India and China compete to shape Africa’s economic future
The world is witnessing a growing struggle for authority in Eurasia. China’s Belt and Road Initiative (BRI) outlines Beijing’s vision for a new economic order, linking nations to China through infrastructure investments and lending via relatively new economic institutions that challenge the postwar Western framework. In contrast, India presents a rival vision with the India-Middle East-Europe Economic Corridor (IMEC). In East Africa, this geopolitical rivalry is playing out financially, as New Delhi and Beijing compete for sway in the developing world, each advancing its economic systems through the BRI and IMEC, respectively.
India’s centuries-old economic ties to East Africa were revitalized in the early 2000s, bringing foreign direct investment and market-based liberalism. India’s approach, unlike China’s, has fostered more local partnerships, prioritizing market access and technical expertise. Although Beijing’s investments have had a greater short-term effect on East Africa, New Delhi’s impact may be more enduring. This durability stems from sectoral factors and changes in business culture.
Competing economic models in East Africa
Chinese and Indian approaches to East African investment vary significantly in both size and sector, affecting different aspects of the region’s economy.
Chinese state-owned banks financed $75 billion in African infrastructure loans between 2000 and 2021, focusing mainly on energy and transportation projects. In 2023 alone, Africa received $21.7 billion in Chinese investment for port and railway development. Beijing’s involvement in Africa’s infrastructure has raised the region’s profile in global value chains. However, it has also led to sharply increased debt for African states, vague contracts and often poor returns on investment.
Facts & figures: BRI investment in Africa by sector, 2013 versus 2023
In East Africa specifically, debt to China has created a sense of dependency that currently shows no signs of abating. From 2014 to 2024, African debt service to China increased by a factor of five, totaling $6.8 billion for Ethiopia, $6.7 billion for Kenya and $6.1 billion for Zambia. In Kenya, East Africa’s largest economy, debt service in 2023 amounted to 59 percent of the country’s tax revenue. This debt burden is hindering development and is often referred to as a debt trap.
China owns roughly 64 percent of Kenya’s external debt. This liability is partly the outcome of projects like the Standard Gauge Railway, built by the China Road and Bridge Corporation and funded by the Chinese government. Meant to connect Nairobi with the port at Mombasa and Uganda in Africa’s interior, the venture was abruptly halted by China in 2019 due to logistical and legal challenges, resulting from the project’s “opaque” terms in commercial contracts. Due to its incompletion, the railway now operates at a loss.
Scandals related to the railway project highlight other aspects of Beijing’s investment strategy in East Africa, including tensions around Chinese migrant workers and corruption. Complaints from Kenyan workers about their Chinese managers involved accusations of racism and claims that little or no instruction and skills transfer were taking place. The railway project became a political flashpoint, mirroring debates about China’s wider role in Kenya. Similar issues persist in Ethiopia and Uganda.
Kenyan workers’ complaints about the lack of skills transfer by Chinese counterparts reflect a broader trend in Chinese infrastructure investment. When training occurs, it is often basic and short-term. This leads to temporary employment spikes but anemic long-term advancement for employees and a dependency on China and Chinese workers that aligns with Beijing’s strategic interests, but not the interests of recipient/borrowing countries.
Although Beijing’s investments have had a greater short-term effect on East Africa, New Delhi’s impact may be more enduring.
India’s approach is markedly different. In 2018, while speaking in Uganda, Indian Prime Minister Narendra Modi outlined 10 so-called “Kampala Principles” that expressed New Delhi’s goals in African investment. These principles included a promise of open markets, investment in education, information technology infrastructure, agricultural improvements and healthcare. These sectors can absorb labor over an extended period and fit in with India’s long-term foreign policy vision for its relations with Africa. Indian investments in the continent have largely been concentrated in East Africa, with a strong emphasis on energy and manufacturing.
After India began increasing its outbound investment in the early 2000s, Mauritius was the top destination for funding through 2016. Within the real economy, manufacturing in Kenya, Zambia and Ethiopia took the lion’s share of India’s African investments. The mid-2000s saw nine “India-Africa Conclaves” to expand bilateral private sector ties and increase India’s economic footprint. Last year’s conclave in New Delhi focused on securing critical minerals, food security, and cooperation in space technologies and satellite launches. Commerce Secretary Sunil Barthwal projected bilateral Indo-African trade to reach $200 billion by 2030, driven by pharmaceuticals, the automotive sector, transportation and agriculture.
India’s market-driven business strategy
Despite lower investment than the Chinese in Africa, largely due to the size of the projects involved, India’s profile in the region is growing. Its investment in the continent has increased by roughly 18 percent annually since 2003. In 2023, India surpassed China as Kenya’s top Asian trading partner, while Beijing’s investment in the region has slowed.
Unlike China’s focus on state-funded infrastructure projects with heavy debt attached, India’s investments in East Africa center on healthcare, IT infrastructure and manufacturing. These sectors are more conducive to skills transfer and middle-class growth and represent longer-term partnerships compared with Beijing’s large-scale infrastructure projects.
Throughout the mid-2000s, poor infrastructure, logistical issues and corruption were the biggest obstacles to Indian firms doing business in Africa. These challenges also included difficulties securing African buyers for Indian technology services. To overcome these hurdles, Indian companies have acquired local businesses as subsidiaries or partners, use localized suppliers and focus on selling to African buyers. In the domain of critical minerals, one recommendation from last year’s business conclave included having the Indian government sponsor “joint development” in mineral extraction in Africa to link African mining to India’s market.
Facts & figures: Sector-wise investments in Africa, April 2010–March 2023
Across Africa as a whole, this Indian approach has led to strategic partnerships such as the one between Mumbai-based Reliance Industries and Ghana’s Next-Gen InfraCo. This collaboration is geopolitically important because the Ghanaian government approved India’s expansion of 5G access in a deal that excluded Chinese entities. The Indian telecom firm Bharti Airtel is now among the continent’s largest mobile service provider.
In East Africa specifically, India’s Adani Group has advanced the IMEC’s goals by partnering with Abu Dhabi to secure port terminals in Dar es Salaam under the East Africa Gateway initiative. While historically a state-controlled economy, the Adani Group securing a 30-year concession to help manage Tanzania’s port access to the Indian Ocean signals a change in the region’s market orientation.
Indian firms have aggressively entered Africa to manufacture vehicles, agricultural equipment and pharmaceuticals. Tata Motors, one of India’s largest automotive manufacturers, began its operations on the continent in Sudan in 1964 and has since expanded into some of its largest markets, including Zambia, Tanzania, Uganda and Kenya. In Tanzania, Tata Motors and Mahindra & Mahindra are expanding their presence to construct new assembly plants.
Indian pharmaceuticals are particularly valuable to African consumers due to the lower costs of generic drugs. To overcome investment challenges, Indian pharmaceutical firms have effectively utilized the networks formed by the diaspora in Africa, a remnant of the British colonial era. However, political instability in some countries and a lack of local pharmaceutical testing facilities on the continent have slowed India’s expansion there.
Africa’s healthcare industry has growing ties to India, with African doctors training in India while Indian drugmakers expand south of the Sahara. For instance, Cadila Pharmaceuticals leveraged a partnership with Ethiopia’s Almeta Impex to bring manufacturing to the Horn of Africa in 2007. A delegation from Ethiopia’s Food and Drug Administration traveled to Cadila’s facilities in India in 2022 to study the company’s development labs. These bilateral relationships between Indian companies and their African partners are shifting business norms in the region toward greater market friendliness.
While both Beijing and New Delhi seek access to Africa’s natural resources and energy, the predominant modes of business investment from these two rival Asian powers indicate two distinctly different outcomes in the future.
Chinese and Indian businesses in East Africa can shape the region’s economic landscape through their competing statist and market orientations.
India’s economic interests in Africa are deeply rooted in the continent’s large population and the growing demand among for Indian products, such as telecommunications and pharmaceuticals. Such economic involvement not only extends sway over a broad area but also across critical sectors that are permanent and more insulated from demands for natural resources or infrastructure construction. Over time, this strategy is likely to give New Delhi a strong hand in shaping African business developments. Geography is a second element in its favor: East Africa’s proximity to India makes it a national security imperative for New Delhi to counter China wherever possible along the Indian Ocean.
Indian influences on East Africa’s market-centric model
Chinese and Indian businesses in East Africa can shape the region’s economic landscape through their competing statist and market orientations. Cross-border business partnerships must ultimately drive policy for these competing forces to transform the continent’s economic landscape. Considering the current conditions of China’s top-down infrastructure approach to Africa, local skepticism and the extent of connections established between East African sectors and their Chinese and Indian counterparts, New Delhi’s model presents a more sustainable strategy.
Since the 1990s, a combination of factors has shifted East Africa toward a gradual route of economic liberalization. Kenya, arguably the most market-oriented economy in the region, embraced greater liberalization in telecommunications and agriculture in the 1990s, attracting more foreign investment. However, Africa’s liberalization remains stunted and muted in other countries, such as Ethiopia and Tanzania, where conflict and slow reform have impeded the development of a full market orientation and poverty reduction.
While China’s presence in Africa brings statist dynamics with it, it is critical to note that this type of governance is not inherently African, and that Beijing’s clout is not guaranteed despite its sizable presence. In fact, Chinese projects have often sparked local resistance and anti-China sentiment, with African leaders using this rhetoric to gain political support.
Monetarily, African adoption of the Chinese renminbi is limited but growing. The debt that African countries owe to China makes the renminbi more attractive for repayments. If East Africa were to widely use the currency, it would increase China’s bureaucratic power and the authoritarianism that comes with it.
Analysis from the United States military’s Africa Command indicates that China’s political influence campaigns in the region are closely linked to BRI projects. However, these efforts are failing to improve Beijing’s image. The focus on swaying African elites has not translated into effective messaging for the masses. India’s focus on worker training and private partnerships builds stronger ties across Africa’s economy.
Its grassroots approach, characterized by a focus on skills transfer and private partnerships, extends its reach into sectors of the African economy and among populations in ways that China’s strategy does not.
Scenarios
Most likely: East Africa shifts toward a market-based economy – and India
Three overarching factors are driving East Africa’s economy to gradually shift toward India and a long-term market-oriented approach. India’s geographic proximity across the Indian Ocean provides New Delhi with a historical precedent for establishing durable ties through private sector partnerships in various sectors. Its approach focuses on broad sectors rather than individual projects, particularly in industries conducive to skills transfer.
This approach creates multifaceted ties based on economic interests and people-to-people relationships supported by market forces that are independent of specific political dynamics. India’s connections with East Africa are ultimately more organic than China’s due to their link to market forces and socioeconomic ties unmoored from the directives of a monolithic party-state.
China’s debt diplomacy may allow it to exercise authority over elites, especially for project-specific infrastructure investments; however, its model of economic statecraft is less durable and less integrated into African business culture than India’s approach. China’s statist approach to foreign investment in Africa is not only disconnected from market demands but also limits its ability to build relationships across major industries to the same extent that India does.
Beijing’s infrastructure projects can generate anti-Chinese sentiment and hostility among the population toward the African governments that China aims to influence. Its approach to East Africa ultimately creates roadblocks to safeguarding its own interests.
Economic transitions are slow, particularly in unstable regions like East Africa. Because of India’s presence in sectors that are resilient and independent of the state, its impact will be felt longer and more sustainably in Africa than that of its Asian rival. Given this longer time frame, the most likely outcome of the Sino-Indian competition will lead to a continuous push for promoting a pro-market stance in the region.
Less likely: Chinese investment leads to renewed statism
China’s efforts to reshape East Africa’s economic future to align with its own interests have several factors in its favor. Statism is durable due to its insulation from market forces, and Beijing has effectively leveraged its state-owned enterprises to develop infrastructure in East Africa to suit its interests. It has successfully used its infrastructure projects in Africa to advance the BRI and has gained influence in East Africa by becoming a leading foreign creditor for the region.
This debt leverage not only translates into policy pressure on African decision-makers but also creates an incentive for them to adopt China’s currency. If the renminbi gains a prominent position in East Africa, Beijing’s economic policy will be more effectively transmitted across the global majority to China’s benefit. This internationalization of the renminbi would similarly reinforce statism as an economic model.
While India is geographically closer to East Africa, China has a stronger security imperative to establish a lasting presence in the region. It is confronted with the possibility of a major war in the South China Sea over Taiwan, which makes India its greatest geopolitical liability. New Delhi’s standing in the Himalayas and its membership in the Quadrilateral Security Dialogue increase the likelihood of China facing a potential two-front war.
China can only militarily counter this by partnering with Pakistan and solidifying its presence in the Indian Ocean in places like East Africa. Influencing policy through debt and infrastructure development offers Beijing one of the geopolitical levers to accomplish this. Due to this imperative, China’s economic model has the potential to influence economies across the Indian Ocean littoral zone and reinvigorate state-dominated economic models.
This report was originally published here: https://www.gisreportsonline.com/r/china-india-africa/
Our Partners
