Africa: Why are Indian companies investing so fast ?

The ongoing surge in investments in Africa from Indian companies clearly point in one direction- Indian companies are beginning to consider Africa as the market for the future. Is it really the next big market ? Africa's strength lies in its hugely untapped resources and cheap manpower, moreover most parts of it haven't yet been commercially explored either. Add to it the simple fact that it is the second most populated continent in the world, next only to Asia. The major reason for its being behind the other continents in the race for development has been the political instability that has affected several parts of Africa. However off late, multinationals seem to have ignored it and are looking to capture the African market with full zeal.
Let us look at some major investments in Africa in recent years:
1. Takeover of Zain Telecom's Africa Operations by Indian telecom major Airtel for 10.7 billion USD- Making Airtel have presence in 15 African countries and also the 7th largest telecom player in the world.
2. Coca-cola looking to add 1300-2000 new distribution businesses creating between 5300 to 8400 new jobs and generating about 520 million USD in new revenue for local economies.
3. Godrej acquiring Nigerian personal care product maker Tura last year for about 33million USD and is planning to acquire 51% stake ( which will eventually be 100% in 3 yrs) for over INR 500 crores in hair care company, Darling Group Holdings.
4. Walmart's deal to buy South African retail chain Massmart for 4 billion USD.
5. Chinese investments in Africa are expected to cross 50 billion USD and Sino-African trade is expected to reach 300 billion USD within 2015
 
Now what is the reason for so much investments? A study conducted by UN reveals that the profitability of foreign companies in Africa has been consistently higher than in most other regions of the world, reports the UNCTAD study. Since 1990, the ROI on foreign direct investment (FDI) in Africa has averaged 29 per cent. From 1991 onwards, it has been higher than in all other regions, in many years by a factor of two. According to Kofi Annan, former UN Secretary General- 'Africa's profitability is one of the best kept secrets in today's world economy.'
According to a recent report in McKinsey, the African consumer spending will double to 1.2 trillion USD by 2020. At the same point of time, the number of households with discretionary income will rise by 50% to 128 million. According to Anand Raghuraman, Partner and Managing Director of Boston Consulting Group, Africa is experiencing growth similar to India around 10-15 years back. 
Under these circumstances, can Indian companies be far behind? A sizeable population of Africans of Indian origin give Indian companies an advantage over other entities, including those from China. Moreover Indian companies provide offerings according to local taste and largely source from Africa itself. 
 
The route followed by Indian companies in Africa is largely through acquisitions led by private players unlike China's policy of direct investments through state owned entities. In fact according to Thomson Reuters data, Indian acquisitions were a third of total acquisitions( in terms of value) in Sub-Saharan Africa in 2010, the highest by any country in the region.
The list of Indian companies heading towards investing in Africa is long, including Emami, Marico and Dabur. While there is little doubt that multinationals around the world recognise the potential of Africa as a market and for its high return on investment, what remains to be seen is whether Africa delivers on its potential. If it does, it will be the beginning of a new era for Africa- an era that will bring "Amanda Ngawethu" (South African slogan meaning power to the people).

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Africa: Why are Indian companies investing so fast ?

by Abhirup Bhattacharya time to read: 3 min
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