Why India, not China, is a better investment partner for Africa

This relationship isn’t paying off—at least not for most Zimbabweans.
This relationship isn’t paying off—at least not for most Zimbabweans.
Image: Reuters/Diego Azubel/Pool
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Did you read the story on Chinese investment in Africa? They’re being published in droves, usually with a vaguely racist headline, like “Booming African lion economies gear up to emulate Asians.” Their texts inevitably frame African nations as witless newcomers to the global market, their leaders sitting obliviously atop mountains of untapped natural resources. China, meanwhile, is caricatured as a predatory swindler, bent on becoming an eastern superpower, while also cashing in on a growing global consumer class hungry for smartphone processors and tablet screens, and therefore the African minerals that facilitate them.

While the framing of these stories is often regrettable, the facts are the facts: China is indeed an active investor in African economies. A report from Brookings calculated that, of the ¥256.29 billion ($41.85 billion) Beijing gave in foreign aid by the end of 2009, 45.7% went to Africa. China is also the continent’s largest trading partner. Last year, The Economist reported that roughly $200 billion worth of goods were exchanged between the two in 2013 alone, and that a commodities boom in China has helped Africa’s cumulative GDP grow 5.5% annually in the last ten years.

But these projects aren’t always principally for the benefit of ordinary Africans; though some say Chinese investment on the continent began as a humanitarian pursuit, and became more commercial with the liberalization of the Chinese market in the late twentieth century. They point to Zhou Enlai’s “Eight Principles of Foreign Economic and Technological Assistance,” drafted and issued during his 1963-4 10-nation tour of Africa, and which is still in effect today. It highlights mutual benefit and political non-conditionality as tenets of Chinese foreign-aid policy, and is heavy on talk of cooperation among nations of the global South. It was supposed to be China’s blueprint for using its economic heft to develop new trading partners.

But it was a document drafted with ulterior motives. According to the Brookings report, “These aid principles were designed to compete simultaneously with the ‘imperialists’ (the United States) and the ‘revisionists’ (the Soviet Union) for Africa’s approval and support.” And it worked. African diplomats were instrumental in strategizing China’s admission to the UN in 1971, and invigorating Beijing’s “One China” policy—an effort to undermine the sovereignty and international recognition of the Republic of China in Taipei.

China has since solidified its place in the world as a geopolitical superpower, and relations with African nations have correspondingly evolved into dynamics that are less concerned with ideology as they are with commerce. Today, Chinese firms are most attracted to African markets because of a troubling combination of factors: vast stores of natural resources, and a noticeable lack of industrial regulation. And while Western companies aren’t immune to exploitative business practices while operating on the African continent, Beijing’s human rights record indicates a distinct disinterest in cultivating good governance and democratic values in the countries it invests in.

Exhibit A, as always when it comes to issues of human rights and quality of governance in Africa, is Zimbabwe’s dictatorial president of nearly three decades, Robert Mugabe. Mugabe enjoys an intimate relationship with Beijing, fortified with heavy and regular cash perks. Zimbabwe received a $10 billion aid package from China in 2011, for example, which many in the international human-rights community have criticized as a measure to preserve Chinese business interests protected by the Mugabe regime, at the expense of Zimbabwean democracy. Mugabe’s daughter reportedly studies at a university in Hong Kong, though no one seems to know which; and his infamously materialistic wife (and possible presidential successor) makes many a shopping sojourn to Chinese cities. The family is said to own substantial property in the People’s Republic of China, for purposes of safe-refuge in the event of a popular uprising in Zimbabwe, and the Chinese delegation to the UN has been a key player in diluting the more severe economic sanctions levied against Harare.

Even more egregious is Beijing’s support for the government of President Omar al-Bashir of Sudan, who is responsible for sparking an ongoing genocidal civil war that has killed more than 300,000 (mostly black African) Sudanese citizens and displaced more than 2.5 million in the western region of Darfur.  Chinese companies have significant stake in Sudan’s oil fields, which played a massive role in curtailing the possibility of international intervention against al-Bashir in 2003 and 2004—the height of genocidal conflict there.

In 2008, Human Rights Watch released a report linking a spike in Sudanese oil exports to China with the sale of Chinese-manufactured weapons to the Sudanese military. Those weapons were then used against Darfuri rebels and civilians, and eventually found their way into the hands of the infamous Khartoum-backed Janjaweed.

In addition, hundreds of millions of dollars invested in infrastructural projects have mainly benefited the area surrounding Khartoum, home to the country’s (largely Arabized) political elite. The same military leaders and lawmakers who have been accused of cultivating apartheid-like conditions for Sudan’s black-African communities. Many observers attribute the secession of the majority black-African South Sudan in 2011 to the racist policies of Khartoum regimes, bolstered in confidence and cash by Chinese investments and tacit political support.

But what alternatives do African economies have? Despite being the largest foreign economic player on the continent, the US has scaled back its investments to African nations of late—a 32% drop between 2011 and 2013, according to Fortune’s Jendayi Frazer.

And although economists love to fanfare the “rise of Africa,” citing the placement of 20 of the world’s fastest growing economies there, personal GDP growth (a more comprehensive measure of development than national GDP) remains negligible continent-wide. As a region, GDP per person in East Asia grows at a rate of four times faster than Africa, according to the World Bank: 7.3% and 1.8%, respectively.

Chinese investment has contributed to these dismal numbers. Most firms bring in labor from China on a temporary basis, rather than extending employment to local Africans. The only money being pumped into African economies is filtered through government hands—i.e., China purchases the rights to harvest certain resources from an African government, but doesn’t employ any local workers to mine it, or pick it, or even pack it for shipment back to Chinese ports. Subsequently, the only individuals to receive direct, monetary benefit from Chinese development projects, or the arrival of a Chinese company in an African market, are Chinese nationals and the African political, military, and commercial elite.

But if Chinese money is dirty, and America doesn’t have much to spare, where are African economies meant to turn? In a globalized world of America and China’s making, a country without foreign investment simply cannot compete. Delicate African economies are perhaps most sensitive to this reality.

One place African leaders might look to is India. While far from corruption-free, India is the largest electoral democracy in the world, with a burgeoning consumer class to match. Indian companies are beholden to the policies of a democratic government in New Delhi, which in turn is beholden to 1.3 billion voters. The country has a corresponding philosophical disposition to engage in similar politics abroad. Does this mean an influx of Indian investment will necessitate liberalized African politics? Not across the board—but the odds seem likelier than sticking with Chinese cash.

And Indian money is there and waiting. Today, India is the fifth-largest investor in Africa—behind the US, France, Malaysia, and China. Furthermore, Indian businesses have a cultural advantage the Chinese lack: shared history. Brazil has been highly successful in cultivating economic relationships with former Portuguese colonies in Africa (Angola, Mozambique, Cape Verde, to name a few). There is potential for India to do the same in places like Ghana, Nigeria, Kenya, Tanzania, South Africa, and Botswana—countries considered to be at the forefront of African development, and all of which, like India, were once part of the British Empire.

A shared Commonwealth past means that many of these countries are home to to thriving South Asian diaspora communities. Durban, South Africa, for instance, is nicknamed “the largest Indian city outside of India.” These communities could prove to be highly useful on-the-ground links and cultural translators for Indian business interests; and might counterweight anti-imperialist sentiments among native Africans (a reputation the Chinese have had a difficult time shaking).

But more important than any of that, in Africa, rupees trickle down more easily than yuans. Following the Brazilian model for African investment, which relies more on local labor than imported contractors, Indian business has the potential to foster real, palpable economic change for Africans who reside outside the upper socio-political strata.

According to Harry G. Broadman, writing for Foreign Affairs, “Most Indian firms in Africa acquire established businesses,” contrary to their Chinese counterparts, which tend to drive out local competition. They are “less vertically integrated, prefer to procure supplies locally or from international markets (rather than from Indian suppliers), engage in far more sales to private African entities, and encourage the local integration of their workers.”

In this regard, Indian investment in Africa, by and large, differentiates from that coming from other nations. Sure, India needs to procure resources for a growing middle class, and solidify diplomatic relationships in the global South, but it seems investors are also cultivating a third, incredibly important (yet chronically underdeveloped) asset: human capital. Indo-African economic relations can be about real, person-to-person growth—on both sides of the Indian Ocean.