ANALYSIS-India Eyes Diplomacy and Private Sector to Woo Africa

June 9, 2011 by · Leave a Comment 

By Henry Foy and Aaron Maasho

NEW DELHI/ADDIS ABABA, May 27 (Reuters) – Bereft of China’s riches, India is banking on diplomacy, development and its entrepreneurial private sector to woo African nations to open markets and natural resources to Asia’s third-largest economy

New Delhi has promised billions of dollars in development support, financing for infrastructure projects and the building of educational and training institutes as it positions itself as the alternative to Beijing.

India enjoys historical ties with some African countries, but became a mere observer when China came calling for resources and energy, with financial riches New Delhi could not match.

China boasts foreign exchange reserves of more than $3 trillion, 10 times India’s $307 billion, and has aggressively used state-owned development banks to invest heavily in oil, gas and other resources across the continent.

But after being caught cold by China, and losing a series of bids for oil rights and infrastructure projects to its Asian rival, India is banking on a new approach to Africa that blends trade and investment with development economics.

“India’s approach is reciprocal, expecting access to resources in exchange for developing technology and training Africa’s human resources. That’s how India is different to other foreign powers,” said Suresh Kumar, head of the Department of African Studies, University of Delhi.

“In providing education, technology, development and security, India is a complete partner.”

Like China, India has posted high economic growth rates since 1990 and the economy in a country of 1.2 billion people is now expanding at more than 8 percent a year. Resources from Africa are seen as crucial to help sustain growth.

Total trade between India and African countries stood at $46 billion last year, still less than half of China’s $108 billion in 2008, but a huge increase on $3 billion in 2000-1. India says it will reach $70 billion by 2015.

Beijing also leads the way in diplomatic terms, with 42 embassies across sub-Saharan Africa, double India’s diplomatic presence of only 21 embassies, a report from the London-based Chatham House think-tank said.

Indian is keen to trumpet its cultural links with African countries, citing a shared history of imperialism and trade routes established hundreds of years ago.

The Indian diaspora in Africa tops 2 million people, but it is mainly concentrated in South Africa, the Indian Ocean and some countries along the Eastern seaboard such as Kenya.

“The private sector is pushing the Indian government to engage on Africa more consistently and to expand its network,” said Alex Vines, head of Chatham House’s Africa Programme.

Prime Minister Manmohan Singh, on a six-day trip to Ethiopia and Tanzania this week, pledged $5 billion over three years in development support, $700 million for new institutions and training programmes and $300 million for an Ethiopia-Djibouti railway line.

“India can be blamed for waking up late to the African opportunity, but can make up for lost time by projecting itself as a more humane investor than its northern neighbour,” wrote India’s Hindustan Times newspaper in an editorial.

While India, and other emerging economies, see Africa as an important supplier and customer to drive growth, it is a sign of New Delhi’s growing global economic and political clout, that it is seeking to play a leading role in Africa’s development.

“Africa is determined to partner in India’s economic resurgence as India is committed to be a close partner in Africa’s renaissance,” said the declaration after the second Africa-India summit in Ethiopia this week.

India’s state-run oil firms are beginning to invest in countries including Nigeria and Kenya, coal and diamond firms have invested across the continent, and new embassies in Niger and Malawi have been opened to assist firms with securing uranium for India’s fast-growing nuclear power industry.

India is also keen to leverage its global expertise in the information technology, agriculture and human resource sectors in helping African countries, many of which face similar developmental hurdles that India itself is grappling with.

While China has snapped up resources through governmental agreements, India’s government wants the private sector to spearhead the push to secure investments across the continent.

“India’s engagement with Africa is completely different with that of China. With China its state-to-state, even if the investors are private companies,” said Zemedeneh Negatu, Ernst & Young’s Managing Partner for Ethiopia.

Indian telecoms firm Bharti Airtel spent $9 billion acquiring Zain’s African assets last year, with a view to implementing strategies in Africa that were developed in the world’s fastest-growing mobile market.

Largely thanks to the Bharti deal, India was the most acquisitive nation in Africa in 2010.

With African consumer spending set to nearly double to $1.4 trillion by 2020, according to McKinsey and Co., Indian consumer goods makers are also pushing hard across the continent.

Godrej Consumer has bought personal care products makers in Nigeria and South Africa, while Dabur India, Marico and Emami have also bought assets.

“India’s engagement with Africa in the economic sense will be driven by the private sector,” said H.H. Viswanathan of the New Delhi-based Observer Research Foundation.

“The majority of the top 10 Indian companies in Africa are private firms, not state-run like the Chinese firms.”

Development assistance aside, as the Indian private sector expands in Africa, the continent is also destined to benefit from job creation as companies seek lower production costs.

“Labour costs have become more and more expensive in China and India. Chinese and Indian companies are starting look at destinations where they can do their things cost-competitively,” said Ernst & Young’s Zemedeneh.

“That’s where Africa benefits.” (Editing by David Clarke)

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Islamic Trusts Could Revive Gulf Property Market

June 9, 2011 by · Leave a Comment 

By Shaheen Pasha

2011-05-28T211614Z_2103306788_GM1E75T0ESH01_RTRMADP_3_EMIRATES

A dhow sails during the Al-Gaffal 60ft traditional dhow sailing race between the island of Sir Bu Nair near the Iranian coast, and Dubai May 28, 2011.

REUTERS/Stringer

DUBAI, June 2 (Reuters) – Jordanian Ashraf Hamdan began investing in Dubai’s real estate market in 2006, with a few modest rental investment forays before turning his sights on flashier projects as a wave of luxury developments hit the market.

The real estate bust in 2008 left investors like Hamdan with half-finished projects sitting in the desert sun and losses that were unlikely to be recouped.

“It was a costly learning experience for a real estate investor,” said the 53-year-old businessman. “But real estate is in our blood here in the Arab world. It’s a tangible investment, and from an Islamic perspective, that appeals to me.

“I’m just going to be looking for smarter, alternative ways to get into the market in the future.”

The emergence of Islamic real estate investment trusts (REIT) in the Middle East, which offer the chance to own shares in a portfolio of real estate assets with a steady paid dividend from the income earned on those assets, may lure investors like Hamdan back to the sector again.

Islamic REITS differ from their conventional counterparts by banning investment in any assets that pay interest or conduct business in any forbidden industry, like gambling, alcohol or adult entertainment.

Aside from providing an alternative investment in the Gulf Islamic finance industry it could also inject more transparency and regulation in a property sector plagued by unrealistic expectations of returns and occasionally murky dealings.

“Over the last two or three years, people have been in freeze mode where the focus was cash and other liquid things,” said Daniel Diembers, principal at Booz & Company in Dubai.

“The Dubai bubble really helped the (property) market to mature. Now is the moment where it is all shifting. There is a lot of wealth up for grabs.”

Globally, the market capitalisation for REITs was around $570 billion at the end of 2009, a 2010 Ernst & Young study said. Islamic REITs play a small role, with Asia serving as the predominant hub for sharia-compliant trusts.

Renewed Confidence

Malaysia’s Axis Global Industrial real estate investment trust (REIT) is planning an initial public offering with an asset size of $1.05 billion, making it the world’s largest Islamic REIT.

Islamic REITs launched in Bahrain and Kuwait have been relatively small in size – Bahrain’s Inovest REIT and Kuwait’s Al Mahrab Tower REIT launched with less than $95 million in capital each – and neither has been publicly listed.

But an anticipated infrastructure boom in hot markets such as Saudi Arabia and Qatar and the launch of the UAE’s first Islamic REIT may buoy faith in real estate investments, creating a wider niche for the Sharia-compliant trusts to thrive.

Emirates REIT, which launched with seed capital from Islamic lender Dubai Islamic Bank last November, is aimed at medium-income investors and offers returns of 6 to 8 percent annually, said Mark Inch, director of Eiffel Holding and founding shareholder of Emirates REIT.

“There is a discipline and transparency that comes with a regulated REIT,” he said. “Buildings will not only be properly managed but financial management will also be completely transparent. It’s a prerequisite of bringing back confidence.”

Emirates REIT has 40 deals under review ranging between 40 million dirhams to 500 million dirhams and will be fully operational by the summer, Inch said. An initial public offering is planned within 18 months to two years once it secures assets of 1.5 billion dirhams.

The interest is growing. National Bank of Abu Dhabi is considering creating an Islamic REIT while the FTSE Group may develop an Islamic REIT index as the industry grows globally, officials at both said.
The Gulf region has dabbled in the REIT market over the years with little success.

A 2008 Islamic REIT launched by Saudi Arabia’s Sumou Holding and Geneva-based Encore Management fizzled in the kingdom as the financial crisis sapped enthusiasm. Other attempts to launch a REIT in the region, including a conventional one by troubled property developer Nakheel, were quickly squashed.

Asia, by comparison, has seen a boom in sharia-compliant REITS. Malaysia, considered to be at the forefront of Islamic finance, launched its first Islamic REIT in 2006. Singapore’s Sabana REIT, launched in 2010, was 2.5 times oversubscribed and saw heavy investor interest from the Gulf.

The Gulf has been held back by the slow pace of innovation in the real estate sector, as well as the Islamic finance industry in general, experts said.

In contrast to Malaysia, where the government is active in creating a strong regulatory environment, there is no regulatory standardisation in the Middle East. And investors are understandably wary of investing in a new real estate venture given the spectacular property collapse in the region.

Oz Ahmed, associate director of wholesale banking at HSBC Amanah in Malaysia, said Mideast investors seem ready for homegrown REITS given the high participation in Asian ones.

“There’s definite potential for issuers within the GCC to identify assets but people have to become comfortable with them,” he said.

“We’ve gotten to the point where we’re working well in the banking paradigm. Now practitioners are looking to develop products that come closer to Islamic finance principles.” (Editing by Amran Abocar and Jon Hemming)

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