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Why India’s Foreign Investments in Africa’s Hydrocarbons Are Not a Good Bet
India has stepped up trade and investment in hydrocarbons in Africa, with nearly 17% of its total crude oil imports coming from Africa by 2016. This petroleum-related foreign direct investment and trade can be mutually beneficial in the short term, providing African exporters with a foreign market and helping India meet its energy needs. Such deals may become less effective economically over the medium and long term, however, given the increasing availability and cost-competitiveness of renewable energies, an array of restrictions and taxes on carbon emissions, and diminishing returns in the ratio of energy production to energy output.
In the short term, India’s petroleum-related foreign direct investment (FDI) and trade with Africa can be mutually beneficial because it provides African exporters with a foreign market, while helping India meet its energy needs. Such trade and investment by India could also support Africa’s economic development, particularly if Indian FDI results in technology transfer that builds African capacity in petroleum exploration, production and refining and if African governments use revenues from petroleum exports for national economic development. However, such deals may become less effective economically over the medium and long term because of three trends:
(i) The accelerating rate of technological advances and cost-competitiveness of alternative renewable energy options; (ii) the increasing number of countries and cities adopting a “carbon tax” and other regulations and restrictions on carbon emissions; and (iii) the increasing levels of energy inputs required for fossil fuel extraction relative to energy output, or the “diminishing returns” problem that is afflicting fossil fuel production.
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