12 March 2018 08:11:44 IST

India in Africa: An NRI company’s experience in Gabon

Learnings from the partnership between Olam International and the Republic of Gabon

Leading up to the India-Africa Forum Summit , a few African countries also made a marketing blitz to attract Indian investors. But none of them could match Gabon, a country on the west coast of Africa.

To be specific, the marketing blitz was about the Gabon Special Economic Zone. It invited companies to set up manufacturing units in lieu of tax holidays, single-window clearances and long-term supply of cheap resources. Gabon is rich in oil, as well as other natural resources such as manganese and iron ore.

In one of the print ads, a line below the SEZ’s logo caught my eye. It said, “A public-private partnership between Olam International and the Republic of Gabon.”

For those who follow the agriculture commodity space, Olam is a familiar name. Based in Singapore, the $13-billion company is one of the biggest traders of agri-commodities in the world, specialising in cashew nut, almond and cocoa. It was in news earlier this month for completing its acquisition of Archer Daniels Midland’s global cocoa business for $1.2 billion.

The Gabon model

Olam, which was co-founded by India-born Sunny Varghese, has some huge investments in Gabon, where it grows palm oil over three lakh hectares. It has other industrial projects in the country, including the Gabon Special Economic Zone.

For the Indian government and domestic companies that have for long sung about the potential of business in Africa but done little, Olam’s model is worth studying.

Explaining his rationale of investing in Africa to an industry portal, Varghese (now a Singapore citizen) said, “Typically we look at a few factors. One, we want countries with low population density where land is not a big issue. So Gabon is a good example. It has 1.6 million people, a lot of land and not too much cultivation. So, there is population density and availability of land.”

He also spoke about other factors such as cost of labour and capital cost of production. Olam has followed the principle of buying land across Africa, in countries such as Nigeria, Ghana, Liberia and Congo. From 2009, Olam made 30 acquisitions across the continent as it moved to integrate its trading operations with production of agri-commodities.

While the aggressive stance got the company into a fair bit of criticism , the bet might be paying off.

A prosperous country

Gabon is a prosperous country as compared to its African peers. Its per capita income is $13,032 (India’s is $1,688) and it has a ‘medium’ HDI rank of 112 (India too is in the medium range, but ranks much lower at 135).

The country is rich in oil reserves, and revenues from fuel make up for nearly half of its GDP and over 80 per cent of exports. But the economy is over-dependent on extracting natural resources and the government wants to increase the share of manufacturing.

The SEZ is the kind of initiative that will help the country improve its manufacturing footprint. Olam has seen the potential to grow here. For India, which is looking to expand its presence in the continent, especially given the Chinese dominance, it is a partnership that the government can explore further.