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India should pioneer new forms of responsible investment in the continent
On May 25, the African Union completed 25 years. Along with the surge in Indian investment in Africa, there is a rising clamour in the Western, and now the Indian, media about the "cleanness" of some of these investments. The fear is that Indian investors are ganging up with undemocratic governments, in non-transparent deals, to avoid losing out to Chinese competitors backed by China's multi-billion dollar campaign to win African hearts and minds. Most flamboyant in this charm offensive is China's gift of an opera house to Algeria, a country from which it has won billions of dollars in infrastructure contracts these past few years.
While India might not have the deep pockets to match this offensive, it has a more priceless asset — the special Indo-African bond cemented by centuries of trade, shared colonial heritage, and language. Equally crucial, Indian firms engage with local stakeholders quite differently from Chinese rivals, according to the Multilateral Investment Guarantee Agency's 2009 survey of leading BRIC "outward investors". Two-thirds of Indian firms tie up with local partners, it says, double the number of Chinese companies. Forty per cent of Indian firms engage strategically with local communities and 13 per cent with NGOs, compared to 3 per cent and 0 per cent of Chinese firms, respectively.
While these figures are heartening, critics' fears are not completely unfounded. Over a half of Indian respondents say they engage closely with host governments to protect emerging market investments, double the percentage for Chinese respondents. This is partly because Indian firms worry significantly more than firms from other BRICS countries about sudden adverse regulatory changes, transfer and convertibility restrictions, corruption and political risks that make it difficult — if not impossible — to buy insurance. For this reason, allying closely with local governments is a powerful form of self-protection, though a sudden political shift might render this illusory, as Enron's India experience highlights.