India Inc looks to Japanese funding for expansion in Africa

Indian industry is looking to tap surplus funds from countries like Singapore and Japan to invest in infrastructure and construction projects in Africa - where India has been left far behind by China, according to Noel Tata, managing director of Tata International Ltd.

Describing Japan as one of the ''largest sources of patient funding'' in the world, Tata – who is also the chairman of the Africa desk in the Confederation of Indian Industry (CII) – today told reporters on the sidelines of the 10th India-Africa business conclave, organised by CII and India's Export-Import Bank in New Delhi that a joint India-Japan initiative is being discussed to ensure Indian companies get the resources to deepen their engagement with Africa.

''Perhaps the one area where Indian industry needs a little more assistance is in areas like infrastructure and construction, where we need long-term patient funding for the projects that we wish to participate in Africa.

''And obviously, India is not the cheapest source of funds in the world,'' Tata said. ''We need to find sources of third country funding and find a mechanism of making that third country funding available to Indian companies to enable them to offer packages to Africa.'' He said.

Tata's comments came as a CII-commissioned report by the international consulting and auditing firm McKinsey & Co noted that ''India has recently built momentum in Africa, even though some economies like China and the Middle East are in a stronger position. India has the opportunity to propel this momentum further with a special value proposition to partner in Africa's development based on our geographic proximity, cultural affinity, IT (information technology)/engineering talent and entrepreneurship and low cost operating models.''

India ''can aspire to quadruple its revenues from Africa to $160 billion by 2025 by focusing its presence in sectors such as IT services, agriculture, infrastructure, pharmaceuticals and consumer goods,'' it said while pointing out that in the next decade, Africa was expected to overtake the Middle East to be the second fastest growing market globally-after Asia. More than half of Africa's 55 countries are expected to grow faster than 5% annually till 2025, it said.

India and Japan already have a dialogue on cooperation in Africa that was instituted in 2010. In January, Japanese Prime Minister Shinzo Abe, who shares a testy relationship with China's top leaders, toured three African nations - Ethiopia, the Ivory Coast and Mozambique. During his visit, Abe pledged hundreds of millions of dollars in aid to a continent where China has made deep inroads in recent years.

The conclaves and summits in 2008 and 2011 are attempts by India to rescript ties with Africa with which it shared a good equation in the 1950-60s when it backed African countries in their fight against colonialism. India, however, saw its influence wane in later decades as it focused on refashioning ties with the West at the end of the Cold War, and liberalized its economy. With India looking for resources to fuel growth and backing for its ambition to become a global power, Africa seems a natural partner, say analysts.

According to a McKinsey report titled Joining Hands to Unlock Africa's Potential: A New Indian Industry-led Approach to Africa, India could capture almost 7 per cent of the IT services market, 5 per ecnt of the consumer goods space, 10 per cent of the power sector, and 2-5 per cent of agriculture and allied services.

The report said that as African nations continue to grow, they need constructive foreign investment. Indian industry, as a ''solutions-partner'' to African nations, could greatly contribute to their development– creating employment, spearheading talent and skill development, and developing infrastructure.

Barnik Maitra, partner at McKinsey, said, ''African governments have taken several steps to improve overall stability and security. Comparing the period between 1995-2005 and 2006-2013, inflation dropped from 23 per cent to 8 per cent, government debt (as a share of gross domestic product) dropped from 105 per cent to 52 per cent, and exchange rate volatility dropped from 29 per cent to 12 per cent. Serious conflicts (defined as conflicts with more than 1000 deaths/annum) have fallen from 4.8 per annum in the 1990s to 2.6 per annum in the 2000s.

''Indian industry could build relationships with African governments and businesses, identify opportunities through sector and country studies, develop an open consortium of interested companies in advance and ensure cost-efficiency through funding for large projects,'' Maitra said.

The report also said Africa poses multiple challenges to Indian companies looking to invest there. Challenges in Africa are inherent to any emerging market and include a fragmented opportunity with unfamiliar risks, infrastructure bottlenecks, lack of talent and a nascent financial services sector, it said.