Author: Vinesh Kassen, Senior Coverage Banker, Absa Corporate and Investment Banking
For cricket lovers, the relationship between India and African countries goes back decades and has been fundamental in growing the game on the continent. It is hard not to draw parallels between cricket and the investment opportunities for Indian investors into Africa.
On 10 November 1991, Eden Gardens played host to the first One Day International (ODI) between India and South Africa, post the re-instatement of the country into the international fold. For two countries with youthful populations and an abundance of natural talent that could compete with the best in the world, this match was an iconic fixture – particularly in the context of South Africa’s sporting history.
Two lesser-known facts are that in October 1992, Zimbabwe played its first-ever recognised international cricket Test against India, and in 2004, India was part of the group of countries which protested political issues in Zimbabwe and agitated for all remaining Test matches involving Zimbabwe to be cancelled.
Fast-forward to 2021 and India is now arguably the key commercial player in cricket – both on and off the field.
The same can be said for the economic activity between these 2 regions.
Trade between India and Africa has grown from $51.7 billion in 2010-2011 to $66.7 billion in 2019-2020.
In 2015, India pledged a concessional credit line of $10 billion to Africa over five years, earmarking at least 15–20% (up to $2 billion) for solar energy projects, largely off-grid, to be implemented through the India-hosted International Solar Alliance (ISA).
Of more recent economic and social importance is the commitment from India to deliver over 670 million doses of COVID-19 vaccines from the Serum Institute.
It is quite clear that Africa is an investment destination of choice for Indian investors looking to target high-growth emerging markets. The likes of Tata Motors and Mahindra Auto have made significant investments into South Africa and with attractive incentives in the automotive sector particularly from the Department of Trade and Industry, this is expected to continue to grow. While there are some question marks over the challenging labour environment, these are often offset by the size of the market and liquidity of financial markets.
East and West Africa are also seeing increased investment interest with the likes of Kenya and Uganda developing strategic relationships with Indian counterparts, particularly in the fields of Information Technology, Agriculture, and Infrastructure projects.
In Ghana, the country has positioned itself as the “Transportation Hub of West Africa” and this has attracted co-investment opportunities from a variety of different partners including the African Development Bank and Indian-Exim Financing. Exim Bank, under the Export-Import Bank of India Act (1981), was established as a purveyor of export credit, mirroring global Export Credit Agencies.
This partnership forms part of a broader investment from the Indian government – in conjunction with the World Bank – under the title of the “Green National Highways Corridor Project”. Announced in December 2020, this is valued at over $500m over the next 18 years and will play a key part in connecting the resource-rich Ghanaian economy.
The infrastructure theme is a strong one for Indian investors into Africa. In September, the Africa Finance Corporation (AFC) received a US$100 million credit line from the Export-Import Bank of India (India Exim Bank) to develop the critical infrastructure required to rebuild Africa’s economies in the wake of the Covid-19 pandemic.
In 2005, the Indian Ministry of Commerce and Industry through the Confederation of Indian Industry (CII) in partnership with India Exim Bank launched the first CII – Exim Bank Conclave on India Africa Project Partnership with the support of the Indian Ministry of External Affairs. The Event which has been held yearly for the last 16 years, has attracted participants from both the African and Indian continents and has become the flagship event not only to support cross border partnerships to take roots between these two continents but has also provided a platform to assess the collaborative efforts which has been the basis of fostering a new roadmap for future India – Africa partnerships to be established. This event has successfully created access between Indian and African businesses and governments and continues to promote thriving opportunities between these two regions. This year Absa has sponsored three virtual events in lieu of the annual physical conference held in New Delhi.
One of the unique features of the Africa-India business relationships is the collaborative nature of the funding arrangements. The Indian-led finance arrangements are known to be less debt-laden and structured more as partnerships. The focus is on bringing projects onboard as quickly as possible so that they are able to fund themselves. This reduces the cost of financing quite significantly, leading to more sustainable projects in the long run.
The African Continental Free Trade Area is expected to be a catalyst for intra-African trade, and this is expected to drive beneficiation activities and local capacity.
Absa recognises the critical role that Indian investors and funders play in developing the African continent and we look forward to engaging around projects that will fundamentally change these high-potential economies.