The fallout of Bharti-MTN has put a big perceptional question mark on India?s prospects of doing business in Africa. After all, the conclusion in India is that the deal fell through because of the reluctance of the South African political establishment to show the green flag to one of India?s most prestigious companies. This may indeed send the wrong signals to all prospective Indian investors interested in Africa.

But it would be unfair to judge India?s prospects for closer economic cooperation with Africa based on this one single experience. This is because Africa?s record on promoting investment and trade has been commendable in many ways even though the continent is home to a large number of low income countries.

Most recent numbers show that, despite the global crisis, total FDI flows to Africa have gone up by 27% to a record $88 billion in 2008 taking up the total FDI stock to $511 billion. The surge has pushed up Africa?s share of global FDI from 3.5% in 2007 to 5.2% in 2008.

Indeed most of the increase in FDI in 2008 was contributed by the growth in cross-border mergers and acquisitions which more than doubled from $8 billion in 2007 to $21 billion in 2008. Some of the largest cross-border deals include the acquisitions of the South African Standard Bank Group Ltd, the Deveon Energy Group of Equatorial Guinea, the Ghana Telecommunication Company, the DRC Resources of Congo, Alstom SA, and the Banco de Fomento of Angola. Most of these deals involved MNCs from Europe and Asia.

The enthusiasm for investments in Africa can be judged by the large number of green field FDI projects being started on the continent. Numbers in fact show that the green field projects more than doubled from 381 in 2007 to 821 in 2008. Most of the projects were natural resource based and some of them fell after the fall in commodity prices towards the end of the year. Another sector that has gained prominence in the FDI flows was agriculture, mainly on account of the investments made by countries like China, Bahrain, Qatar, Kuwait, Saudi Arabia and Libya in Ethiopia, Sudan and Tanzania. In fact South Africa is one of the six developing countries which have planted more than one million hectares of GM crops with help from global companies. The enthusiasm to encourage FDI has prompted government across Africa to sign a large number of bilateral investment treaties (BIT). The 12 new BITs signed in 2008 has increased the total number of BITs signed by African countries to 715 which is around 27% of such treaties signed across the globe so far.

Africa?s thrust on attracting foreign direct investments have enthused Indian investors too. This has prompted Indian FDI investments to Africa to go up from the low level of around $38 million before 1990s to $63 million in the first half of the nineties. It then accelerated to $734 million in 1996-2002 and further to $1570 billion in 2002-06. This has helped push up Africa?s share of India?s total FDI outflows from just 8.6% in the early nineties to 13.5% in the most recent period.

Most of the Indian FDI in Africa has been boosted by the global plans of Indian companies. For instance Tata Steel has invested $1.5 billion in a joint venture in Cote d?lvoire to secure iron ore for the Corus steel plants. Similarly the Indian Farmers Fertiliser Co-operation has invested $300 million to produce phosphoric acid in Senegal. Estimates also indicate that 118 Indian companies have invested around $825 million in Tanzania during 1990-2006.

Apart from natural resources the regulatory regime is also an important factor that has helped improve the attractiveness of Africa as a business destination. The most recent Doing Business Report of the World Bank group shows that as many as 16 odd African countries were ranked ahead of India on the ease of doing business. These include South Africa (34), Botswana (45), Tonga (52), Namibia (66), Rwanda (67) and Tunisia (69), all of which were far ahead of India which was ranked 133.

Yet another factor that has improved the attractiveness of doing business in Africa is the buoyant international trade. The pick-up in growth in the region has boosted both exports and imports. While the share of Africa in global merchandise exports has gone up from 2.4% in 1993 to 3.1% in 2007 that of imports rose from 2.1% to 2.6% during the period. But it is not that prospect of doing business in Africa is not without any hurdles. A recent FICCI study has identified trade credit, language barriers, lack of institutional mechanisms and low brand identification of Indian products as major hurdles to promoting trade and investment relations. But the overall gains made are indeed significant and one derailed deal should not make too much difference.

p.raghavan@expressindia.com