Joining hands to unlock
Africa’s Potential
A case for India - Japan Collaboration

Janaki Chaudhry,
TATA International Limited

S. Kuppuswamy,
Shapoorji Pallonji GroupContents

Africa’s growth story

India’s value proposition and aspiration for
AfricaBalancing the significant role of othercountries
Japan-India Collaboration for Africa

Key Takeaways

2

Drivers of Africa’s growth story

Improving Infrastructure

Bridging the deficit could boost
GDP by nearly 2.2%2
Annual needs above $ 93
Billion2

The commodity boom

▪ World commodity demand increasing▪ Global cost-competitive location for many

Macro and political stability▪ ↓ Inflation , debt and currency volatility
substantially reduced▪ Political and economic risk steadily
improving

Ongoing economic reforms▪ Widespread business-friendly reforms▪ Mutual agreements on cross-border
trade

Demographic shifts

Access to inter-national capital▪ World’s largest working age population by 2035
▪ 100+ cities with population > 1 million by 2025
▪ ↑ Discretionary spending power1▪ Average capital inflow > remittances + aid▪ Among highest return on FDI (9%+)▪ Aid in the form of funds and grants

1. Discretionary spending power implies income >USD 5,000 at PPP 2. World Bank Study
SOURCE: IHS Economics; IMF; Business Monitor International; C-GIDD; World Bank Group doing business 2013; UNCTAD – World Investment Report 2013;
McKinsey Global Institute Cityscope 2.2; Press Search; McKinsey analysis
Slide adapted from McKinsey Presentation: “Joining hands to unlock Africa’s potential”, March 2014

Country-wise and sector-wise FDI into Africa
Top 5 countries by FDI1 flow into Africa

Size of overall FDI investment by sector

Per cent (2003–2012)
100% = USD 1,013
billionChina
5.1 %South Africa
5.6
6.4 %
India
7.7
UK

USD billion, per cent (2003–2012)

8.3

France

9.1

UAE

9.8

United States

47.9

2003–2012

ROW2

India’s shareof total FDI
China plans totake it’s to $100
billion in thenext phase;
Japan’s FDI in
Africa is approx.
$6 billion.

Significant
potential forpercent of FDI
by Japan to
be scaled-up

Energy & Mining

34.1

Hotels & Tourism

29.0

6.4%
2.8%

Communication

12.8

23.8%

Manufacturing

12.1

1.0%

Software &IT services

8.9

6.6%

Business Services

7.0

4.1%

Leisure &Entertainment

6.3

0.2%

Agriculture

2.4

11.7%

Healthcare

1.4

20.1%

1 Calculated based on FDI greenfield and M&A activity (both announced and existing investments); Excludes alliances, partnerships, privatizationand SWF investments. 2 Rest of world. SOURCE: FDI Markets; Dealogic; press search; expert interviews; McKinsey analysis
Slide adapted from McKinsey Presentation: “Joining hands to unlock Africa’s potential”, March 2014

4

Composition of African trade by trading partner
Per cent1
Total trade, 2013
USD billion
100

1

90

11

Other/
Unclassified

93

North America

117

Europe481
61

8

Latin America
Middle East

118

10

Intra-Africa

142

10

Other Asia

142*

14

China

211

3
3

6

India

93

2000

2013

5

6

13

8

80
70

33

60
50

47
72

4

40
30

3
8

20

8

10
0

2
3
3
6
1
1

1990

11

*Japan~30 2

1 Figures may not sum to 100% due to rounding error. SOURCE: IHS Economics – World Trade Service 2013; Bloomberg, MGI analysis
Slide adapted from McKinsey Presentation: “Joining hands to unlock Africa’s potential”, March 2014

5

Contents

Africa’s growth story

India’s value proposition and aspiration for
AfricaBalancing the significant role of othercountries
Japan-India Collaboration for Africa

Key Takeaways

6

Indian companies with African Footprint
Agriculture

Manufacturing

Communication/ IT

Pharmaceuticals

SOURCE: Company websites
Slide adapted from McKinsey Presentation: “Joining hands to unlock Africa’s potential”, March 2014

Consumer Brands

7

Indian companies with African Footprint
Infrastructure/ Construction

Financial services

SOURCE: Company websites
Slide adapted from McKinsey Presentation: “Joining hands to unlock Africa’s potential”, March 2014

Resources

8

Oil Jetty for Mauritius Port Authority

9Rock Phosphate Terminal at Aqaba, Jordan

10

Road Projects

11World’s Tallest Rail Bridge – J&K, India

12

Longest Span Cantilever Bridge – Meghalaya, India

13

Industrial Installations

14

Iconic Buildings - Seat of Government, Ghana

15

India’s possible aspiration for Africa
All figures in USD

2025

43 bn

300 bnIndia’s exports to Africa

27 bn

130 bnIT services

1–2 bn7 bn

Consumer goods2

<1 bn

17 bn

Infrastructure

<1 bn

25 bn

Agriculture (and allied)

<1 bn

5 bn

35 bn

160 bn2003–20132013–2025

60 bn

100 bnHigh potential
sectors

India’s import from Africa
Revenues1 for Indian companies
from Africa

2013

Overall3

India’s FDI in Africa

1 Corporate sector revenues from exports and local sales from Africa, 2 Includes only FMCG category; 3 The overall revenues will not add up as
sector revenues include exports and sales in Africa. SOURCE: IHS Economics – World Trade Service 2013; McKinsey analysis
Slide from McKinsey Presentation: “Joining hands to unlock Africa’s potential”, March 201416

Contents

Africa’s growth story

India’s value proposition and aspiration for
AfricaBalancing the significant role of othercountries
Japan-India Collaboration for Africa

Key Takeaways

17

Who is building Africa’s infrastructure?
~ USD 222 billion is being invested in projects with value over USD 50 million, ongoing as of June 1, 2013.

Major stakeholders identified

West Africa

East Africa

Central Africa

Southern Africa

North Africa•

EU/ US – 50%•

EU/ US – 37%•

EU/ US – 29%•

EU/ US – 28%•

EU/ US – 59%•

Africa1 – 20%•

Africa1 – 13%•

Africa1 – 41%•

Africa1 – 20%•

Africa1 – 19%•

China – 11%•

China – 19%•

China – 12%•

China – 8%•

China – 4%•

Brazil – 1%•

Brazil – 2%•

Brazil – 3 %•India – 1%

Significant Potential for India and Japan to increase their share of participation
1. Africa includes Private Domestic, Intra-Africa, and Government entities; SOURCE: Deloitte on Africa Construction Trends Report 201318

China’s consortium approach seen in Sicomines
Sicomines – A barter arrangement (JV) between DRC1 and China, where China is allotted mines in
return for infrastructure development (roads, hospitals, etc.)
Sicomines

Exim Bankof China

China Railway
Engineering
Corporation –CREC▪ Responsible for▪ Responsible forfunding themining andinfrastructuredevelopment/
refurbishment
projects in Congo

resource
extraction
activities

Sinohydro
 Involved toreduceperformance risk
on one company.

Zhejiang Hyayou
CobaltChina Machinery
Engineering
Corporation CMEC

▪ For its expertise▪ Added in the JV

in miningfor its expertise inmining andinfrastructure▪ Competing withtraditional lenders
like IMF, WorldBank Group (whoinsist on HIPC2
debt relief)
1 Democratic Republic of Congo , 2 Heavily Indebted Poor Countries; SOURCE: Working paper (2013) by South African Institute of International
Affairs; press search
Slide adapted from McKinsey Presentation: “Joining hands to unlock Africa’s potential”, March 201419

Example: Participation in early stage studies to identify
new opportunities▪ France has signed a new partnership framework agreementwith South Africa and Nigeria to develop its infrastructure andassist in urban development– French company Alstom, in partnership with Taleveras
Francegroup, assisting in rehabilitation plans for power station in
Nigeria; also supplying a 160 megawatt gas turbine& Africa– Gibela, a joint venture led by Alstom assisting in South
Africa revamping its passenger rail network; supplying 600
passenger trains and building a local manufacturing facility

SOURCE: Web and press search
Slide adapted from McKinsey Presentation: “Joining hands to unlock Africa’s potential”, March 2014

USD 5 bn

20

Contents

Africa’s growth story

India’s value proposition and aspiration for
AfricaBalancing the significant role of othercountries
Japan-India Collaboration for Africa

Key Takeaways

21

India-Japan-Africa: Win-Win-Win Partnership
Africa’s Requirements▪ Export Earnings▪ Constructive FDI▪ Cost effective Infra Development▪ Low cost healthcare solutions▪ Job opportunities▪ Education and skill development

Japan’s value proposition

India’s value proposition

India’s needs▪ Technology Leader: World leader in▪ Economic

the supply of quality equipment andtechnology solutions• Low cost innovation and

Growth▪ Technology Transfer: Japan has▪ Effective

experience in being able to transfer
technology in local partnerships

utilization ofaid▪ Project
Exports▪ Long-term
access tonaturalresources
on a fairbasis▪ Capital Availability: Japan offers
competitive finance through its bondmarkets or JBIC financial instruments▪ Global Firms: Global firms withhistory of cross border partnerships
and active presence in India▪ Africa Committment: USD 32 billion
pledged by the Japanese Prime
Minister over a five year period
during TICAD V held in May 2013

operating model: (Appropriate,
Adaptive, Affordable (AAA)solutions)• Cultural affinity andunderstanding: Historical,
political and cultural ties

• Skill and talent development:
transfer technology and build
capacity• Entrepreneurship and service
orientation: Navigate ambiguity;
maintain global standards• Infrastructure Development:
Frugal engineering, efficientconstruction

SOURCE: McKinsey analysis
Slide adapted from McKinsey Presentation: “Joining hands to unlock Africa’s potential”, March 2014

Japan’s needs▪ Economic
Growth▪ Aiddisbursement
on OECD
guidelines▪ Equipment
Exports▪ Long-term
access tonaturalresources ona fair basis

22

Example: Japan-India Collaboration to develop Africa’s
power sector
Leverage the strengths…

▪
Utilize
India’stalent▪
▪

▪
Capital +Expertise▪

Bring in Indian
managerial andtechnical talent for
design, training, andexecution
management
Empower and transfer
skills to local talent in
AfricaGet involved in early
discussions on
projects – fund very
early stage studies
Ensure fastcommissioning of
projects with low
gestation period
Tie-up with BTG2
manufacturers at an
early stage to ensure
easy, low cost accessto equipments…while managing the risks through best practices
Provide aholistic
solution

Ensureproject
viability

Secure lowcost funding

Be aresponsible
alliance▪
▪

Bid as a consortium for new projects to provide an end-to-end solution
Have control across the value chain, either on your own or throughpartnerships▪

▪

Focus on countries where consumer pays “cost reflective pricing” rather thanrelying on government subsidy
Sign PPA1 with credible “distribution company” for demand guarantee andlower cost of borrowed capital
Bid for solicited PPAs where many demand side issues have been sorted out▪

Secure funding from JICA, JBIC, Government of India▪

Proactively invest in CSR activities in the project area at an early stage of the
project
Follow ethical business practices while dealing with government
Sell Indian-Japanese solutions as being more “fit-for-purpose” and“maintainable” in the long term compared to other countries▪

▪
▪

1 Power Purchase Agreement
2 Boiler, Turbine, Generator
SOURCE: McKinsey analysis
Slide adapted from McKinsey Presentation: “Joining hands to unlock Africa’s potential”, March 2014

Possible Structure of an India-Japan alliance

A representative funding-execution arrangement
between India and Japan is shown below
India(~30%)

Japan (~70%)

Funding

A representative arrangement for viability gap
funding by India and Japan for scaling up
engagement in Africa is shown below
ViablePPP Projects in Africa (10x)India (~70%)

Japan(~30%)

Execution
Unviable

Aid

IndiaJapan
LOC
(1x)

Creating a pool of funds for Infrastructure in Africa

Debt

Buyers Credit from EXIM Bank ofIndia and JBIC for projects executed
jointly by India and Japan in Africa



Explore possibility for partial
guarantees from JBIC to EXIM Bankfor raising Samurai bonds of longer
maturity (> 5 Years) for funding
projects to be jointly executed in
AfricaEquity

Equity fund can be established as a collaborative
initiative.
o Representative parties and stake can include:
JBIC, EXIM Bank of India, and Private Investment
Banko The EXIM Bank of India can front end negotiations
to develop such a collaborative arrangementFeasibility studies to establish viability of projects
through aid can be funded jointly by Japan and India

India and Japan need to work jointly to identify key projects and execute them together, using
collaborative funding arrangements as identified above

Low-cost Japanese funds combined with low-cost Indian development skills can be winningcombination

Illustrative projects for India-Japan partnership

Project

Details A few berths out of a total of 32 berths in the Lamu Port can be executed jointly by
India and Japan, apart from other components of the LAPSSET corridor

LAPSSET
Corridor The Lamu Port and Lamu-Southern Sudan-Ethiopia Transport (LAPSSET) Corridor
includes the Lamu port, a standard gauge railway line, road network, oil pipelines, oil
refinery, three airports, and three resort cities
 The total investment is around $24.5 billion for all components of LAPSSET



Ghana
Highway
Authority
Projects

Ghana Highway Authority has several projects, organized under seven lots; few lots
can be executed jointly by India and Japan. The value of projects in Lots 1-7 are as
follows:
1. Construction + Upgrading of Elubo – Asemkrom - Enchi: $ 205 million
2. Construction of Enchi – Juabeso – Benchema: Goaso: $ 358 million
3. Reconstruction to asphaltic concrete of Goaso – Sunyani – Buoku: $ 140 million
4. Asphaltic overlay of Buoku – Wenchi – Bamboi: $ 70 million
5. Asphaltic overlay of Bamboi – Sawla: $ 125 million
6. Asphaltic overlay of Sawla – Wa: $ 90 million
7. Upgrade + Asphaltic concrete overlay of Wa – Nadowli – Nadom – Hamile: $ 135
millionContents

Africa’s growth story

India’s value proposition and aspiration for
AfricaBalancing the significant role of othercountries
Japan-India Collaboration for Africa

Key Takeaways

27

An India - Japan alliance can unlock value in Africa▪ Common Interests to ensure balance of power Strong diplomatic ties between the countries – The Prime Minister of Japan was
the chief guest at the recently concluded Republic Day Celebrations
Strategic
Partnership Common focus on developmento At the Tokyo International Conference on African Development (TICAD) in2013, Japan pledged $32 billion over five years

o At the India-Africa Forum Summit in 2011, the Government of India pledged$5 billion over a three year period▪ Japanese technology can be combined with appropriate/ frugal engineering and
Synergies

Developmental
Impacts

construction expertise from India to execute projects in an economical manner andengage on a larger scale in Africa▪ Financing and execution of key infrastructure projects in Africa to support its
growth; a World Bank study estimates an annual amount of $93 billion for 10 years
to support Africa’s infrastructure requirement

An India - Japan alliance can unlock value in AfricaBenefits of the
India-Japan
AllianceGeo-politically sound partnership
Cost of long-term borrowing for projects would be lower due to high Japanesesovereign rating
Projects of large size can be executed; Indian companies can execute service
contracts that go beyond the extent of India’s funding
Japanese companies may enhance their profitability and contribution that may
have been otherwise outsourced to third parties
Possibility for Japanese companies to set up a JV in India and utilize India as amanufacturing hub
India’s goodwill and Japanese reputation for quality technology can beadvantageous in securing resource investments and participating indevelopmental projects in Africa
Enhanced potential for technology exports from Japan as its project participationin Africa increases
A partnership that can engage on a larger scale would create a positive image for
India and Japan in Africa

An India - Japan alliance can unlock value in Africa
Way ForwardPrepare a list of possible projects which can be executed using Indian andJapanese funding
Speedy processing of application creation and submission for availing joint line ofcreditEnsure generation of employment opportunities for Africa in the execution
framework
Set a target for engagement in Infrastructure development of Africa
Engage Indian and Japanese companies with proven track record in
Infrastructure development in Africa.

Thank You