Africa's Asian involvementChina, India and the Indian Ocean economy

ASIA-PACIFIC TECHNOLOGY NETWORK20th June 2013

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Presentation Agenda

Internex Partners

The Indian Ocean Rim

Africa ‐ China

Africa ‐ India

Summary

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Internex Partners

• Focused on triangulation of business opportunities in and between high growth markets, including the BRICS economies.

• Established by market specialists, with years of experience working with corporate and government clients.

• Access to real & qualified business opportunities and projects.

• Provides business intelligence briefings, strategic advice, and business development support.

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The Indian Ocean Rim - Shakeel Mughal

20 Member states of the IOR: - Maritime Safety and Security, Trade and Investment Facilitation, Fisheries Management, Disaster Risk Management, Academic and Science & Technology

Cooperation, and Tourism and Cultural Exchanges

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The Forgotten Continent

Johannesburg, SA

Cairo, Egypt

Nairobi, Kenya

Lagos, Nigeria

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Africa – Shakeel Mughal

• Sub-Saharan Africa has 30% of the world’s proven mineral resources, making it a key partner both for the developed world and for the industrialising economies of China and India.

• Decades of underinvestment have left the continent with an infrastructureill-equipped to deal with the burgeoning demand for its exports.

• Generalised perceptions of Africa’s risk profile do not do justice to those countries which have made considerable economic and political progress over the last 15 years.

• For those with the necessary regional knowledge and experience, this mismatch between perceptions and reality affords a real business opportunity.

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Fastest Growing Economies

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Population Growth

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The African Middle Class

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Infrastructure Backlog

• Satellite view of the African Continent illustrates the extent of the underinvestment in energy infrastructure.

• Estimated infrastructure backlog, and therefore investment opportunities, currently represent in excess of US$120bn over the next 10 years.

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Connectivity

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Abundance of Raw Materials

• 30% of the world’s proven mineral resources.

• Only 12% of land mass had been prospected.

• Asia currently accounts for 32% of Africa’s exports.

• Africa is a key partner for the developed world and for the industrialising of economies of India and China.

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Africa - Oil & Gas

• New finds in the East Africa and Namibia.

• Chinese and Indian companies active in exploration.

• Both China and India major importers of crude oil from Africa.

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Recent Oil and Gas Activity

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Africa’s Top Trading Partners

• China - $109.1 billion

• United States - $90.5 billion

• India - $49.9 billion

• Germany - $31.7 billion

• France - $30.5 billion

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Africa and the IOR

• Africa has a diverse levels of political stability and sovereign risk.

• Apart from China and India; Malaysia and Australia have active interests in Africa.

• A strong Malaysian community exists in South Africa dating back to the late 19th century.

• Malaysian interests have been sporadic; peaked under the Mahathir government.

• Australia is also helping to strengthen rule of law and justice systems in Africa, by providing capacity building training and international legal assistance.

• Australian companies active participants in the resources and agricultural sectors.

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India and China in Africa

• China’s exports to Africa grew by 48% annually between 1994 and 2010, compared to 14% for India.

• India’s Africa policy shows significant differences with China’s scramble for Africa.

• India-African trade pattern appears to be more diversified.

• The ‘softer Indian way’ in Africa is India’s unique pathway to power.

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China – Jeremy Gordon

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Africa - China

• China started taking an interest in Africa during the second half of the 20th century.

• They initially supported newly independent countries who wished to follow Chinese socialist ideology with friendship deals.

• China is a pragmatic partner, working with a variety of governments, and focusing on commercial rather than political issues.

• Most Chinese investment in Africa are still state sponsored.

• The Chinese private sector is becoming increasingly active in Africa.

• China has become an active investor in the resources sector to support domestic demand, but also looks to infrastructure, markets, manufacturing and agriculture.

• Chinese funds are also targeting and supporting Chinese opportunities in Africa.

• Chinese tourism in Africa is rising

• There are significant challenges for China in Africa in terms of perceptions and operations

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China’s Drivers

• China is going out…– Policy drivers for strategic reasons

• Resources, supply chain security, new markets

• Trends & Transitions– New government– Global role– Slower growth– Higher costs– Economic reform & the private sector– Urbanisation– Domestic consumption vs trade & fixed asset investment– Overseas Direct Investment & Going Global

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ODI. Up, Up & Away

• “Going Global”– Since 2000– ODI vs FDI

• Targeting– Resources– Strategic

Assets– Tech

• Brands– Markets

Source: IMF, End 2011

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China’s ODI

China's overseas investment

Region Total Largest recipient of investment

SOURCE: IMF STOCK OF OVERSEAS DIRECT INVESTMENT (END 2011)

Asia $303.4bn Hong Kong ($262bn)

Latin America $55.2bn Cayman Islands ($21.7bn)

Europe $24.5bn Russia ($3.8bn)

Africa $16.2bn South Africa ($4.1bn)

North America $13.5bn US ($9bn)

Oceania $12bn Australia ($11bn)

• Where? – Developed &

Developing Markets• Differing drivers

• How Much?• Unreliable numbers

• How? – Official– Unofficial

• Hard to measure…Source: IMF, End 2011

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A Numbers Game

• ODI+ – US$260bn

committed?• US$75bn

invested?– Including official

and unofficial • ODI• Grants/Aid• Loans• Private export

credits • NGOs• Portfolio

investments etc. Source: FT; AidData

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Trade. New Horizons

• Broken trade-driven growth model– US/EU slow-down– Rising costs

• New resources– Strategic supplies

• New markets– Less competition– Price sensitive

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Sino – African Trade

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China’s Mixed Offer

• Development Finance– Cheap money, no strings

• Infrastructure +– Fund & build– Resource access + local needs at low costs

• E.g. US$6bn committed to Sierra Leone for development of road, rail, port, logistics, industrial park…and mining

• China gets markets and supply chain Infrastructure

• Labour– Cheap but controversial

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China’s Challenges

• Lack of transparency • Political risk• Expectations vs delivery

– Cost overruns, quality issues

• Business and politics don’t mix well– Different drivers, stakeholders– Bribery and corruption risk

• Employment / integration– Conflict risk

• Management, culture & communications

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Problems & Prospects

• Problems in the news– Gabon: Oil, iron ore legal disputes– Ghana: Illegal gold mining arrests– Zambia: Coal mining licenses revoked– Zimbabwe: Controversial diamond mining

• Prospects too– Resource & infrastructure development– Special economic zone development– Trade as well as investment– Increased private sector role

• Critical issues– Political sensitivity, project due diligence, delivery support

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India – Jeet Jandu

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Africa - India

• India has links with Africa dating back to early 19th century.

• Late 19th century, the British brought in skilled and unskilled labour from India to build infrastructure and develop agriculture.

• Indian traders followed into Africa and over several generations have embedded themselves into local economies. Introduced the concept of “Duka”.

• The Indian diaspora in Africa are skilled at building businesses and participating in local economies.

• The Indian diaspora and the local Africans have at times had difficult relations.

• Indian companies see Africa as a continent for tapping into mineral resources in-order to feed the growing Indian economy.

• Indian government has not made significant state sponsored investments in Africa.

• India and China have only become competitors in Africa in the last 10 years.

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India – Trade and Investments

• Current levels of trade around $50Bn a year.

• Lead by the Indian Private sector. Africa is a new investment destination for the increasing global profile of India’s multinational corporates.

• Total Indian investment in Africa is upwards of US$33 bn.

• Africa recorded 26 new manufacturing projects fromIndian companies in 2011, a rise of 44% from 2010.

• Between 2003-2009, 70 Indian companies investedin greenfield projects in Africa, totaling US$ 25billion; this represents close to 5 percent of totalgreenfield FDI projects in Africa (African DevelopmentBank).

India’s Exports to Africa

LDC* vs. NON-LDC

Total Exports to Africa$ 24.7 bn

To LDCs $ 7.2 bn(29.1%)

To non-LDCs$ 17.5 bn(70.9%)

KEY PLAYERS

2011-2012 USD bn% Share in Africa

SOUTH AFRICA  4.7 19.2

NIGERIA  2.7 10.9

EGYPT  2.4 9.8

KENYA  2.3 9.2

TANZANIA ^  1.6 6.5

TOTAL 13.7 55.6

*Least Developed CountriesSource: Commerce Ministry, India ^LDC

India’s Imports from Africa

LDC vs. NON-LDC

Total Imports from Africa$ 43.2 bn

From LDCs $ 9.4 bn(21.8%)

From non-LDCs$ 33.8 bn(78.2%)

KEY PLAYERS

2011-2012 USD bn% Share in Africa

NIGERIA 14.7 34.0SOUTH AFRICA 9.9 23.1

ANGOLA* 6.6 15.3

EGYPT A RP 3.0 7.0

ALGERIA 2.2 5.0

TOTAL 36.5 84.4Source: Commerce Ministry, India *LDC

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Investment determinants

• Indian conglomerates like the Tatas, Kirolaskars, pharmaceutical firms like Cipla and automobile companies like Mahindra have undertaken profitable projects in Africa.

• The Tata Group has invested about US$ 300 million till 2012, and plans to triple that amount over the next 3-4 years.

• These investments are in the resources, manufacturing, telecoms and energy sectors.

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Other Government initiatives

• The Indian government is also financing an "e-network" project to enhance Internet connectivity in Africa, linking 5 regional universities, 5 specialty hospitals, 53 regular hospitals and 53 educational institutions across Africa to Indian universities and hospitals, via a satellite and fibre optic network.

• India recently announced a $5Bn loan package for Africa.

• An additional US $700 million to establish new institutions and training programs, in consultation with the African Union and its institutions.

• India’s capacity-building programme for African countries. Under ITEC (Indian Technical and Economic Co-operation) India has provided more than US $ 1 billion worth of technical assistance & training to African countries.

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Summary

• The next major growth area in the world.• Major opportunities but understand and manage risks.

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Thank You