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India Billionaires Go On Buying Spree in ‘Last Frontier’ Africa
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By Mehul Srivastava and Subramaniam Sharma

Oct. 25 (Bloomberg) -- Indian billionaire Ravi Ruia flew to Africa every month for the past 18 months, buying coal mines in Mozambique, half an oil refinery in Kenya and a call center in South Africa for his Essar Group.

This month, executives of his Essar Energy Plc. attended a conference hosted by Nigerian President Jonathan Goodluck to attract investors in the power grid. The officials, backed by $2 billion the company raised in an April listing on the London Stock Exchange, also mulled other “business opportunities” around Africa, the company said.


Ruia, who controls the $15 billion Essar Group with his older brother, Shashi, is not alone. Billionaire countrymen Sunil Mittal, chairman of India’s largest mobile phone provider, Bharti Airtel Ltd.; Adi Godrej, chairman of Godrej Consumer Products Ltd.; and Harsh Mariwala, founder of Marico Ltd., have fueled a $15.8 billion buying spree in Africa since January 2005.

“Africa looks remarkably similar to what India was 15 years ago,” said Firdhose Coovadia, director of Essar’s African operations. “We can’t lose this opportunity to replicate the low-cost, high-volume model we’ve perfected in India.”

‘Last Frontier’

Indian companies acquired or invested in at least 79 companies in Africa, chasing business in less crowded markets after growing in a home economy that expanded by an average 8.5 percent since April 2005.

Africa’s gross domestic product expanded 4.9 percent a year from 2000 to 2008, McKinsey & Co. said in a June report. The continent’s GDP will rise to $2.6 trillion by 2020 from $1.6 trillion in 2008.

Consumer spending may double to as much as $1.8 trillion by 2020 as infrastructure is built and farm output increases, the report said. That is the equivalent of adding a consumer market the size of Brazil.

“Africa is seen by the investing community as the last frontier,” said Walter Rossini, who manages $330 million in an India fund at Aletti Gestielle Sgr Spa in Milan. “There is a higher risk, but then there is greater reward if the political situation remains stable over the next 10 years.”

Africa is new territory for Bharti, which paid $9 billion in June for mobile phone operations in 15 countries and will rebrand them by year’s end.

500 Million Roses

This month, Bharti executives sought advice at the Kenya offices of Bangalore-based Karuturi Global Ltd., the world’s largest rose-grower. Sai Ramakrishna Karuturi, the managing director, said Africa is driving his company’s success.

Six years ago, as he struggled to compete against flower growers in Africa and Europe with lower freight costs and larger tracts of land, he bought a small plot in Ethiopia. Sales since have grown 11-fold to $112.7 million in the fiscal year that ended March 31.

He leases 311,000 hectares of land -- larger than the U.S. state of Rhode Island -- in Ethiopia and Kenya, and his company sells more than half-a-billion roses a year.

“I got in on the ground floor, others got in on the second floor, but there’s a lot of floors left to go in Africa’s economic cycle,” Karuturi said. “Africa offered us a scale we could never reach in India.”


26 Deals

Indian acquisitions in Africa peaked in 2008, when companies closed 26 deals worth $3.1 billion. Those include the state-run Indian Farmers Fertiliser Cooperative Ltd.’s $721 million purchase of Industries Chimiques du Senegal, an idle phosphates producer that once was the country’s largest industrial plant.

“We are seeing Indian companies look at Africa in a major way,” said Anuj Chande, the London-based head of the South Asia Group at advisory and accounting firm Grant Thornton U.K. LLP. “Compared to India, valuations are quite attractive. We’re expecting to see a lot of midsize deals across a variety of sectors.”

Apollo Tyres Ltd., India’s second-biggest tiremaker by market value, bought Durban, South Africa-based Dunlop Tyres International Pty for $62 million in April 2006. That gave Gurgaon-based Apollo two manufacturing plants and a retreading unit in South Africa and Zimbabwe, and brand rights to 32 African countries.

‘Tata, Ambani’

“If tomorrow the Indian economy was to take a U-turn, then at least you have other markets which are growing,” said Neeraj Kanwar, Apollo’s vice-chairman and managing director. “I can’t survive on the Indian market alone.”

The company aims to triple sales to $6 billion in five years, with 60 percent of revenue coming from outside India. In the fiscal year that ended March 31, 62 percent of its $1.7 billion in sales came from India.

Adi Godrej bought a hair-color company in South Africa and a soap and body-lotion maker in Nigeria. His Mumbai-based Godrej Consumer Products gets 23 percent of its total sales outside India, including Africa.

Marico paid 520 million India rupees ($12 million) to buy the consumer division of Durban-based Enaleni Pharmaceuticals Consumer Division (Pty) Ltd. in October 2007. Two months ago, it bought South African health-care brand Ingwe for an undisclosed price.

Dabur India Ltd. started shopping on the continent in 2004, when it bought a hair-care brand in Egypt and then a Nigerian cosmetics company.

“We need to now seek avenues of growth outside of India because India’s becoming saturated and hugely competitive,” Dabur Chief Executive Officer Sunil Duggal said.

One reason why smaller Indian companies ventured into Africa is that their budgets still attract attention in countries trying to woo foreign investors, Karuturi said.

“I am not even a fly on the wall in India, but in Ethiopia I am the largest investor, the second-largest employer after the government,” said Karuturi, whose company owns professional soccer and volleyball teams. “To do that in India, you have to be a Tata or an Ambani.”

To contact the reporters on this story: Mehul Srivastava in Mumbai at [email protected]; Subramaniam Sharma in New Delhi at [email protected].

http://noir.bloomberg.com/apps/news?pid=20601116&sid=aGoIlpRFSxqI
 

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It may just be me, but this 'last frontier' and 'buying spree' when I first read it just sound...wrong. As if foreigners were coming to Africa to scoop up rising local companies, benefit from profits, and take all of that back to their homelands.

Still, I like the article. I'm not sure how much investment Nigeria has from Indian entreprenuers, but I'm guessing it's lagging behind investment from China (like in all of Africa). More investment from businesses from all sorts of nations( India, China, Brazil, etc.) and governments is just what the continent needs.
 

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^^ One major benefit of rising Asia and Latin America is the boom of entrepreneurs and companies from developing nations who knows how to work in challenging developing country markets and take risks and can use that in a continent like Africa. While developed country businesses sees too much risk and then demand high profits to enter the market, developing country businesses are used to these risk levels and will be much more willing to enter Africa.
 

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Karuturi is not the largest employer nor investor in Ethiopia after the government. That would be Midroc Ethiopia, owned by Al Amoudi.
 

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Its the Wests lost. Many companies in the West will rue not getting a foothold into Africa at this early stage. The returns on investment in Africa have been the highest in the world for some time now.

I dont envisage many Latin Americans getting involved with the exception of the likes of Petrobras, Oderbrecht and Vale. But looks like China, India and Korea are really making headway into the "last frontier".

Ghana and Malaysia have a special relationship going back since the mid-90s.
 

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^^ According to research done by a company in Ethiopia, our trade with the "MICs" (Middle East, China and India) is growing much faster than trade with the West and they are set to become the largest trade partners of the country within 3 years.

The West is missing out big time because they are preoccupied with wringing their hands over poverty instead of looking at the continent as a destination for investment.
 

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^^ I couldn't agree more.
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One thing I forgot to post earlier, I think that the predictions for Africa's GDP and consumer spending may turn out wrong when that time comes. Considering how the giants (Nigeria, Egypt, SA) may grow to reach $1 trillion by 2020 possibly that right there just adds around $1.6 trillion to total gdp ($495 billion for SA to get there, $660 billion for Nigeria, $530 billion for Egypt). Not to mention the other 52 countries as well. Now this just screams huge business potential, if you ask me. If 3 countries alone on the continent will be producing around or over $3 trillion in ten years. Provided that Nigeria actually ramps up growth to double digits, Egypt gets its 7%/8% growth rate, and SA gets growth at least up to 6%-7%.
 
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