NAIROBI, Kenya It may not have the ambitious government-backed initiatives of other regional trade groupings, but the Indian Ocean Rim Association is at the heart of an increasingly vibrant network of economic activity.
The value of IORA's intraregional trade is higher than that of the Association of Southeast Asian Nations and is growing at a faster pace than that for the Asia-Pacific Economic Cooperation forum, an older grouping of maritime economies. Fueling this rapid rise are Indian companies eager to tap East African markets, and well-suited to the task.
GIANTS ON THE MOVE At a dusty industrial park in Nairobi, Kenya, sits a building housing the head office and factory of Ryce East Africa, a partner of Hero MotoCorp, India's largest motorcycle maker. From the building the sound of tapping and tinkering can be heard as workers open up a box packed with 54 types of parts -- 267 pieces in all -- for the HF Dawn, a 125cc motorcycle Hero also sells in India.
"Since July 2013, when we started our assembling, it was one box, one bike," said Fredrick Otieno, the workshop manager of the factory. "But this May, it became one box, five bikes." The contents of the box are placed on six work tables, and pairs of workers assemble each bike. It takes as little as two hours for them to complete one motorcycle.
When it was founded in 1984, Hero had a capital tie-up arrangement with Japan's Honda Motor. It eventually became India's largest motorcycle maker, but Honda restricted Hero's overseas activity by, for example, imposing a commission fee on exports. After several years of negotiations, the alliance was terminated in 2011. In 2013, Hero began -- in the words of chairman and CEO Pawan Munjal -- to exercise its "freedom to go global." The company set up shop in Kenya and built assembly plants in Tanzania and Uganda within two years, marking the start of Hero's foray into East Africa.
Other large Indian corporations are also setting up operations in Africa. Tata Motors, India's largest commercial vehicle maker, opened an assembly plant in South Africa, its first on the African continent, in 2011. Bharti Airtel, India's No. 1 mobile carrier, acquired African telecommunications businesses from a Kuwaiti mobile phone company for $10.7 billion, giving it a presence in 15 African nations, including Kenya.
BIGGER ABROAD Some Indian companies with only modest market shares at home have struck deals with local governments in Africa and have managed to become dominant players in various markets there.
On Oct. 13, No. 3 Indian tractor maker Escorts joined a ceremony on the outskirts of Dar es Salaam to mark the launch of its after-sales service in Tanzania.
Ravinder Mohan, an Escorts representative, shook hands with Andrew B. Mkinga, a lieutenant colonel in the Tanzanian army, for the event. Though there were several uniformed soldiers, the two men were wearing matching hats and casual polo shirts. Mohan and Mkinga, who is in charge of the army's farming machinery project, posed for a photograph in front of a dark green container bearing the words in Swahili: "Suppliers of tractors, agricultural implements. This center will provide services."
Mohan, who is fluent in Swahili, has been working on the front line of Escorts' Tanzanian business for more than 10 years. He sells the company's agricultural machinery in cooperation with the business arm of the Tanzanian army.
Escorts began shipping parts to Tanzania in 2011 and has since assembled 1,500 tractors, which are sold through the army to local farmers. The plan is for the army to take over the assembly work in the near future, with guidance from the Indian company. Escorts has already invited 50 Tanzanian engineers to Bangalore in south India for technical training.
Escorts sells just under 60,000 tractors in India each year, and the scale of its Tanzanian business is modest. Still, the company is the No. 1 tractor maker in the African country, commanding 30% of the local market, whereas its market share in India is just 10%.
"China is being criticized as recolonizing Africa for the short-term profit [to be gained] from buying minerals and resources, but we are growing together with Tanzania by transferring know-how and supplying parts," Mohan said. He revealed a new $4.33 million contract with the Tanzanian military, under which Escorts will sell parts for 300 tractors and other agricultural equipment.
Indian companies have two advantages in doing business in East Africa. The first is similar demand and market conditions to India.
Cipla, a major Indian pharmaceutical company, entered the Kenyan market in the 1990s and has since made inroads into other African countries. It now generates 25% of its sales in Africa. "There have always been similarities of disease areas and per capita income between India and Africa," said a senior Cipla official.
In Uganda, the company runs a plant that produces the only anti-malarial medicine approved by the World Health Organization for sub-Saharan Africa. Malaria, a serious infectious disease, is also found in India. The income levels of India and East African nations are also similar. Per capita gross domestic product is $1,600 in India, $1,400 in Kenya and $1,000 in Tanzania.
According to the latest statistics, farmers account for some 50% of the working population in India and about 65% in sub-Saharan Africa, which means there is high demand for farming-related products in both markets. Indian farmers, however, are making greater use of tractors than their counterparts in sub-Saharan Africa.
And while India and Africa are struggling with similar problems -- including low income levels, poor sanitation and a lack of good roads and other infrastructure -- India now makes more of the products it used to import. This puts it a half-step ahead of Africa in terms of its level of industrialization. For increasingly competitive Indian companies, African countries provide ideal markets for products and services that, like affordable generic drugs and reliable tractors, sell well at home.
LONG LINKS Historical ties between India and East Africa also give Indian companies an edge. Descendants of Indians who immigrated to Kenya more than 200 years ago still live in the old quarters of Mombasa, a major port city in the southeast of the country.
"The first railway in Kenya was constructed in late 19th century with British capital and Indian labor," said Mohamed Kale Mau, a local tour guide.
Sailboats similar to the mtepe, a type of boat used off the eastern coast of Africa in ancient times, have been found in India. "This constitutes an indication ... Indians were visiting the East African coast since ancient times," according to an academic researcher in Kenya. And documents held at a museum in Oman in the Middle East show there was a shipping lane linking India with Somalia in the first century.
The founder of Kenya's Ryce East Africa and Noble Motors, which has been serving as Escorts' sales agent in Tanzania since the 1990s, is a member of the Indian dispora. "Indian industries find the east (coast of Africa) a 'home away from home,'" said Moses M. Ikiara, managing director of the Kenya Investment Authority, explaining the relative ease with which Indian companies can do business there.
India is working with 19 countries along the Indian Ocean, including Kenya and Tanzania, to create a vibrant economic zone under the auspices of IORA. This government-level grouping, formed in 1997, is working to promote maritime security and trade. Since many member nations face the sea, the association coined the phrase "blue economy." So far, there has been little progress toward creating a unified customs framework or forging free trade accords, though efforts by India when it held the rotating presidency in 2011 helped pave the way for the first meeting of trade ministers from member nations in 2013.
India is also one of the main drivers of trade in the region. Data from the International Monetary Fund shows that total imports among IORA member countries more than tripled from $199.8 billion in 2004 to $606.5 billion in 2014. Of that increase, India accounted for more than $70 billion as an exporter, second only to the more than $90 billion contributed by the United Arab Emirates, whose exports surged in value thanks to high oil prices.
In 2014, India was the No. 1 source of imports passing through the port of Mombasa, a gateway offering a trade link from Kenya to neighboring countries. Five years ago, the UAE was the biggest source of imports.
"While imports from China are largely related to infrastructure, imports from India are mainly related to direct investment of companies, such as manufacturing," said Bernard O. Osero, a senior Mombasa port official.
Total imports within IORA are more than double the comparable figure for ASEAN, which is due to integrate its markets further through the launch of the ASEAN Economic Community at the end of this year.
Total imports of APEC members stood at $6.14 trillion in 2014, 10 times that of IORA, but IORA's intraregional trade is growing faster. APEC's imports grew an average of 8% annually over the past 10 years, while the figure for the IORA is 13%.
IORA is made up largely of poor countries keen to raise their per capita GDP. "We are aiming at technological transfers, and we want to create job opportunities," said Mkinga, the Tanzanian lieutenant colonel.
The idea is shared by many other poor IORA nations, all of which are eager to step up their exchanges with more industrialized India. Indeed, much of the increase in trade within IORA came from Indian exports to such countries. The value of Tanzania's imports from India soared twentyfold over the past 10 years, while Kenya's imports from India surged tenfold.
India is well-positioned to do business with East African nations, and those countries are pinning substantial hopes on their economic ties with the Asian giant. The active exchange of people, goods and money in the western part of the Indian Ocean could give rise to a vibrant maritime economic zone rivaling that of APEC.