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India Remains An Onlooker As Chinese Institutional Equity Floods Africa – Analysis

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Policymakers at the highest level in India needs to take cognizance of these developments in Africa, and take appropriate recourse to secure equity stakes in some of the key financial institutions in the continent. India may either secure direct equity or use its development financial institutions or commercial banks, as a vehicle in Africa to act upon this.

By Rahul Mazumdar

Beijing’s engagement the world over, especially in Africa, has often been of a different character, and at times perceived with skepticism. Not heeding the cacophony over its intentions, China has remained unperturbed as it continues to expand in Africa using its financial strength.

Apart from extending grants and concessional loans, China has also weaved a number of linkages with many financial institutions in Africa to create dedicated funds for the region. These funds in all likelihood help Chinese businesses gain preference over companies from other countries to execute projects in the continent.

In 2014, the African Development Bank (AfDB) and the People’s Bank of China (PBOC) entered into a USD 2 billion co-financing fund known as the Africa Growing Together Fund (AGTF), to finance eligible sovereign and non-sovereign guaranteed development projects in Africa.

Earlier in 2007, the China Development Bank (CDB) in concert with China Exim Bank announced a USD 1 billion initial funding towards setting up the China-Africa Development (CAD) Fund to stimulate investment solely by Chinese companies across sectors in Africa. The engagement of the Fund gained further currency in 2017 when it tied up with the Bill & Melinda Gates Foundation for investment in agricultural and pharmaceutical sectors, and with the UK Department for International Cooperation on investment and exports.

Chinese equity gaining in Africa

While such traditional funding continues to prevail, there have been some broadening of Chinese assistance in the Africa, as it makes equity investments in financial institutions in the continent. This mechanism of what I would call ‘institutionalising Chinese equity into Africa’ is very potent, to the extent where it gets access to the latent opportunities in the region. These initiatives further acts as instruments to implement Chinese policies in trade and diplomacy, and concurrently provide support for promoting the exports of Chinese products and services to Africa.

The Chinese have become more aggressive in recent times.

Way back in 1984, India had undertaken a just one-off step with three government owned commercial banks coming together to form a joint venture with Zambian Government to form the Indo Zambia Bank.

On the contrary, the Chinese have become more aggressive in recent times and strategically eye institutions which have presence in more than one country. For instance in 2007, the Industrial and Commercial Bank of China (ICBC) had acquired a 20% stake in South Africa’s Standard Bank to benefit from its already established position in the continent — presence in 20 countries in Africa and 13 outside the continent. Besides, in 2018, the CDB, which is one amongst many policy banks, entered into an agreement with one of Nigeria’s commercial bank with pan-Africa presence, the United Bank for Africa, for USD 100 million for a seven-year loan agreement.

India remains an onlooker

While China is having stakes in various pan-African and Regional Development Banks in Africa, India has remained a second fiddle. India currently has just a 0.269% share in the African Development Bank, the region’s multilateral institution, while China’s ownership is four times higher at 1.200%. This is a significant anomaly given India’s aspirations in the region.

In Afreximbank, India and China are represented as Class C shareholders by their respective export credit agencies — Exim Bank of India has 0.24%, and China Exim Bank has 5.48% shareholding in Afreximbank. China, in fact, has augmented its share recently, and is today the sixth largest shareholder in Afreximbank, and the largest amongst the Class C shareholder.

At the Togo headquartered West African Development Bank (BOAD), both Exim Bank of India and the People’s Bank of China find representation, albeit India having just 0.07% share as compared to China’s 1.09%.

The only and lone case where India has an equity sans China is in the Development Bank of Zambia with 19.73% share. However, unlike others where China has a stake, the DBZ is confined only to Zambia.

There are other regional development banks in Africa where India is not a stakeholder whereas China remains one. For instance, in the Trade and Development Bank, which caters to 22 member economies of Africa, has the People’s Bank of China on its board. Besides, there are other regional development banks like The Central African State Development Bank (BDEAC) catering to six countries in the region, and the ECOWAS Bank for Investment and Development (EBID) with 15 member states, in which India can look towards having an equity stake.

The only and lone case where India has an equity sans China is in the Development Bank of Zambia with 19.73% share. However, unlike others where China has a stake, the DBZ is confined only to Zambia.

Way ahead

India over the years has launched multiple initiatives from extending concessional credit to African economies under the ‘Focus Africa’ programme launched in 2003, to allowing trade discounts under the Duty Free Tariff Preference Scheme, launched in 2008.

Despite these initiatives, there is a lot that remain wanting. India for all wise reasons has to be more astute and proactive in its operations in the African continent if it wants to salvage its position in the years to come, especially with the hegemonic position of China. And one key means towards this objective is India enhancing and securing equity participation in the regional development banks in Africa.

It may also be observed that while most of the equity investments made in the regional development banks in Africa are by government backed institutions, there are a few institutions, wherein even private commercial banks too have pitched in, like in the case of East African Development Bank (EADB), Standard Chartered Bank and Barclays have equity stakes.

Policymakers at the highest level in India needs to take cognizance of these developments in Africa, and take appropriate recourse to secure equity stakes in some of the key financial institutions in the continent. India may either secure direct equity or use its development financial institutions or commercial banks, as a vehicle in Africa to act upon this.

Having an equity stake in these regional institutions provides information on upcoming project opportunities and various other strategic developments in the region. Acquiring a stake also enhances the probability of securing a board level position which would allow India to communicate its capabilities at the highest platform. Most importantly, an equity stake in important financial institutions would convey India’s seriousness and willingness to participate in the region’s growth story.


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Observer Research Foundation

Observer Research Foundation

ORF was established on 5 September 1990 as a private, not for profit, ’think tank’ to influence public policy formulation. The Foundation brought together, for the first time, leading Indian economists and policymakers to present An Agenda for Economic Reforms in India. The idea was to help develop a consensus in favour of economic reforms.

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