China is undoubtedly the most important newcomer to African trade. In 2014 bilateral trade between Africa and China reached $222 billion (R3 trillion) while in the mid-1990s it was only around $4bn. However, while China continues to push its influence into Africa, India should not be ignored.
Bilateral trade between India and Africa has almost tripled since 2006 to reach $71bn last year. They are hoping that it will top $90bn this year. Indian exports to Africa primarily consist of telecoms, electronic appliances, pharmaceuticals and consumer goods. Going the other way, 84 percent of African exports to India are raw materials – mostly cotton and precious metals.
India overtook Saudi Arabia to become the largest purchaser of Nigerian oil. It also has oil investments in Egypt, Libya, South Sudan and Mozambique. Indian motor company, Tata, outbid Chinese and European companies in Senegal to become the primary supplier of vehicles for Senegal’s new public transport fleet. Indian investors are also climbing into Zimbabwe to revamp New Zim Steel.
In terms of soft power, under Prime Minister Narendra Modi who took office in 2014, India has changed its attitude towards Indian descendant’s living in Africa, treating them as strategic partners in India’s economic expansion.
But while both India and China are increasing their involvement in Africa to broaden consumer markets, secure supply of raw materials and seek political support in international forums (India has asked African leaders for their vote in establishing India as a permanent member of the UN Security Council), there are marked differences in the style to which each deals with Africa.
Chinese investment is channelled primarily between the Chinese government (or state-owned enterprises) and African governments. The state provides cheap finance for Chinese companies that export to Africa and is often involved in the negotiation. It is common for China to build large public infrastructure in Africa but leave little capacity or skills transfer. Chinese migrants that accompany these projects don’t integrate into the local society and often live in separate communities with different tax and legal requirements.
Indian investment, on the other hand, originates from the private sector and is focussed on private return on investment. Indian firms have a better reputation for using local skills and leaving productive capacity, although there is still a lot of progress that can be made in this regard.
The African pharmaceutical industry is a useful case study.
Pharmaceuticals
India and China have grown their market share in the African pharmaceuticals by providing cheaper alternatives to patented drugs from developed economies. India’s share of African pharmaceutical imports grew from 8.5 percent in 2002 to 17.7 percent in 2011. China’s share grew from 2 percent to 8.5 percent over the same period.
Chinese firms typically enter the African market through government procurement contracts that are linked to other Chinese projects in the host economy. For example, in Zambia the Jiangsu International Economic Technical Co-operation Corporation built the Lusaka General Hospital with a grant from the Chinese government, secured against resource extraction in Zambia. The hospital was supplied with pharmaceuticals and medical devices produced in China. Relative to Indian health-care companies, Chinese companies have a poor reputation for quality of medicine.
Indian manufacturers have a strong market presence in Africa’s Anglophone markets, particularly in east Africa. Their success is based on selling affordable HIV medicine but they are expanding into other pharmaceutical markets. They typically sell through NGOs and government tenders and operate in regulated markets. Many of the Indian produced drugs have gained World Health Organisation qualifications prior to being sold and Indian companies have a reputation for high quality production.
However, Africa’s goal should not be to pick one or the other. India presents an additional option. It allows African economies to diversify their trade markets and sources of investment and not be left vulnerable to the volatility of a single economy.
* Pierre Heistein is the convener of UCT’s Applied Economics for Smart Decision Making course. Follow him on LinkedIn /in/pierreheistein.
** The views expressed here do not necessarily reflect those of Independent Media.
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