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India's Bharti bid redefines the race for the African continent.
NEW DELHI, India — When Sunil Mittal, the 52-year-old chairman of Bharti Enterprises, recently announced the Indian mobile company's successful acquisition of Kuwait-based Zain's African operations, he flagged off the next stage in the so-called “race for Africa” between India and China.
This leg will be much more than a modern-day great game played for political influence and access to natural resources. And in this contest the tortoise may be set to sprint past the hare.
“The Indians are in there for the long haul, integrating economically, socially and politically,” said Harry Broadman, the author of "Africa's Silk Road: China and India's New Economic Frontier." “I think India is the sleeper. These are the businesses that are operating under the radar and will have a much more durable impact on the African economy, arguably, than the Chinese.”
With the $10.7 billion purchase, Bharti becomes the world's fifth largest mobile service provider in the world by number of subscribers, gaining 42 million customers and establishing a presence in 15 African countries. And Mittal, who helped to drive down Indian call rates, making talk time cheaper in India than in any other country in the world, is confident that he can redefine the African market. Given that African callers pay 10 times the Indian rate for talk time, his first step is likely to be a price war.
After an initial flurry of enthusiasm, skepticism has emerged about the impact Bharti's foray into Africa will have on the company's bottom line. Hard-nosed financial analysts have pointed out the difficulties involved in integrating operations from 15 different countries with different languages, cultures and regulations, and Standard & Poor's has already lowered Bharti's credit rating.
But long before it's confirmed as a success or failure, the merger could be even more important, symbolically, for India Inc., for whom Mittal has already played trend setter in countries like Bangladesh, where Bharti's purchase of Warid Telecom inspired a wave of similar deals.
Traditionally, India has been viewed as — and considered itself — a laggard in Africa, where China's deep-pocketed state-owned enterprises have snapped up land, oil and development projects. And the numbers have supported that view. As of April, for example, China had committed $8 billion dollars in investment, compared with India's $2 billion. Meanwhile, trade between China and Africa dwarfed trade between Indian and Africa by a third.
But Mittal believes that the sun has set on the era of state-supported investment, and Indian firms don't need financial aid to compete. “The government just needs to improve air connectivity with Africa, even if that means giving money to Air India,” he said in a post-merger interview with India's Financial Express newspaper. “And the industry would flock to Africa.”
He may be right. Over the past several years, as companies and investors have woken up to African economic growth, the profile of their investments in Africa has changed, said Broadman. While the conventional wisdom has credited resource-rich countries like Nigeria for Africa's growth, he argues in a recent paper, from 1998 to 2008 the most sustained progress came from non-resource dependent countries, where real gross domestic product grew 5.6 percent per year. China and India — whose investments in Africa are growing much faster than those of western nations — have taken note.
“You are seeing a diversification [in their investment], whether it's in consumer products, environmental cleanup products, or food processing,” Broadman said.