On China's heels, India vies for its old edge in Africa

Raised near Hyderabad, India, Vasu Reddy never imagined he'd end up in Africa.

But 12 years after moving to Zambia as a mining engineer, Mr. Reddy now runs a small gemstone processing and sales operation with his wife, Aravinda. And over the last year or so, more and more visitors sipping coffee outside Reddy's shop, he says, are Indian.

Indeed, Indian firms are ramping up investment in Zambia, and across Africa. Indian mining giant Vedanta Resources PLC runs Zambia's biggest copper mine. Zambia's commerce minister pledged in March to set up a special incentive-laden investment zone to attract Indian companies.

Reddy's experience is the type that the Indian government is highlighting as it tries to draw a distinction with China, India's more Africa-entrenched neighbor – and its primary competition for natural resources on the continent.

"The first principle of India's involvement in Africa is unlike that of China. China says go out and exploit the natural resources; our strategy is to add value," says India's minister of state for Commerce, Jairam Ramesh, told representatives of 14 African nations at an April summit in Delhi designed to boost Indo-African ties.

But to date, India's investment lags in comparison to China's aggressive push into Africa to fuel its growing economy with oil, copper, and other resources.

India makes up for lost time

Indeed, after devoting little attention to Africa since the 1990s, India finds itself in an awkward position – making up for lost time on a continent where it has longstanding cultural and commercial ties. Whereas a decade ago, India topped China in Africa trade, China's two-way trade last year with Africa was $55 billion to India's $25 billion.

The Chinese, for instance, got their own investment zone in Zambia a year ago, when Chinese President Hu Jintao visited Zambia to great fanfare, announcing plans to build a new soccer stadium and pledging an eye-popping $800 million in copper mining investment.

"It must be a sore spot with India, because Indian-African relations go back … a century," says Venkatesh Seshamani, a Bombay-born economics professor at the University of Zambia who has lived in Zambia for 26 years. "But China has gone far ahead of them. [Indians have] missed the bus."

But the India-China comparison is not entirely fair, in part due to the two countries' economic models.

China's state-driven investment

"The Indian government and business sector came in ahead of the Chinese. This is almost like a second wave, if you like," notes Bradford Machila, Zambia's Minister of Lands. "The main difference between investment coming from India and the investment coming from China is that the Chinese entities ultimately are state-owned." With Indian companies, Machila notes, "there is no government that is underwriting what they're doing."

With the power of the central government and the full might of the Chinese economy behind it, no one can out-China China. "The Chinese have deep pockets. They have the ability to undercut and win every contract – and not just against India. It's the US and Europe, too," says Harry Broadman, a World Bank adviser on Africa in Washington.

But Mr. Broadman and others note that Indian companies are more diversified and say that India's tradition of private sector creativity may be its strength.

With last month's summit, the Indian government is beginning to act as a facilitator for Indian businesses to expand into Africa. During the past five years, India has extended credit worth $2 billion to African countries. At the summit, India promised to grant preferential market access for exports from all Least Developed Countries, 34 of which are in Africa. India will also increase its lines of credit to Africa to $5.4 billion and its aid to $500 million over the next five years.

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