Daniel Altman, in a blog post on the IHT, says Japan has found a new ‘client’ in India. Referring to a $100B investment project, the Delhi Mumbai Industrial Corridor, he says this relationship is based more on economic convenience than on geographical proximity or historic ties.
By way of background, Japan is cumulatively the 4th largest foreign direct investor in India, with most of the collaborations expectedly in the automotive and engineering sectors. In the future, collaboration is expected to be extended to other sectors including infrastructure and biotechnology.
In Altman’s suggestion, that Japan is investing in return for a share of the spoils, fellow blogger ‘Pragmatic’ sees cause for being angry and some readers perceive an insult.
I am just a bit amused. I am not quite sure which bit of the commentary is insulting. It is not as if Altman has referred to Japan as some Madam, with a little black book of ‘clients’ that India (or rather Indians) should consider this an affront to their izzat. For an investor, expecting a share of the spoils – otherwise called return on investment – is also a justifiable expectation.
Altman does however falter at several steps.
Firstly, on the assumption that investing in infrastructure is going to produce spoils worth sharing, and produce them post haste: as an asset class, infrastructure is still being ‘sold’ by asset managers. For Japan to put up $100B – of a projected $150B (see link above) is a high risk investment at best.
Further Altman highlights that economic convenience, and not geographical proximity or historical ties, is driving Japan and India’s mutual interest (although I think I give him too much credit; his post does not intend highlighting mutuality in the relationship at all which may be why the Indian blogosphere is upset.).
Here I think he makes two mistakes.
One is of omission. Japan and India indeed have no historic ties, but Japan and China do, and perhaps Japan’s investment and partnership with India is a diplomatic counter-measure to the growing power of China in the region. So there is a convoluted historic tie there indeed, albeit of the kind ‘my enemy’s enemy is my friend’. Altman omits to mention this.
The other error is of commission. I am not sure money is invested in return for nothing. His shorthand, economic convenience, although crude, is actually why we all invest. How is this an objectionable driver for a relationship between two countries?
In referring to geography and history, I think he also confuses sovereign investors with Silicon Valley VCs who would typically invest in ventures that are close enough to be monitored and preferably created by teams the VCs have funded before! But let’s leave that aside.
His counter-point, if you follow comments on his blog post, is that the $100B is more important to India than it would have been to China, is a bit of a stretch. That is a simple normative judgement, not a good argument. It is hard to valuate, at this point in time, the DMIC infrastructure once complete, even though Altman believes that it will not do much for India.
Sovereign governments are making three kinds of investments at the moment – direct investments in partnership with the receiving nation’s government, which Japan is doing; direct investments in private businesses so as to take ownership or to alter substantially the ownership structure of those business, such as Istithmar* acquiring Barneys; taking positions in large, more diversified funds such as China’s investment in Blackstone.
Missing this diversity of investment behaviours is another problem (that I can see) in Altman’s argument.
Last but not the least, he says “The important thing is not the relative size of investments in different countries. By that argument, the United States would have much, much more influence in Germany than it does, say, in the Dominican Republic. The key point is how important the investments are to the countries that are receiving them.”
Here I think he is missing the most vital point. If the influence of sovereign states were not believed to be correlated with their investment, the US government would not be jumping up and down to urge the IMF and the World Bank to enforce more transparency and develop codes of conduct for such foreign-controlled funds.
There may be more issues with Altman’s argument. If you think so, use the comments link below to let me know.
* You can argue it is not a sovereign investor, but you could substitute any petro-fund name here and the point will still hold.