telecommunications and manufacturing. Fast growing/ rapidly rising private investment As Africa’s economic fortunes begin to turn, investor interest has picked up. Africa offers unique opportunities to multi-national enterprises (MNEs) as part of their strategies for growth. Several African countries compare very well to the famed BRICS economies on ease of doing business and political risk. Since 2004, Africa has had the highest growth rate of private Foreign Direct Investment (FDI) into emerging markets, which in 2010 increased by more than 20 percent. The rate of return on FDI in Africa has averaged 29 percent since 1990, and since 1991 it has been higher than in all other regions – by a high margin in a number of years.

Industry Analysis Although Africa’s growth prospects are bright, they differ not only country by country but also sector by sector. Perhaps the most fundamental point is that Africa’s growth story is hardly limited to the extractive industries. As many as 200 million Africans will enter the consumer goods market by 2015. Banking and telecommunications are growing rapidly too, and infrastructure expenditures are rising significantly faster in Africa than in the world as a whole. The continent has more than one-quarter of the world’s arable land. Eleven of its countries rank among the top ten sources for at least one major mineral. Africa will produce 13 percent of global oil by 2015, up from 9 percent in 1998. For many companies, this is a future worth investing in.

Infrastructure According to the World Bank, Africa spends US$45 billion per annum on infrastructure, when it should be spending about US$93 billion. The population of Africa is set to rise from about 1 billion people today to more than 2 billion in 2050. The urbanization rate is expected to increase from 40 percent in 2010 to 42 percent in 2015. The GDP is expected to grow at 5.8 percent by 2012. Due to this rapid growth of the population, economy and urbanisation, the demand for efficient infrastructure is high. However, in large parts of Africa, infrastructure has been neglected for decades, while in other parts it is non-existent. Africa’s Infrastructure: A Time for Transformation, published by the World Bank, outlined the following challenges in the infrastructure industry: • Africa’s difficult geography and poor rail connectivity presents a challenge for infrastructure development • Africa’s infrastructure is twice as expensive as elsewhere, reflecting diseconomies of scale in production and high profit

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margins caused by lack of competition. For example, power costs are high due to the low megawatt threshold provided by national power systems. High road freight tariffs are due to high profit margins, caused by limited competition and centralised queuing methods for crossing borders • Power is Africa’s largest infrastructure challenge • Infrastructure funding faces a gap of US$31 billion a year. The South African government estimates it will need to invest approximately R1 trillion (US$142bn) over the long term, with estimated expenditure of R850bn (US$121bn) between 2011 and 2014 alone, which is to be largely driven by energy and transport projects. In the South African infrastructure report from Business Monitor International, the infrastructure value is expected to grow from US$7.4 billion in 2010 to US$14.4 billion in 2015, forecast as a 2 percent-share of GDP. However, all these infrastructure developments are not to be undertaken by the government alone. South Africa enjoys the established concept of a public-private partnership (PPP). It is a contract between a public sector institution/municipality and a private party, in which the private party assumes substantial financial, technical and operational risk in the design, financing, building and operation of a project. Two types of PPPs are specifically defined: • where the private party performs an institutional/municipal function • where the private party acquires the use of state/municipal property for its own commercial purposes. A PPP may also be a hybrid of these types. Payment in any scenario involves one of three mechanisms: • the institution/municipality pays the private party for the delivery of the service • the private party collects fees or charges users of the service • a combination of these. This enormous investment in the infrastructure industry has created opportunities for private investors, such as in giving advice on technical matters and the development of plans and projects, assistance in financing the projects, regulatory services, developing tariff/pricing models, financing transmission and distribution lines and much more. With interconnection electricity projects in sub-Saharan Africa gaining some traction, electrical engineering companies with the expertise to undertake more complex projects and to benefit from engineering, procurement and construction contract awards. A study conducted to determine the required capital investment for regional transmission projects estimates the amount for transmission projects alone to be US$8.4bn. The study covered Burundi, Djibouti, DRC, Egypt, Ethiopia, Kenya, Rwanda, Sudan, Tanzania and Uganda – all the countries affiliated with the EAPP. Accordingly, US$1.7bn will be required until 2013, US$3.7bn between 2013 and 2018, US$2.5bn between 2019 and 2023 and US$500m between 2024 and 2028. Cross-border power trading is unlikely to take off over the next decade despite its huge potential to improve supply. Africa’s enormous, largely untapped hydropower potential is concentrated

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in a few countries. Cross-border power trading could allow electricity costs to fall sharply in smaller countries with national grids below the 500 MW threshold. The states with the greatest hydropower potential lack the resources to develop it. This creates the need for cross-border financing, which requires a high level of mutual trust and collaboration.

Agriculture With 60 percent of the world’s uncultivated arable land and low crop yields, Africa is ripe for a ‘green revolution’ similar to those that have increased agricultural production in Asia and Brazil. Agriculture is Africa’s largest economic sector, representing 15 percent of the continent’s total GDP, or more than $100 billion annually. It is highly concentrated, with Egypt and Nigeria alone accounting for one-third of total agricultural output and the top ten countries generating 75 percent. Africa’s agro-ecological potential is massively larger than its current output, but so are its food requirements. While more than one-quarter of the world’s arable land lies in this continent, it generates only 10 percent of global agricultural output. Africa is a net importer of food and is unable to meet local demand. There is huge potential for growth in a sector now expanding only moderately, at a rate of 2 to 5 percent a year. Four main challenges inhibit the faster growth of agricultural output in Africa. • Fragmentation. With 85 percent of Africa’s farms each occupying less than two hectares, production is highly fragmented. In Brazil, Germany, and the United States, for example, only 11 percent or fewer farms operate on this scale. Therefore, new industry models that allow small farms to gain some of the benefits of scale are required. • Interdependence and complexity. A successful agricultural system requires reliable access to financing, as well as highquality seeds, fertiliser and water. Other essentials include access to robust markets that could absorb the higher level of agricultural output, a solid postharvest value chain for the output of farmers, and programmes to train them in best practices so that they can raise productivity. Africa has diverse agro-ecological conditions, so countries need to adopt many different farming models to create an African green revolution. • Underinvestment. To make the agricultural system work better, experts estimate, sub-Saharan Africa alone requires additional annual investments of as much as $50 billion. African agriculture therefore needs business models that can significantly increase the level of investment from the private and public sectors, as well as donors. • Enabling conditions. A successful agricultural transformation requires some basics to be in place – transportation and other kinds of infrastructure, stable business and economic conditions, and trained business and scientific talent. Many African countries are making great strides in laying the groundwork, but others are lagging behind. Over the past five years, the world has reenergized its efforts to improve African agriculture. Africa’s countries have committed themselves to increasing agriculture’s share of their budgets to 10

percent, donors are making significantly increased commitments, and private-sector players and investment funds are pouring serious money into the area. These increased investments flow toward three general opportunities. • Developing technological breakthroughs, such as droughttolerant maize, that would yield high returns on investment and could sustainably raise small farmers from poverty. • New value chain approaches aim to improve access to markets and help groups of farmers raise their productivity. • The development of selected large tracts of high-potential agricultural land.

Banking and IT The International finance corporation (IFC) estimates that there are 4 billion people at the bottom of the economic pyramid in the world. Most are unbanked, meaning they do not have bank accounts. The unbanked are the largest untapped retail market in the world. Their primary needs are the ability to transfer money to family and friends, accessibility, availability and affordability. IFC estimates that the unbanked represent a $5 trillion market. Lowering transaction costs by one percent would mean over $1 billion extra would directly each the poor each year, according to the World Bank. In Africa, 700 million people out of a population of 1 billion are unbanked. This equates to 70 percent. It is often not worthwhile for banks to target low-income segments, which are often in distant and rural areas with limited infrastructure. Those living in poverty either cannot afford banking fees or are not able to go through the bureaucratic process of opening an account. The evolution of payments is converging with the growth of mobile. Africa has more mobile phone users than fixed-line subscribers. The continent has become the world’s fastest growing mobile phone market, where mobile phone use has increased at an annual rate of 65 percent, twice the global average, according to Wizzit. This provides significant opportunities for mobile as a transactional channel. The key challenges are: • Reducing service costs to align with revenue generated. • Educating the unbanked about products (many do not believe they qualify for products). • Competition from non banks • Reaching the unbanked in remote areas. Mobile operators see opportunities in the unbanked market for cost savings, new revenue streams, customer retention and acquisition. Some 18 percent of South Africans use mobile phones to transfer money. The 2011 World Wide Worx research, which probed the use of mobile phones for banking, showed that almost two out of every 10 South Africans are now using their phones to transfer cash to family and friends. Mobile money is one of the fastest growing sectors in the financial services environment – with many people opting for an electronic wallet instead of a leather one.

The number of eWallet holders has doubled within 6 months, from 250 000 in October 2010 to over 500 000 in April 2011. Figures show that the majority of its senders (79 percent) are younger than 40. This is not surprising, since most of the senders are techno-savvy mobile phone banking users.

Healthcare The health status of Africans remains far worse than that of people in many other developing regions. Although a lack of access to health care and serious health system deficiencies are important reasons for this phenomenon, other elements aggravate it. One is insufficient research and development aimed at addressing Africa’s unmet health needs. A look at the relationship between GDP per capita and life expectancies, illustrates the magnitude of the problem. While the GDP of Africa as a whole has grown by over 200 percent in the past 20 years, only two extra years of life expectancy were added during that time. Asian countries with comparable GDPs per capita tend to have life expectancies five to 10 years higher than those of their African counterparts. Undoubtedly, Africa’s weak health systems and HIV/AIDS epidemic are contributing to the problem. Yet several countries elsewhere, such as Jamaica and Thailand, with similarly weak systems or similarly burdensome HIV/AIDS rates, still have life expectancies that are 5 to 25 years longer. A big part of the problem is a lack of tools to diagnose and treat the diseases of Africa. Some available drugs addressing diseases that affect Africa disproportionately are not fully effective and present high toxicity levels. While emerging public-private partnerships between international organisations and pharmaceutical companies are making inroads, these efforts are still few and far between. Current R&D efforts aimed at treating African diseases mostly depend on organisations outside Africa. They try to find solutions for its pressing health needs but not to create a sustainable R&D structure on the African continent. Sub-Saharan Africa carries 24 percent of the global burden of disease, but receives less than three percent of the world’s health workers and only a percent of world health expenditure. Almost half the world’s deaths of children under five take place in Africa. The vast majority of the region’s poor, both urban and rural, rely on private health care. Public resources are limited: around 60 percent of health financing comes from private sources, 10 percent from donor aid. Of $16.7 billion (2005) of total health expenditure, 50 percent was captured by private providers. The market for healthcare is likely to more than double by 2016, going up to $35 billion. 550 000 to 650 000 additional hospital beds will be needed. An additional 90 000 physicians, about 500 000 nurses, and 300 000 community health workers will be required over and above the numbers that will graduate from existing medical colleges and training institutions. Most health expenditure in Africa is from out-of-pocket payments – around 60 percent. Risk pooling arrangements are expected to present a $1.4 billion to $2.5 billion investment opportunity in sub-Saharan Africa over the next ten years. $25

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billion to $30 billion in new investments will be needed to meet demand between now and 2016 – of which $11 billion to $20 billion is likely to come from the private sector. A number of investment opportunities exist in Africa’s health care sector. • Opportunities can be found in inpatient and outpatient care, preventative care and diagnostic services. High-end clinics that target growing middle- and upper-income groups are especially profitable, providing high quality care that attracts patients as well as experienced staff. High-volume, lowcost hospitals usually located in high-density areas targeting low income earners, also offer high returns. • Development of distribution infrastructure (warehouses, trucks and supply chain management information systems). The retail sector, though significantly smaller, is the most profitable segment within healthcare in sub-Saharan Africa, with net margins of up to 50 percent. Hospitals and clinics heavily depend on their pharmacies to subsidise their businesses. • Generics manufacturing involves formulation of generic medicines, both prescription and over the counter. • Medical supplies manufacturing provides supplies such as long-lasting mosquito nets, medical gauzes, and medical furniture. • South African life sciences innovation finances the development and commercialisation of entrepreneurship innovation in South Africa’s life sciences sector. • Commercialisation of infectious disease innovation. Financing phase three and production of products for infectious diseases developed all around the world. • The unavailability of skilled human resources is a significant barrier to the growth of health care provision in the region. The role of the private sector in the provision of medical education has been hampered by challenges including government regulations which traditionally restrict private investors in this sector, as well as the huge capital required to establish medical schools. However, evidence from developing countries such as Egypt and India indicates that private medical and nursing schools can be profitable.

Education According to a report released by the UN educational, scientific and cultural organisation (Unesco), over the last decade, public spending on education in Africa has increased by more than six percent each year. The increase in investment has been accompanied by some spectacular results. Between 2000 and 2008, the number of children in primary schooling increased by 48 percent – from 87 million to 129 million. Enrolment in pre-primary, secondary and tertiary education has also grown by more than 60 percent during the same period. Some key findings of the report are: • In Burundi and Mozambique, education spending rose by an average of 12 percent annually over the last decade. • Out of the 26 countries with comprehensive data, only one – the Central African Republic – reduced education spending since 2000.

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• Overall, sub-Saharan Africa spends five percent of its Gross Domestic Product on education, which is second only to North America and Europe at 5.3 percent. However, in onethird of the region’s countries, half of all children still do not complete primary education. • A total of 32 million children remain out of school. • In some countries, such as Guinea, Mali, Rwanda and Zambia, development aid accounts for about 50 percent of government education budgets, yet in the region as a whole, aid accounts for a much smaller fraction of 5.6 percent. Wedged between the recent economic crises and looming population growth, most African governments will need to make strategic decisions on how to budget for education, says Unesco. The population of sub-Saharan Africa’s five- to 14-year-olds is expected to grow by more than 34 percent over the next 20 years, and the region will need to respond to the demands of 77 million new students. As neither domestic resources nor donor funding are likely to increase enough over the coming years, governments will need to make difficult decisions. Most countries in sub-Saharan Africa spend at least 10 times more on a university student than on a primary school pupil, says the report. On average, eight out of every $10 spent on university education in Africa is subsidised by country governments. Within South Africa, the greatest challenge lies in poorer, rural provinces, eg Eastern Cape, KwaZulu-Natal, Limpopo, Mpumalanga and North West. Challenges include: • Low literacy rate • Quality of teaching – teachers are poorly qualified and trained • Low availability of learner and teacher support material Other priorities not addressed enough: • Curriculum changes • Early childhood development • Adult basic education and training • HIV/AIDS awareness programmes.

Mining in Africa Africa’s mining potential is unfolding as a number of economies are increasingly becoming more important in terms of global mineral production. The DRC for example, has enormous highvalue reserves of copper, cobalt, gold and diamonds and offers an opportunity for mineral exploitation activities. The IMF recently praised the DRC’s economic progress and approved the release of US$77 million as part of an existing loan facility. Generally, the West African greenstone belts have seen strong investment which has transformed countries like Mali, Burkina Faso and has the potential for so doing in Côte d’Ivoire, Sénégal and Sierra Leone. Other emerging mining economies include leading gold producers Ghana and Tanzania. In addition, Namibia may become a leading resource economy due to its enormous uranium potential. Zambia on the other hand is experiencing a revival of its major copper industry with new mines being developed. Copper production in Zambia, Africa’s largest producer of the metal, is likely to rise to 850 000 tonnes in 2011 from just below 750 000 tonnes in 2010. Zambia’s copper output may continue increasing,

with production expected to reach 2 million tonnes in the next five to seven years. South Africa holds the world’s largest natural reserves of gold, platinum-group metals, chrome ore and manganese ore, and the second-largest reserves of zirconium, vanadium and titanium. The country is the world’s largest producer of platinum, and among the leading producers of gold, diamonds, base metals and coal. Clearly, mining, as one of the main industries in South Africa, makes a significant contribution to the overall economy. A Business Monitor International forecast expects the value of the South African mining sector to grow from US$27.5 billion in 2010 to US$53.2 billion by 2015, an annual average growth rate of 4.6 percent. The mining sector’s share of overall South African GDP is forecast at 7.7 percent. In comparison to other African countries, South Africa has a well-established regulatory environment and infrastructure for mining, which limits the obstacles confronting foreign investments and reduces risks. This is further shown through the survey of the African mining business environment conducted by Business Monitor International, where South Africa achieved an overall ranking of second place for ease of doing business in mining. The following are some of the discussions and potential changes that could affect the South African mining industry: • Nationalisation of mines • Tax increase on mining entities from three percent to five percent • Implementation of the Electronic Mineral Management System.

Consumer goods By 2015, 221 million additional basic-needs consumers will enter the market in Africa. Resources are not Africa’s only driver of growth. Underlying it, the African consumer is on the rise. In last few years, consumer spending across the continent increased at a compound annual rate of 16 percent, more than twice the GDP growth rate. Many consumers have moved from the destitute level of income (less than $1 000 a year) to the basic needs ($1 000 to $5 000) or middle-income (up to $25 000) levels. In Nigeria, for example, the collective buying power of households earning $1 000 to $5 000 a year doubled from 2000 to 2007, reaching $20 billion. Nearly seven million additional households have enough discretionary income to take their place as consumers. This evolution is critically important to consumer facing businesses, from fast-moving consumer goods manufacturers to banks to telecommunications companies: when people begin earning money at the basic-needs level, they start buying and consuming goods and services. While the exact inflection point differs among categories, many of them are just entering this phase of accelerated growth. The enormous expansion of mobile telephony in Africa provides clear evidence of this phenomenon. Despite the recent slowdown in economic expansion, GDP per capita should continue on its positive trajectory of a 4.5 percent

compound annual growth rate (CAGR) until 2015. That would mean an increase in spending power of more than 35 percent. Combined with strong population growth (two percent) and continued urbanisation (3 percent), this increase leads us to estimate that 221 million basic-needs consumers will enter the market by 2015. As a result, the number of attractive or highly attractive national markets — with more than ten million consumers and gross national income exceeding $10 billion a year — will increase to 26 in 2014, from 19 in 2008. Many local and multinational consumer companies are already thriving in Africa and delivering handsome returns to their shareholders. To succeed, consumer companies must address five major challenges, some familiar to businesses operating in other emerging markets. • Heterogeneous market structure. Africa has more than 50 countries, with large differences in spending power and consumer behaviour, so a one-size-fits-all approach will not work. • Underdeveloped distribution and route to market. Modern trade is still nascent in most of Africa. The traditional momandpop shops, open markets, umbrella vendors, and the like, dominate the retail scene, making up more than 85 percent of the trade volumes. Poor roads and infrastructure can make delivering products to consumers a daunting task, so companies must build strong sales and distribution networks by leveraging a mix of third party, wholesale, and direct-distribution models. • Nascent categories. In Africa, many categories still are not fully developed; for example, usage per capita of toothpaste is lower here than it is in comparable Asian countries. Data about consumers’ needs and behavior are scarce, making it harder to develop specific consumer insights. In addition, the state of the communications media and education levels make it challenging to reach consumers with specific product messages. Competing in Africa therefore is not a share game. Rather, companies need to bring a market-development mindset, investing in consumer education and non-traditional marketing techniques. • Talent shortages. Despite the abundant work opportunities, talent remains scarce across Africa. Truly competing and winning in the long term, however, will require local knowhow and talent. At first, companies will need to bridge the gap by using a mix of local and international employees. In parallel, investments in developing and retaining local talent are required. Local capability-building programs, attractive career paths and apprenticeship opportunities will be critical to achieving long-term success.

about the author Moses Kgosana, Chairman and Senior Partner, KPMG Africa Limited

March 2014 | Diplomacy & Foreign Affairs Magazine

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Tourism in Africa:

Harnessing Tourism for Growth by Iain Christie, Eneida Fernandes, Hannah Messerli, and Louise Twining-Ward Africa Rising There are new grounds for optimism for the economic future of Sub-Saharan Africa (SSA). Until the onset of the global economic crisis, GDP growth had averaged 5 percent a year for a decade (World Bank 2011).1 Growth was widespread even among non-oil exporting countries and countries that experienced conflict. Although Africa was badly hit by the global crisis, the continent avoided worse growth shortfall in 2009 thanks to prudent macroeconomic policies and financial support from multilateral agencies; it rebounded in 2010. SSA countriesâ&#x20AC;&#x2122; poverty rate declined from 59 percent in 1995 to 50 percent in 2005 (World Bank 2010a). Child mortality rates are declining, HIV/AIDS is stabilizing and primary education completion rates are rising faster in SSA than elsewhere. Africaâ&#x20AC;&#x2122;s private sector is increasingly attracting investment with much of the funding coming from the United States and Europe. China, India and other countries are also investing large sums in SSA. Private capital flows are higher than official development assistance and foreign direct investment is higher than in India. Returns to investment in Africa are among the highest in the world.

South Africa

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Uganda

Luanda, Angola

Kenya

A Helicopter flies over Victoria Falls, Tanzania

Maluti Mountains, Lesotho

South Sudan

The public sector has set the conditions for the exponential growth of information and communications technology (ICT), which could transform the continent. The private sector is creating an emerging middle class of hundreds of millions of consumers. The climate for market oriented, pro-poor reforms is proving robust and the voice of civil society is increasingly heard. Interregional cooperation is strengthening and democracy has taken hold in several countries. Given this scenario, experts view SSA as being on the brink of an economic takeoff, much like China was 30 years ago, and India was 20 years ago. Tourism is one of the key industries driving the change. From a small base of just 6.7 million visitors in 1990, SSA attracted 33.1 million visitors in 2011 (UNWTO, 2012). Tourism contributed US$33.5 billion to the economies of SSA, accounting for 2.7 percent of the regionâ&#x20AC;&#x2122;s GDP (WTTC 2012). Already 1 in 20 jobs in SSA is in travel and tourism. New analysis indicates that women manage about 50 percent of hospitality businesses in Africa (UNWTO 2011). Tourism provides multiple opportunities for economic growth and improved livelihoods.

SSA Countriesâ&#x20AC;&#x2122; Share of the World Tourism Market Within SSA, tourism destination performance varies considerably by region and within regions. East and Southern Africa attract more tourists and contribute more to GDP than West and Central Africa (figure 3.2). Within each region, certain countries predominate in attracting tourists: in East Africa, Zimbabwe receives 16 percent of international arrivals, Mozambique 15 percent, and Kenya 15 percent; in Southern Africa, South Africa is the leading destination, receiving 66 percent of all tourist arrivals to the region, compared to Namibiaâ&#x20AC;&#x2122;s 9 percent; in West Africa, Senegal and Nigeria are the dominant destinations, together accounting for 78 percent of visitors to the region. The primary international markets for SSA countries are France, the United Kingdom, the United States, Germany, and Portugal . France was the top long-haul source market for Africa in 2009 and was particularly dominant in West Africa. The most popular SSA destinations for French tourists are Mauritius and Senegal. France is also the top market for Madagascar, Mali, and the Seychelles. The United Kingdom has long-standing links to Kenya, South Africa, and The Gambia; the United Kingdom is also the number one source market in Tanzania and Zambia. Emerging U.K. destinations are Cape Verde, Mozambique, Namibia, Uganda, and Zambia.

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The United States is the top source market for Ethiopia, Ghana, Rwanda, Uganda, and Zimbabwe, with South Africa receiving the most U.S. tourists. Emerging source markets for SSA include Australia, Brazil, China, Italy, Russia, and Spain.

The Value of Tourism to SSA Economies The value of tourism to SSA economies varies widely. In 2011, tourism contributed 2.7 percent directly to the GDP of SSA countries, compared with 4.3 percent of GDP in Southeast Asia, 4.4 percent in the Caribbean, and 3.0 percent in the Middle East (WTTC 2013). However, average regional figures fail to show the high level of dependence some countries have on tourism. For example, in the Seychelles, tourism activities account for 44 percent of GDP and in Mauritius tourism contributes 16 percent to GDP. On a subregional basis, tourism contributes most to East Africa’s GDP (5.5 percent), followed by Southern Africa (3.4 percent) and West Africa (2 percent), with tourism contributing just 1.7 percent to Central Africa’s GDP. Other benefits result from tourism. Among them, the sector: • Accounts for an average of 6.4 percent of total exports across SSA. • Accounts for almost half of all service exports in SSA (49.7 percent), compared with 16.7 percent in the Caribbean, 5.6 percent in Southeast Asia, and 6.2 percent in the Middle East • Generates approximately US$33.5 billion in direct tourism receipts for SSA. • Southern Africa receives almost 40 percent of all the tourist receipts (US$13 billion per year), of which 91 percent go to South Africa and just 5 percent to Botswana and 2 percent to Namibia. Lesotho and Swaziland receive just 1 percent of Southern Africa receipts. In East Africa, Kenya, Mauritius and Tanzania receive over US$1 billion in tourist receipts. In West Africa, Ghana and Nigeria are the biggest tourism earners with accounting for 60 percent of all sub regional receipts.

Investment in Tourism Investment flows in tourism, and especially FDI, are difficult to identify. First, “tourism” is an aggregation of many activities and a comprehensive assessment may be difficult. Second, in national accounts, “tourism” does not appear as a formal industry classification; its subcategories, such as hotels and transport, are found within “real estate,” or aggregated under “transport, communications, and storage,” making it difficult to quantify the size of assets and flow of investment. Third, transnational corporations can operate in tourism in nonequity modes such as with management contracts or franchising, which do not appear in FDI data, even though these activities may still have a similar impact as FDI, such as managerial control, technology and knowledge transfer, and access to markets. Finally, the collection of tourism data has been poor in developing countries. Improved data collection and classification systems are needed so that policy makers can design meaningful policies to position tourism as an engine of growth.

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Tourism is the one service sector in which African countries have a trade surplus. In South Africa, for example, tourism-related sales abroad earn more foreign exchange than do exports of gold. In Tanzania, export earnings from tourism exceed those of gold or agriculture (UNCTAD 2007). Yet FDI in tourism is not only poorly studied and understood, it is also controversial. Foreign ownership in tourism, it is argued, is widespread, preventing propoor growth because of the leakages that occur and the lack of backward linkages from the investment. UNCTAD finds that FDI in tourism is still rather low in developed and developing countries compared with the levels of FDI in other economic activities, including other services industries. For example, the outward FDI in tourism from the United Kingdom, the third largest tourism spending country, was US$34 billion in 2004, or 2.5 per cent of that country’s total outward FDI. For the United States, home to most of the world’s largest tourism-related transnational corporations and the second largest source of outward FDI flows in tourism, tourism’s share was just 1.5 per cent of total outward FDI stocks. A survey UNCTAD launched in 2007 shows that, although at a low level, FDI in hotels is concentrated in Latin America. SSA captures seven percent of the world’s foreign investment in hotels, based on UNCTAD’s survey of 300 hotel groups and 1,350 hotels. SSA undoubtedly has the potential to attract higher levels of FDI for tourism. However, experience across the continent is mixed. UNCTAD’s recent case studies on FDI and tourism in SSA show that the percentage of FDI for tourism can range between 0.2 percent and 36 percent. The WTTC 2011 data reveal that South Africa received by far the most foreign direct investment (US$6.1 billion) in the SSA region. Ghana attracted the highest tourism FDI in West Africa: US$270 million, amounting to 4 percent of total investment. In East Africa, Kenya attracted US$404 million in tourism FDI and Uganda received US$165 million in 2011. As indicated in UNCTAD’s East and Southern African country case studies, FDI has become a significant source of investment capital in the tourism sector. Ministries of tourism have an important role to play in creating a hospitable environment for tourism projects. Investors typically need a wide base of information about the economy, tourism trends, tourism plans, and regulations. One area where SSA falls behind is in communication and coordination between policy makers working on tourism, investment, competition, and trade issues. Better dialogue between these entities would help address the situation. Several countries around the world have set up “One-Stop Tourism Promotion Agencies” that consolidate the information typically required by an investor. The contribution made by tourism in creating beneficial linkages to SMEs and domestic enterprises depends on the size and breadth of the domestic economy and on the maturity of the tourism service sector (UNCTAD 2009).

about the author Iain Christie, Eneida Fernandes, Hannah Messerli, and Louise Twining-Ward, The World Bank.