The elephant stumbles in the savanna

India struggles to keep up with China in Mozambique.

1347428179_e3f3d18811_bIn recent years China, India and other emerging powers such as Brazil have increased their presence in Africa. Mozambique in East Africa has attracted considerable interest from major powers, both from the East and the West. A country that relied primarily on agricultural exports such as cashew-nuts and cotton, is now fast emerging as a major powerhouse for natural resources. Coal, oil, natural gas and other minerals are now believed to exist in significant reserves.

According to the Financial Times, the country may receive over $10 billion a year from gas revenues in the near future. This is no small amount if one takes into account that the annual state budget is $3.6 billion of which a significant amount comes from donors. The country is believed to house one of the world’s largest coal reserves. Mozambique also possesses a latent potential to become  a major biofuel producer.

China’s and India’s relations with Mozambique go back to the 1960s when both nations were sympathetic to its struggle for independence from Portugal. Large communities of Indians and Pakistanis reside in the country where they play a major role in the economy. In 2010, trade between China and Mozambique reached $690 million — a significant increase if one takes into account that in 2007 bilateral trade was $285 million. According to several financial publications, China’s Wuhan Iron and Steel has invested $1 billion in the coal sector while Mozambique’s national radio reported that Chinese company Kingho plans to invest up to $5 billion in the coalmines in Tete province. China’s state-owned banks have given the country large soft loans for infrastructure including a $2.3 billion to build a large dam.

India on the other hand is struggling to build a strong presence in this emerging resource rich nation. In 2009, India pledged a $500 million credited line for Mozambique. However, in March 2011 Mozambican prime minister Aires Ali asked the Indian Exim Bank to expedite the release of the funds. In contrast, China’s Exim Bank has granted substantial loans without necessitating such official requests. India has since granted another $20 million in loans to Mozambique.

In January 2011, the Mozambican government informed the then visiting Indian minister for coal Sriprakash Jaiswal that the state-owned Coal India would only be given extra mining concession if the company showed progress on its implementation. Coal India was granted two blocks in the Tete Province two years before. However, little progress had been made in developing them. As a result requests from Indian companies for more blocks had been denied. Other Indian pledges of investments in various sectors have not been forthcoming.

Indian RICON Railroad Company was selected to rehabilitate rail road infrastructure in the central province of Sofala. The project was funded by the World Bank while RICON was responsible for its implementation in coordination with the Mozambican government. The project was to end by 2009. However, from the beginning the venture was marred in controversy with allegations of poor quality standards and corruption. Independent engineers found numerous flaws through the project and RICON was constantly behind schedule. While the World Bank bears part responsibility for the fiasco, the involvement of an Indian company did not contribute to improving India’s image. Indeed things were further aggravated when in 2010 neighbouring Tanzania canceled a contract with the same company alleging bad management. While the project seems to be finally moving the serious problems and delays gave it a bad name.

Several Indian officials when questioned on India’s struggle to keep up with China, point to the fact that India being a democracy, has to deal with a divided parliament and a civil society. Unlike China, India cannot give out billions in loans, to a country most Indian citizens know little of. India too has a large population of poor who have the power to vote.

While democracy has its complications, it does not explain the entire situation. Brazil too is a democracy and Brazilian companies like Vale are well ahead of China and India for the Mozambiquan resources. Australia – one of the oldest democracies  has also been doing well in Africa’s mining sector. Several Indian companies have performed in Latin America and Southeast Asia. There are no Chinese counterparts to Infosys, Reliance or Tata — privately owned Indian corporate giants that need little governmental support to survive, unlike most Chinese companies.

Perhaps here lies the problem. Many of the companies and banks that have run into trouble in Mozambique are state owned, known for their inefficiency in India. India’s strategy in Africa is faltering largely because the world’s largest democracy is trying to emulate the strategies of the world’s largest authoritarian state. Instead of focusing on major investments by state owned companies and loans by state banks, India should focus on encouraging its companies to invest in Africa. New Delhi should use its diplomatic influence to facilitate trade deals and other arrangements that allow Indian private companies to increase their presence in the continent.

While China is constantly looking at the United States of America as a benchmark for success, India is constantly looking at China. In its eagerness to catch up with China, India has been emulating its strategy in Africa in the hope that it will bring similar rewards. Perhaps India should look at the success of the Brazilian and Australian companies in Africa.

Some Indian diplomats have also complained that India is behind China when it comes to having a coherent policy towards Africa. Indian policy towards China in Africa and China in general tends to be rather reactive and lacking in long term planning.

While India is struggling to keep up with China, private Indian entrepreneurs remain optimistic with increasing larger numbers showing interest in the country. Coal India is far from throwing in the towel announcing that it had secured $6.5 billion to invest in several overseas projects including its two coal blocks in Mozambique.

Attracted by the potential of rich natural resources the United States, Japan, Australia and several European powers have refocused their presence in the country. China was able to build an impressive presence in several African countries largely because of the neglect and arrogance of the West. However, in resource, rich countries that are smart enough to attract diverse sources of investment this is likely to change soon. While a lot has been said about China and India in Africa, the dragon and the elephant are far from being alone in the savanna. Whether Mozambique’s new found wealth will bring prosperity to its people or whether a small elite and foreign interests will profit remains to be seen.

Photo: Jean-Etienne Minh-Duy Poirrier