China and India: Strategic competition in Africa

As China drives deeper into what many Indians consider their sphere of influence in South Asia, Africa offers an ideal opportunity for Indian firms to challenge China’s growing influence in the region. For many Indians, particularly in certain political circles and in the blogosphere, competition with China is often presented in a classical real politik paradigm. The headlines misleadingly frame the issue in terms of win/lose or even as a “race” between the two countries. Although it may be compelling, even somewhat entertaining, to draw on 19th century colonial clichés (e.g. the Scramble for Africa or the Great Game) it is entirely misleading as both Indian and Chinese strategies are radically different to strategies employed  by earlier European powers.

Ironically, the enhanced competition among Chinese and Indian companies will most directly affect European and American firms, which are rapidly being shut out of Africa’s emerging markets. “We just can’t compete when both Chinese and Indian [construction] companies are undercutting us by 50 to 60 percent,” complained a senior executive of General Electric’s infrastructure systems group. He requested anonymity because of ongoing negotiations with North African and Middle Eastern governments, where he is competing directly with Chinese contractors. “Our cost structure and profit requirements are simply too high compared to the Chinese and Indians,” he added. General Electric is not alone.

Throughout Africa’s major cities such as Kinshasa in the Democratic Republic of the Congo, low-cost Tata Motors and Great Wall cars now fill the streets that Fords, Chevrolets and VWs once did. With increased internet connectivity, especially the implementation of East Africa’s new fiber optic connection, it will be Wipro and Infosys Technologies that build the first outsourcing centers in Rwanda, Kenya and elsewhere. In mobile telecommunications, an industry once dominated by networking giants Cisco, Alcatel and Ericsson, Huawei is the dominant player. In market after market, sector after sector, Western companies – except possibly in the oil sector – are being eclipsed by more nimble, lower cost Indian and Chinese rivals.

“Unlike the standard Western doom-and-gloom analysis of the African condition, China and India hold the view that Africa is a dynamic continent on the threshold of a development take off, with unlimited business opportunities that would serve Chinese, Indian and African interests.”
Fantu Cheru, Research Director of The Nordic Africa Institute

It should not be surprising that Indians and Chinese see opportunity in Africa where the West either cannot or does not compete. Many of the challenges of doing business in Africa mirror conditions in India and China where Byzantine bureaucracies, widespread corruption and inconsistent infrastructure can present formidable obstacles. Furthermore, both countries have large and growing diasporas that create vital business and distribution networks across the demographic spectrum.

Edmund Balina, founder of Washington D.C. based African risk consultancy Stratis Incites has written several blog posts on the subject. He details a number of factors that contribute to the growing levels of Chinese and Indian investments on the continent. In particular, Balina contends that Chinese companies’ higher risk tolerances are a critical factor behind their willingness to invest in certain African countries and regions that others avoid:

“The FDI [Foreign Direct Investment] is mainly from parastatals that have access to low-cost capital, so that the Chinese investors have long planning horizons. These firms view the challenging political and economic environment in such African countries as an economic opportunity. They are able to derive huge profits from rates of return to FDI that are said to be much higher in politically volatile African countries than elsewhere.”

It’s not just about money

While the benefits of Sino-Indian competition for the African consumer are becoming increasingly obvious as once deprived areas now have access to more products and services, regional governments are also taking advantage of the situation on a political level, according to Fantu Cheru, Research Director of The Nordic Africa Institute:

“The Chinese and Indians are warmly welcomed to Africa for very different reasons other than economics and finance. There has been a titanic shift in attitudes towards the Western world on the part of a growing proportion of Africans. Disenchantment with the poor track record of Western development cooperation over 50 years, the double standards that Western governments practice in their relations with African states, the tendency to give aid with one hand and to retrieve it with the other through unfair trade practices and debt structures, have generated a lot of debate among Africans over the past decade, and a rallying point for pursuing an alternative and independent African development agenda.”

Constantino Xavier is among a number of academics who argue that India’s democratic political system affords it a slight advantage in its dealings with African states. “As a founding member of the Community of Democracies,  Delhi faces the opportunity to explore this “regime advantage” over China in Africa, at least in subtle and indirect ways,” according to Xavier.  Obviously, there is no empirical evidence to support this position and if the recent “election” in Rwanda is any indication, Xavier may have it entirely wrong as more and more countries draw political inspiration from Beijing rather than New Delhi.