Bharti Airtel's spectacular entry into the sub-Saharan market was a triumph for the country, which is running second to neighbouring China in the battle for business on the continent, especially in resources.
Asian giants look to Africa
The announcement by Bharti Airtel of its US$10.7 billion (Dh39.29bn) acquisition of the Kuwaiti company Zain's African operations was the biggest such deal by an Indian telecommunications company.
Providing access to Zain's 42 million subscribers spanning 15 nations, this expansion announced last month made Bharti Airtel, India's biggest telecoms operator, the fifth-largest mobile carrier in the world. The much-celebrated deal is also indicative of India's strident foray into Africa, once dubbed the hopeless continent but now rapidly emerging as a lucrative investment destination for Indian businesses.
"The next wave is Africa," said Sunil Mittal, the 52-year-old chairman of Bharti Airtel. "The government just needs to improve air connectivity with Africa and the industry would flock there." In the past five years, several sizable Indian companies including Tata Group, Videocon, Godrej, Mahindra and Mahindra, and Cipla have set up businesses in more than 20 African countries. The Confederation of Indian Industry (CII) says India's traditional foreign markets - the US, Europe and the Far East - are largely saturated or more impregnable because of the global economic downturn.
But Africa, a continent comprising more than 50 countries, many of them rich in natural resources, is a largely unexplored frontier. Most of Africa's 1 billion people make up the "bottom of the pyramid" market. Even with low per-capita earnings and spending power, Africa provides Indian businesses with a natural opportunity to grow, economists say, especially those based on a low-cost model. India has committed $2bn in investment in Africa this year and trade with the continent - in sectors such as mining, cars, pharmaceuticals, capital goods, defence, aerospace and energy - stands at $39bn, growing at a phenomenal rate of 26 per cent.
But those figures dwindle compared with those from India's Asian rival, China. That country committed $8bn in investments this year, and its trade with Africa stands at $109bn. The two rapidly expanding Asian economies are competing for Africa's oil, land and development projects. One estimate shows that in February, India and China consumed a total of 2.4 million tonnes of coal, or more than half of South Africa's 4.9 million tonnes of coal exports.
"China and India's rapidly growing commerce with the sub-Saharan continent presents to its people a new major development opportunity; one that is arguably qualitatively different than that provided by its traditional commercial partners from the global north," Harry Broadman, a former World Bank economist and the author of Africa's Silk Road: China and India's New Economic Frontier, wrote in a recent essay.
India says it has an edge over China in Africa because of its large Indian population on the continent, and a shared history and colonial past. Indian companies are also undaunted by Africa's corruption and red tape, which they are accustomed to dealing with at home. Both regions have large populations of poor and illiterate, and both have sizable markets for frugal companies selling cheap products.
But in most deals for which they compete China, with its large financial muscle, seems to have an upper hand. The big competition is over Africa's vast energy assets. India's demand for oil may more than double to 833 million tonnes from 2007 to 2030, says the International Energy Agency. China's demand may rise 87 per cent to 2.4 billion tonnes. In 2004, China Petrochemicals (Sinopec) beat India's state-owned Oil and Natural Gas Commission in bidding for an oil exploration block being sold by Shell Oil company in Angola.
Last year, India lost out to China in at least $12.5bn of oil contracts, many of them in Africa. This year Murli Deora, the Indian oil minister, travelled around Nigeria, Angola, Uganda and Sudan as a part of a desperate bid for oil deals. For India and China, African support is necessary to gain geopolitical influence. India needs African countries to help in its quest for a seat in an expanded UN Security Council, a move India fears could be stymied by China.
India and China often court African support in the World Trade Organisation negotiations, pitting Africa's large number of votes against those of the US and EU. But while Africa is good for India and China, are the two giants good for the continent? The two "have contributed to Africa's higher growth in recent years, and indeed Africa's rapid recovery from the financial crisis elsewhere because of their demand for natural resources, Africa's primary exports", said Princeton Lyman, an adjunct senior fellow for Africa studies at the council on foreign relations.
"[They] have also offered financing for badly needed infrastructure projects in Africa, something western donors had largely moved away from since the 1980s." India's surging economic engagement with Africa, led largely by the private sector, is spurring the development goals of African countries, observers say. Indian companies are "helping the government build close economic and political ties with Africa", says Shipra Tripathy, the chief of CII's Africa desk.
"They are also contributing incredibly to society by helping the African people to improve the quality of their lives." But the push into the African market could also significantly harm local businesses. Many African operators fear that Bharti Airtel, which is famous for driving down Indian call rates, will drastically lower tariffs when it enters Africa, destroying their business model. "There is this fear," Mr Mittal recently told The Economic Times, a financial daily. "Tariffs in Africa are nearly 15 to 20 times that of India. There is huge scope for reductions. But we won't be reckless. We will grow the [mobile call traffic] and then bring down tariffs."
Mr Mittal said he was also concerned about producing results for his company in Africa. His acquisition of Zain Africa, which many analysts say is severely overpriced, could push the company into deep debt if it does not pay dividends. "The company's leverage and cash-flow protection measures will deteriorate significantly following its largely debt-funded acquisition of Zain Africa," Standard & Poor's warned recently after lowering Bharti's credit rating.
China and India are often accused of other violations in Africa. Both ignore ethical issues in their quest for business, doing business with countries such as Sudan, Zimbabwe and Ethiopia that are often accused of poor human rights records. But "both share an approach to Africa that flatters African leaders and avoids some of the more political conditions associated with western assistance", Mr Lyman said.