Africa’s Rising Star, And India

Africa’s rising star, and India Nigeria is growing in economic stature and drawing global investment. This is an opportunity that India can tap fruitfully, with careful focus on certain critica areas, says PARVATHI VASUDEVAN. Africa, a continent of 53 sovereign countries, can never ever be out of the news. It is a pity that the media often focuses on negative developments in a handful of countries in a manner that leaves an impression that life in the continent is brutal.
The Hindu Businessline | Wednesday, Sep 05, 2007

That certainly is not true. Since 2000, a number of African countries have performed well, as is evident from Africa’s average economic growth of 5.5 per cent over the last six years and the forecast growth of near about 7 per cent in 2007, according to the IMF’s latest projections. The West African region is one of the three most important deepwater areas with the fastest rate of discovery of additional new oil reserves in the world. The region includes oil-producing Nigeria, Angola, Gabon, Cote d’Ivoire, Equatorial Guinea, Senegal, Guinea-Bissau, Burkina Faso, Sao Tome and Principe and Ghana. Yet the region is the least explored area for oil. This explains why America’s Chevron and its partners have planned to invest $17 billion between 2006 and 2011. In Angola alone, the Italian ENI SPA and Brazil’s Petrobas have invested $900 million and $310 million, respectively.

Catching the global eye Of all the countries in the continent, the rising star is Nigeria. It is Africa’s largest oil producer. Nigeria’s Bonny Light is the sweetest crude oil. It is easier and less expensive to refine than the heavy oils from the more sensitive and politically volatile West Asia. With its sheer size, large English-speaking population, and untapped natural resources, Nigeria is attracting enormous foreign investment, including those of the diaspora. This is notwithstanding problems of governance in the oil-producing Niger Delta region. The Government of Nigeria plans to spend $12 billion a year on oil and gas exploration in the next four years. Besides, it is working out a strategy to develop and promote the financial sector in order to become one of the top 20 economies of the world by 2020. Its recently established Africa Finance Corporation will drive private initiatives to improve transport infrastructure and develop agriculture, energy, telecom, mining, consumer goods, tourism and financial services.

No wonder, therefore, that China invested $2.6 billion in Nigeria alone in 2006. The state-owned China National Offshore Oil Corporation and state oil entities from other emerging market economies have become welcome partners in Nigerian oil policy planning. Others in the fray are Shell and Mobil oil companies, Norway, and two Venezuelan energy firms with $7-billion commitment. ONGC Videsh Ltd and ONGC Mittal Energy Ltd, Indian Oil Corporation and the Gas Authority of India have shown interest in oil exploration, establishment of refineries and laying down gas pipeline from the Niger Delta to Algeria and eventually to Europe. It is estimated that by 2010, one out of every five barrels of growth in the global oil production capacity will come from the West African oil fields, with Nigeria accounting for the bulk of it. Nigeria has proven oil reserves in excess of 35 billion barrels and gas reserves of 186 trillion cubic ft. Among top dozen Goldman Sachs has placed Nigeria among the top dozen of the emerging countries to be watched. Nigeria also enjoys the confidence of international financial institutions.

What is noteworthy is that market discipline drives the economic dynamism today, unlike in the past when state ownership and centralised control were the dominant features. Confidence also runs high as the new government has signalled its commitment to stay on the course of comprehensive economic reforms. The Indian Government and private entrepreneurship seem to have recognised these positive developments and have shed their traditional role of being reluctant suitors of Africa, particularly of Nigeria. They could, in fact, usefully interact with about 25,000 Indians living there for over 20 years, engaged in trading, manufacturing and marketing in the commercial capital, Lagos. Indians in Nigeria Second-generation Indians in Nigeria have shown strong commitment to Nigeria’s success, with several of them actively sponsoring educational institutions and healthcare programmes for the underprivileged in and around Lagos. India’s trade with Nigeria has increased, with exports comprising paper and wood products, textiles, plastics, chemicals, drugs and pharmaceuticals, machinery and transport equipment. India imports crude oil, cotton and cashew-nuts. According to the Indian High Commission in Abuja, India’s economic assistance to Nigeria is qualitatively different in that the investments place emphasis on training and employing locals at all levels of activity, unlike investments from other countries, as, for example, China. Besides, India’s investments are diversified across the non-oil sector too. Moreover, most of India’s initiatives are private-sector driven.

Taurian Resources, an Indian manufacturer of mining equipment, has invested about $50 billion to turn round the coalfield in the state of Enugu, bring in the latest mining equipment and use coal to help upgrade the existing power plants. Indian enterprises, notably NTPC, Nagarjuna Fertilisers, the Jindal group and Reliance Industries, have shown interest in investing in textiles, telecommunications, power generation, agriculture, mining and manufacturing. Indian software companies have been providing crucial support to Nigerian banks. Possible focus areas Laudable as these initiatives are, Indian investors should be sensitive to the political and social realities — diverse ethnicity, long periods of military rule and a fledgling democracy yet to take root, unemployment and a high degree of income inequality.

Against this backdrop, which requires investors to be socially responsible, it is best for the Indian state and entrepreneurs to focus on some critical areas. First, the area of human capital development, particularly the area of knowledge revolution, building on the former President, Mr A.P.J. Abdul Kalam’s 2004 initiative. The establishment of technology and medical institutions should claim priority. Second, public and private Indian investment could be augmented in affordable housing, transport, in particular road building, power generation, rural electrification, water reservoirs, development of solar energy, training of medical personnel, dairy development and pharmaceuticals, with special emphasis on tackling malaria, water-borne and other tropical diseases. Third, private investments in iron, steel and cement would help Nigeria build its productive capacity. Fourth, private investors could consider setting up hospitals at the high end so as to make Nigeria the destination of medical tourism in Africa.

Finally, cooperation in terms of providing scholarships and fellowships at scientific laboratories (as was done at the Central Drug Institute at Lucknow) and advanced schools of learning in India needs to be extended and strengthened. These initiatives will help Nigeria move towards achieving its Millennium Development Goals. Nigeria is indeed poised for exciting times in terms of a socio-political and techno-economic transformation in the very near future. India too would gain in the process. Her involvement with Nigeria will help consolidate her position as a lead player in the industrialisation of other African countries, especially Angola, Cote d’Ivoire, Equatorial Guinea, Gabon and Ghana. Over time, India could expect to draw political support from African countries in international negotiations on a number of economic and diplomatic issues. Indian entrepreneurs could also benefit by reducing risks of exposure through widening of investments across countries.