India’s ’economic diplomacy’ bolsters lending in Africa, countering China’s influence

India has increased its credit flow to Africa, making it the second-largest beneficiary of Indian credit. This move is seen as India's effort to enhance its presence in the resource-abundant continent and catch up with China in terms of expanding influence.

As per a report by Bloomberg, Forty-two African nations received about $12 billion or 38% of all credit extended by India in the last decade — just a few percentage points below its neighbours, Harsha Bangari, the managing director of India’s Export-Import Bank said in an interview.

According to Bangari, the bank serves as a tool for India's "economic diplomacy." He further mentioned that India has established 195 project-based lines of credit throughout Africa, a number three times higher than the ones it has implemented in its own region over the past decade, Bloomberg reported.

“Africa has made good use of credit lines,” extended for projects that include health care, infrastructure, agriculture and irrigation and India is seeing a steady increase in demand, she said.

Despite the recent efforts by India to engage with countries in the world’s second-largest continent, the nation has lagged behind its bigger and wealthier neighbour in making inroads in Africa. While China’s loans to Africa have dipped since 2016, overall in the 10 years to 2020, it pledged $134.6 billion to African nations, according to data from Boston University’s Global Development Policy Center. That’s almost 11 times more than what India has offered.

China has taken proactive steps to exploit mineral resources in Africa, specifically focusing on emerging lithium supply centers. This strategic move allows the North Asian nation to navigate a challenging market for a crucial metal used in electric vehicles.

China holds the title of being the largest purchaser of bauxite from Guinea, a country known for its significant reserves of this ore, essential for alumina production. Furthermore, China has made substantial investments in the development of the world's largest untapped deposit of high-grade iron ore located in Guinea, a West African nation.

The government of Prime Minister Narendra Modi has been actively promoting stronger ties with Africa, aiming to enhance economic and diplomatic connections. With Africa grappling with the economic consequences of the pandemic and Russia's conflict in Ukraine, New Delhi perceives a favorable opening to expand its presence and engagement on the continent.

“Supporting Africa’s development is in the common interest and responsibility of the international community,” China’s Ministry of Foreign Affairs said in an email. “Diversification of financing partners is also conducive to the development of African countries.”

Over the past nine years, India has established 18 out of 25 new embassies or consulates in African countries. In February, India organized the Voice of Global South summit, where representatives from 48 African nations were hosted. Prime Minister Modi has been actively promoting India as a prominent voice for the Global South. Additionally, India has utilized its presidency of the Group of 20 nations to highlight the debt challenges faced by developing economies.

“We are trying to think 25 years from now,” India’s Foreign Minister Subrahmanyam Jaishankar said in a speech on June 28. “And ask ourselves where are we likely to be in 2047 and what should we be doing now to prepare for it.”

China’s quantum of financing is bigger than India, but New Delhi let’s governments decide what they need and doesn’t burden them with the sort of vanity projects Beijing is often critiqued for, Bangari said.

India’s engagement in Africa is in sectors including energy, transportation, social housing, water and increasingly healthcare and defense, Bangari said.

“If you see the projects which India has supported you will see they bring a lot of benefits to the economy.”

China's 'Debt-trap Diplomacy'

Earlier in April, Chinese foreign ministry spokesperson Wang Wenbin clarified that China is not responsible for African countries' “debt trap".

Africa Daily reported that China extended loans totalling USD 59.87 billion to African nations between 2000 and 2020, making it the leading creditor to Angola (USD 42.6 billion), Ethiopia (USD 13.7 billion), Zambia (USD 9.8 billion), and Kenya (USD 9.2 billion).

As per Chatham House, currently, 22 African countries with low-income status are either already facing severe debt distress or are at a high risk of facing such distress.

In addition, according to AidData, approximately 50% of China's lending to developing African countries is not included in official debt statistics.

Furthermore, loans provided by China to African countries tend to come with higher interest rates compared to loans from Western sources. These rates, around 4%, are close to commercial market rates and are about four times higher than similar loans from institutions such as the World Bank or Western countries.