Any opinions, findings, conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of UK Essays.
India and Africa share a long history of trade relations dating back thousands of years ago. Due to the geographical proximity of the two continents, connected via the Indian Ocean, Indian merchants and traders sailed to the East coast of Africa in search of various commodities such as elephant tusks, spices, gold, gemstones etc. There was a large immigration of Indian labor during the colonial period that was brought over to work in railways in East Africa and on sugar plantations. Trade between India and Africa grew with more number of Indians settling in the eastern coast. Indians became a critical link for export of African commodities such as tea, coffee, cotton and the import of manufactured goods and grains such as rice, pulse and textiles (Jacobs, 2012). In ancient time Indian traders sailed to the East coast of Africa in search of mangrove poles, elephant tusks, and gold and gemstones that made their way up from what is now Zimbabwe. There was also the large immigration of Indian labor during the colonial period, brought over to work on the railways in East Africa, and on sugar and other plantations in Mauritius, Madagascar and Southern Africa. Many descendents form the bulk of the Indian Diaspora in Africa today.
Both India and Africa have been subjected to immense exploitation of resources and raw materials by ex-colonial rulers. India constantly supported anti-colonial and anti-racist liberation struggles in Africa. Indian leaders Mahatma Gandhi and Nehru and their ideas on liberation and Afro-Asian unity had huge impact on various African leaders such as Nelson Mandela, Kwame Nkrumah and Albert Luthuli among others. After the political battles for liberation of African countries were won, economic cooperation and trade began to dominate India and Africa ties. With the wave of liberalization and change in global profile of India and Africa, economic engagement between the two regions is increasing like never before. India has looked to extend its relationship with African countries. Sumit Roy states that, “a fuller understanding on India’s thinking and strategies in Africa sheds light on a marked shift in emphasis from political issues to economic development” (Roy, 2017). Presently, India’s perception of Africa is shaped by three important considerations in the 21st century namely; Economic cooperation, Security Cooperation and Engaging the Diaspora (PIOs). Economic interests and the quest for international recognition are the main driving forces behind expansion of Indian foreign policy priorities in Africa. India’s efforts to contribute developmentally to Africa have come to the forefront of its policy engagement with African countries.
Economic engagement between India and Africa is increasing like never before though it is not new.This has been facilitated by the changing African outlook in recent years. There is a move by Africans to take charge of their own destiny. For its part, the Indian government laid out its broad economic cooperation framework during the India-Africa Forum Summit in April 2008, held in New Delhi. This conference gained significance because of an attempt to forge a closer partnership between India and African countries and address the common goals and challenges they face. An important element of India’s approach towards Africa is the growing presence of the private sector in African countries.
Due to the changing external and internal global environment, India’s economic diplomacy has been driven by three objectives. Firstly, India has begun to look towards new markets for engagement. This includes Africa, given its growing market size and rising rates of private consumption. This has resulted in a more diversified commercial engagement with some parts of the African continent, including the export of manufacturing and pharmaceutical products, as well as ICT services. Secondly, although India has already had good ties with Anglophone countries in southern and eastern Africa: India has aimed to deepen its ties with francophone and lusophone countries in an effort to increase resource security, particularly with regard to oil and gas. India has been importing over half its crude-oil requirements since 1965. The acquisition of energy is a dominant goal in India’s economic diplomacy (Large, 2013).Thirdly, India has aimed to better influence international institutions such as International Monetary Fund, World Bank and United Nations Security Council by giving ‘goodwill gestures’ of grants to African countries that could be counted as allies in multilateral negotiations (Indian Development Cooperation Research Report, 2014).
India and Africa Trade Relations:
India and Africa have had a long-standing relationship that is marked with historic, cultural, economic and political exchanges and cooperation. The recent years have witnessed tremendous increase and deepening of economic and cultural exchanges and cooperation between India and Africa. With a view to significantly enhance India’s trade with Africa, the Government of India launched an integrated programme ‘Focus Africa’ from the year 2002-2003. The main objective of the programme is to increase interactions between the two regions by identifying the areas of bilateral trade and investment. The ‘Focus Africa’ programme has been extended to cover the entire African continent. Many African countries have also benefitted from India’s Duty Free Tariff Preference scheme for the LDCs, which was implemented in 2008. The synergy that exists between India and Africa can be gauged from the robust trends in trade relations, wherein bilateral trade has risen around five-fold in the decade, from US$11.9 billion in 2005-06 to US$56.7 billion in 2015-16. Below is a graph showing India’s overall trade, exports, imports and trade balance with Africa from 2005-2016.
India-Africa Total Trade:
India’s economic diplomacy with Africa has grown in three main areas; grants, technical assistance and Lines of Credit (LOCs). Under grants, the Government of India in 2009 gave a large grant to launch the Pan African e-Network. This allowed India to provide educational and medical support by means of satellite technology. The project is implemented by an Indian public sector company, BSNL through tele-consultations between hospitals in India and throughout the African continent. At the same time, learning centres in Africa have also been connected to Indian universities (IDCR report, 2014). In terms of technical assistance, India has instituted the Indian Technological and Economic Programme, way back in 1964 as a bilateral programme of assistance to support training and technical assistance in African countries. The final area LOCs was also developed as a means to enhance India’s development cooperation, and specifically the role of the private sector. LOCs were established under Indian Development and Economic Assistance Scheme (IDEAS) in 2004 backed by Export Import Bank (EXIM) of India. LOCs were valued at US$5.1 billion and mostly focused on agriculture and energy based projects. The EXIM Bank has been a major source for LOCs in African countries. EXIM Bank loans are tied to the purchase of Indian goods and services. Indian business has therefore been instrumental in the transfer of technology from India to Africa.
Trade and investment flows form the heart of economic diplomacy, particularly as it relates to commercial activities. Both India and Africa are seeking to derive economic benefits from their interactions which are largely reflected in the exchange of goods, services and capital. However, it is important to note that trade between India and Africa is mainly concentrated with a select few African countries such as South Africa, Nigeria, Angola, Egypt and Tanzania, being the main trading partners in 2014 (Biswas, 2015). Most of this trade entails primary commodities exported from Africa, while African countries mostly import manufactured goods from India. Despite the rise in absolute value of technology-intensive exports to India, the share of these exports in terms of total African exports to India has been decreasing over time, overshadowed by rising Indian demand for African fuel and other commodities. Exports from extractive industries such as mining, quarrying and crude oil, have seen the largest increase in share of total exports, while the share of total technology-based exports to India has decreased from 74% in 2001 to slightly over 25% by 2011 (CII & WTO, 2013).
However, the predominance of primary commodity exports, such as unrefined oil, has resulted in African countries holding a significant trade surplus with India (around US$5.4 billion). As refining capacity in Africa is limited, Indian companies are keen to tap into Africa as an export market for refined petroleum products (Biswas, 2015). Beyond the commodities trade, significant Indo-African trade exists in the automotive sector. India’s Tata buses, Maruti cars and Bajaj motorbikes and auto-rickshaws sell in African markets. Also in the pharmaceutical industry, several Indian companies have increased sales in African markets as the government has pushed its ‘Pharma India’ promotion (Modi, 2010). By 2016, pharmaceutical spending in Africa is expected to reach US$30 billion, with Indian companies competing mostly with South African firms in local markets (Biswas, 2015).
There has been an interesting shift in the geography of Indo-African trade patterns recent years. In 2001, Southern Africa accounted for 60% of African exports to India, whereas western Africa contributed only slightly over 16%. Ten years later, in 2011, West Africa is the largest regional exporter to India, with a share of African exports to India of 40%, while southern Africa’s share has diminished to only 24%.
The increase in Indo-African trade is partly the result of official coordination between India and its African partners, such as the launch of the Duty-Free Tariff Preference Scheme for Least-Developed Countries (DFTPI-LDC) in 2008. This scheme provides duty-free entry for about 85% of India’s tariff lines for global exports to LDCs. This has helped to encourage the export of cotton, cocoa, aluminium ores, copper ores, readymade garments, fish fillets and non-industrial diamonds from African LDCs. In 2013, 21 out of the 33 African LDCs were making active use of the DFTPI-LDC scheme (CII/WTO, 2013).
At the Annual Economic India Summit, 2014 hosted by the World Economic Forum African leaders and Indian industrialists set an informal bilateral trade target of US$ 500 billion to be reached by 2020. This trade surge is expected to be driven primarily by India’s growing energy needs, since from 2005 onward, India’s rapid economic growth led to huge increase in India’s imports of minerals and fuels from Africa (Mullen &Arora, 2016). Apart from oil, Africa continues to be an important source of coal, uranium and natural gas. The rise in crude oil imports from Africa has been accompanied by a simultaneous growth in India’s export of refined petroleum products to Africa, largely as a result of Africa’s limited and India’s surplus refining capacity. The decade between 2006 and 2016 witnessed a marked increase in agricultural trade between India and Africa, though India’s agricultural exports to Africa increased mainly due to exports of non-basmati rice exports. India has also been a major destination of cash crops for African countries.
India-Africa Bilateral and Regional Trade agreements:
India and African countries believe that cooperation in trade is essential in order to achieve maximum development in their respective countries. The Government of India along with its African partners have signed a number of bilateral trade agreements over the years. The contracting parties have granted ‘most favoured nation’ treatment to each other in accordance with World Trade Organization (WTO) provisions. The governments agreed to grant each other licenses or permissions in respect of import and exports and also in respect of custom duty and all other duties and taxes applicable to the importation, exportation and transfer of commodities. Some of the bilateral trade agreements signed by Government of India with select African countries are as follows;
Government of India and Government of Peoples Republic of Angola (4th October, 1986): Government of India and Botswana (12th January, 2001): Government of India and Ghana (12th October, 1981): Government of India and Mozambique (28th October, 1981): Government of India and Rwanda (13th June, 1990): Government of India and Mauritius (10th March, 2002): Government of India and Nigeria (27th January, 1983): Government of India and Uganda (24th November, 1981): Government of India and South Africa (22nd August, 1994): Government of India and Tanzania (14th January, 2000): Government of India and Zimbabwe (22nd May, 1981): Government of India and Seychelles (18th September, 1998): Government of India and Cameroon (22nd February, 1968): Government of India and Zambia (21st April, 2003) and others (Department of Commerce, GOI).
Since the early 1990s, many countries in Africa have made significant progress in opening up their economies to external competition through trade and exchange rate liberalization. At the same time, with the creation or expansion of a number of Regional Trading Agreements (RTA) in other parts of the world, there has been a revival of interest among policy makers in Africa for regional integration, resulting in the establishment or renewal of such arrangements in the region. Some of the intra-regional trading agreements in Africa that have been notified in the World Trade Organization (WTO) include;
Common Market for Eastern and Southern Africa (COMESA) – Burundi, Comoros, Democratic Republic of Congo, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Libya, Madagascar, Malawi, Mauritius, Rwanda, Seychelles, Swaziland, Sudan, Uganda, Zambia and Zimbabwe.
Southern African Development Community (SADC) – Angola, Botswana, Democratic Republic of Congo, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Seychelles, south Africa, Swaziland, Tanzania, Zambia and Zimbabwe.
South African Customs Union (SACU) – Botswana, Lesotho, Namibia, South Africa and Swaziland.
West African Economic and Monetary Union (UEMOA) – Benin, Burkina Faso, Cote d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal and Togo.
Economic Community of West African States (ECOWAS) –Benin, Burkina Faso, Cabo Verde, Cote d’Ivoire, the Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone and Togo.
Economic and Monetary Community of Central Africa (CEMAC) – Cameroon, Central African Republic, Chad, Republic of Congo, Equatorial Guinea and Gabon; and
East African Community (EAC) – Burundi, Kenya, Rwanda, Tanzania and Uganda.
These trading agreements are envisaged to foster trade and investment relations amongst member countries by removal or lowering or tariffs and other impediments to intra-regional trade flows. In some cases, the arrangement also aims at fostering common economic and monetary union amongst member states, as also a common currency.
Major Export partners: As regards major trading partners in the African region, South Africa has remained the leading destination for India’s export items during 2015-16, accounting for around 14.3 per cent of India’s total exports to Africa. Other major export destinations include Kenya, Egypt and Nigeria. Trends in India’s exports to other major markets in Africa are shown in table 2 at the end of the chapter.
Major Import Partners: As regards to India’s imports from Africa, Nigeria dominated with a significant share of 31.4 per cent of India’s total imports from Africa during 2015-16, reflecting significant imports of crude petroleum from the country. South Africa was the second-largest import source with a share of 18.8 per cent during 2015-16, followed by Ghana, Angola and Egypt. India’s major import sources are shown in table 3.
Major Traded items:
India’s Exports to Africa: Petroleum products are the largest items in India’s export basket to Africa, contributing 19.8 per cent to India’s total exports to Africa during 2015-16. Other important items of exports to Africa in 2015-16 include pharmaceutical products, vehicles other than railways and tramway, machinery and equipment, cereals and electrical and electronic equipments.
The importance of India’s export destination can be assessed from the fact that Africa accounts for 9.5 per cent of its global exports in 2015-16, of which, India’s export of mineral fuels, mineral oils and its products (mainly petroleum oils) accounts for 1.9 per cent share in India’s global exports. India’s major export items are shown in table 4.
India’s Imports from Africa: The following table highlights the items imported by India from the African region. As is evident, mineral fuels, mineral oils and its products(mainly crude petroleum) accounted for nearly 56.3 % or more than half of India’s total imports from Africa during 2015-16. Other major imports from Africa include natural or cultured pearls, precious or semi precious stones, edible fruits and nuts, inorganic chemicals and copper and its articles accounting for 20.5 %. See table 5.
India-Africa Exports and Imports:
From the above two tables, we can discern the evolving commodity patterns in India-Africa trade. Traditionally, India has exported manufactured products to Africa and has imported raw materials from the resource rich African continent. In recent years, India has mostly exported mineral oil and petroleum products to African countries which has accounted for 19.8 % share in India’s total exports to African in 2015-2016. After petroleum products, India’s cheap and reliable pharmaceutical products have found an export destination in the African markets. Petroleum products have accounted for 12.3 % share in India’s total exports to Africa in 2015-2016. The Indian Pharmaceutical industry has recorded tremendous success especially due to antiretroviral (AVR) drugs.
Along with minerals, petroleum and pharmaceutical products, there has been a recent surge in India’s export of vehicles, machinery and equipments. Various Indian private and public companies have invested in African markets. Major companies like Tata Motors and Mahindra have made inroads in South African motor industry by introducing new vehicles. India has also exported low floor and environment friendly CNG bus to various African countries.
However, it should also be noted that declining oil prices has significantly affected value of overall African exports. According to WTO Report, “Africa’s exports experienced a significant 30 per cent decline in dollar terms in 2015. Accounting for about 40 per cent of the region’s exports, Sub-Saharan oil-exporting countries, such as Equatorial Guinea and Congo, were significantly affected by the 60 per cent decline in oil prices. Nigeria saw a decline of almost 50 per cent in its export revenues in dollar terms. This weakness was also due to a variety of other factors, including slow growth in North Africa and domestic and political turmoil” (World Trade Statistical Review 2015, World Trade Organization. p.45).
Therefore, it can be summed up that in terms of exports, India and African countries are focusing on trade in petroleum products, pharmaceutical products, equipments, machinery, cereals and electrical and electronic equipments. In terms of India’s imports from Africa, mineral fuels and mineral oils such as crude petroleum are imported the most. Other imports are natural pearls, precious or semi-precious stones, edible fruits and nuts and inorganic chemicals and copper.
India and Africa Trade Balance:
India and her African partners have recorded impressive growth of increased trade relations in recent years. However, despite this growth, there is a substantial imbalance in the import-export relationship between India and African countries. Exports from Africa have been largely dominated by raw materials such as crude oil, gold, raw cotton and precious stones. On the other hand, exports from India to African countries, especially sub-Saharan countries, consist of high-end consumer goods such as automobiles, pharmaceuticals and telecom equipments. This imbalance does not necessarily align with Africa’s goals to diversify away from natural resource dependence, which is a common issue in Africa’s trade relationships with US, China and the EU (Amadou, Sy. 2015).
Trade balance between India and Africa are in favor of African countries due to India’s high demand for energy resources, crude oil and petroleum. Although Indian companies refining capacitates in Africa are limited, they are looking to tap Africa as an export market for refined petroleum products. Indian companies have explored refining opportunities in some markets such as Kenya, Mauritius etc. The cumulative Indian investments in oil in African continent have reached US$ 2.5 bn. While refined commodities have been increasingly important, manufactured goods still dominates Africa’s imports from India accounting for 66.9 % in 2010 (Africa-India trade and investment, 2012). These manufactured goods have moved up the value chain, wherein high-value manufactured goods imports have increased eight fold over the last decade.
Africa’s increased trade with the world, particularly in the last two decades has not necessarily meant a change in the pattern of trade. There has been diversification of trading partners but the essential nature of the trade pattern has not seen any fundamental change. In this respect, Tadit Kundu and Ritika Mazumdar write: “The continent’s trade with India and China closely resembles that in colonial times: Africa exports raw materials to the emerging Asian giants, and imports manufactured goods from them” (Kundu and Mazumdar, 2016). Although India exports manufactured goods to African markets, the balance of trade is in Africa’s favor. India’s high demand for oil and energy resources is the reason for this trade deficit. In the coming years, India’s energy demand is going to rise significantly. In order to correct the trade imbalance, India needs to look towards other markets and at the same time, expand and diversify its export trade basket to include both primary and manufactured goods, in accordance with the continent’s needs.
India and Africa Investment Relations:
Alongside trade, Indian investments in Africa have also received a boost in recent years. African countries are receiving strong investment interest from India due to their high-growth markets and mineral rich reserves. In fact, India is one of the largest investors in Africa. As per the FDI markets database, India was the fifth largest country investing in Africa, after USA, UK, France and UAE,
Indian Multi-National Enterprises (MNEs) have ventured into both Greenfield and Brownfield investments, spanning telecommunications, energy, computer services, power and the automobile sector among others. A large proportion of Indian FDI has also gone into the infrastructure sector in Africa. Several of these investments are actually tied to the investments made in the extraction sector. In other cases, Indian construction and telecommunication companies have made investments in Africa to build roads, ports and telecommunication networks in several African countries. Apart from these, market seeking FDI from India is also present in Africa. Several auto industry majors like Tata Motors and Mahindra have made investments in Africa. Broadly, it can be said that Indian investments in Africa are predominantly resource seeking, though market seeking and efficiency seeking investments are also present. According to data from Ministry of Finance, government of India, and Reserve Bank of India, approved cumulative India’s investments in Africa during April 1996 to March 2016 amounted to US$ 54 billion. Approved Overseas Direct Investment implies RBI Approvals for Overseas Direct Investment in Equity, Loan and Guarantees. During the same period of April 1996 to March 2016, Africa accounted for nearly one-fifth of Indian overseas direct investments, with Mauritius, Mozambique, Sudan, Egypt and South Africa being some of the major investment destinations.
Indian investment in Africa has markedly increased in recent years. During 1960’s, many Indian investments were made in Kenya, Nigeria, Uganda, among others (CII/WTO, 2013). Indian investors have been active most in areas traditionally considered to be India’s comparative advantage, such as agriculture, ICT, communications infrastructure and petroleum refining (Large, 2013). Mauritius is the largest recipient of Indian investments in Africa. This is largely due to Indian companies taking advantage of Mauritian offshore financial facilities and the bilateral tax agreements between India and Mauritius (Bell, 2004). While Mauritius, receives the bulk of Indian FDI in Africa, the final destination of much of this investment are other African counties. FDI inflows to India from Africa have been dominated by investments from Mauritius that account for 33.2 per cent of India’s overall FDI inflow. Mauritius is the largest investor in India in terms of cumulative FDI inflows, mainly due to the Double Taxation Avoidance Convention. Other African countries investing in India include South Africa, Seychelles, Morocco and Kenya. Moreover, Mauritius is a part of SADC which is useful for the countries in the region. All the SADC member countries are benefitting from Mauritius taxations which are consequently increasing the amount of trade in the region.
While the emphasis of the Indo-African investment relationship has been on Indian investment in Africa, this may change in coming years as the outward FDI from African countries has been growing. African multinational enterprises are also present in India, particularly South African multinational enterprises that have invested in India’s infrastructure development, breweries, and financial and insurance services. Even so, the number of South African companies operating in India is less than 50 and more could be done to enhance African investment in India.
After Mauritius, Morocco and South Africa are the second largest investors in India with investments worth US$ 137 million and US$ 112 million respectively. Investments from South Africa have been growing at a steady pace with Tiger Brands, Airport Company South Africa & Bidvest, SAB Miller, FirstRand Bank, Old Mutual, Balela Leisure, Anglo-American, Sasol and Nandos Groups Holdings making investments in Indian markets. Shoprite, the second-largest retailer in South Africa, which had withdrawn its operations in 2005, is again looking towards the Indian market with the Indian government’s announcement to liberalize its retail sector. Morocco has also invested in the manufacture of phosphate in India.
In addition to several investments in various sectors in Africa, EXIM Bank of India has in place Lines of Credit (LOC) extended to a number of institutions/agencies throughout the African continent. The total number of operative LOCs to Africa stood at 154 as on December, 2016 amounting to 7.7 US$ billion as extended to total 44 counties (CII).
The thrust on investment side of the India-Africa relationship has, until now, focused more on Indian investments towards African destinations rather than vice-versa. However, this may change in the years ahead as outward FDI from African countries has been growing rapidly. The outward FDI flows from African countries have been steadily growing from US$ 1.5 billion in 2000 to US$ 7 billion in 2010 before falling to US$ 3.5 billion in 2011 (CII/WTO, 2013, p.34). A substantial portion of the outward FDI is intra-African and emanates from a few African countries, including Angola, Zambia, Egypt and South Africa. As African companies diversify further, they are looking towards emerging markets like India.
Challenges and Hurdles for India-Africa Trade and Investment Relationship:
Although India-Africa trade and investments have been increasing over the past few years; there are certain handicaps and bottlenecks which have constrained India-Africa trade. The CII India-Africa Trade Survey tried to identify the particular issues in trading and investments between India and Africa. Respondents from Africa cited the difficulties they faced in exporting goods to India and likewise, Indian respondents cited difficulties in importing goods from Africa. Out of 29 respondents from Africa and 32 from India, the major difficulties that emerged were; Accessing Indian buyers or African exporters; poor business environment; access to trade finance, transport and logistics costs; and informal controls and corrupt practices.
Difficulties faced by exports of African goods to India
Source: CII/WTO Joint India-Africa Trade Survey 2012-2013, p.35 https://www.wto.org/english/tratop_e/devel_e/a4t_e/global_review13prog_e/india_africa_report.pdf
Exposure of Indian buyers to African exporters is the main bottleneck cited by surveyed firms in Africa’s export relationship with India. The Annual India-Africa Conclave is an important forum to bring buyers and sellers together. In addition, dedicated trade meets with a particular country or sector will help address information asymmetries as well as bring the growth market of India closer to African producers.
Another issue identified is the access to trade finance. Common problems faced by banks in African economies include low capital and foreign exchange reserves, lack of know-how in the process of extending documentary credits, and a lack of international ratings. Exporters requiring guarantees from local banks find that either a bank may be unwilling to assume the associated risk or may do so only with high collateral requirements against trade loans. The net result is that trade finance becomes costly and inaccessible, particularly for firms with limited cash flows or liquidity. As such, most SMEs in Africa find it difficult to finance the gap between shipment and payment when accessing newer markets like India.
A further series of issues relates to customs and sanitary and Phythosanitary (SPS) controls. The last WTO Trade Policy Review of India noted that: “India has continued to streamline customs procedures and implement trade facilitation measures. An electronic system for customs clearance has been introduced and a risk management system is in place to selectively screen high- and medium-risk cargo for customs examination.Despite the implementation of these measures, India’s import regime remains complex, especially its licensing and permit system, and its tariff structure, which has multiple exemptions, with rates varying according to product, user or specific export promotion programme” (WTO Trade Policy Review, 2011). Four African WTO members, Nigeria, South Africa, Zambia and Zimbabwe, made statements during the Trade Policy Review meeting on India’s import regime. They expressed hope that India would continue its trade-related reforms including in the area of customs procedures and other trade facilitation measures. These issues are also under discussions in the Doha Development Round. They also urged India to improve market access conditions for the poorer countries in Africa.
Although exports of services from Africa are at a relatively low level, immense potential exists in India for African services providers, including in financial services, computer and related services, distribution services and tourism and travel services. As these services industries grow within Africa, they would look to expand globally and India offers a strategic and competitive market for various services industries.
We should note that like the hurdles faced by African exporters, similarly, Indian exporters also face difficulties in exporting of goods from India to Africa. In this respect, transport and logistics costs standout as a major impediment to Indian exports going to Africa. Due to high shipping costs, and costs of exports to African countries, many Indian exporters prefer to sell ‘free on-board’ basis instead of ‘on-delivery’ basis (CII/WTO, 2013, p.54). Due to the high transaction cost in exports to Africa and the risk perceptions attached, Indian exporters are susceptible to becoming risk averse and placing the blame on the buyers. Therefore, lowering transaction cost is crucial in enhancing trade between India and Africa. Indian exporters also often cite poor business environment and access to buyers in African markets as impediments in exporting services to African countries. Many service firms find it difficult to get work visas/permits, particularly in countries with restrictive market access or authoritarian form of government. Therefore, removing the bottlenecks to investments is imperative for African countries in order to move towards a sustainable investment-led development model. Investments from India will bring in technology which is “Appropriate, Affordable and Adaptable”, pitched as the “Triple A” technology transfer mode, during the 8th India-Africa Conclave.
It is important to note that the African products are sold and exported into the markets not in the name of Africa, but are already present and introduced in the markets. African exports are common or every day products which are present and consumed by various different countries. Products such as rice, jams, papad, pulses etc are very common in markets around the world.
India and Africa’s trade and investment relations have come a long way since the previous decades. However, in order to sustain this growth in India-Africa trade, there is a need to broaden and diversify the trade basket especially for African exports. There is a need for greater value addition to commodities within Africa. The exports of value-added products require, among other things, a positive business environment, access to capital, skilled labor and sustained FDI which can be achieved through mainstreaming of trade in national development strategies. Since African exporters’ access to Indian buyers, trade finance, and informal controls and shipment delays are major concerns; there is an urgent requirement to mitigate the transaction costs which will significantly impact in enhancing the export competitiveness of African products. Therefore, the main focus should remain on trade facilitation between India and Africa.
Both India and Africa represent important growth poles in today’s world. With both the regions facing similar developmental challenges, there is today more incentive than ever to work together in mutually beneficial development partnerships. India-Africa’s cooperation is likely to expand in four areas; firstly, in building of infrastructure; second, Financial inclusion; third, Energy resource development, including alternative energy sources; and lastly, in technical assistance, ranging from training of government officials to specialty health care provision. With regard to infrastructure, India and Africa face an infrastructure deficit, which was reported by the World Economic Forum as a major bottleneck for India and Africa’s development and growth (Global Competitiveness Report, 2015). India’s expansion of infrastructure, particularly in its urban areas has provided Indian companies with low-cost expertise in building and maintaining infrastructure. With access to Indian government’s subsidized loans and credits for Indian companies seeking entry into African markets, Indian companies are building on their domestic expertise and have also won infrastructure building contracts from Ethiopia to Zambia and Zimbabwe in 2016.
Initiatives under India Africa Forum Summit (IAFS):
India and Africa share a rich history and a close, deep and multilayered relation. Both sides recognize the need to give a new dimension to this cooperation. Therefore, they have decided to cooperate and adopt the India Africa Framework for Cooperation in 2008, the India Africa Framework for Enhanced Cooperation in 2011 and the Delhi Declaration in 2015. The two sides have also jointly developed a Plan of Action after each of the three summits with a view to implement the major themes as outlined in the forum summits.
Under Economic Cooperation, the main focus is placed on Agriculture cooperation, Trade, Industry and Investment, Small and Medium Scale Enterprises (SMEs), Regional Integration and Finance.
The initiatives announced in 2008 are as follows:
India provided 25 PhD and 50 Masters Scholarships per annum for four years to African students in Indian universalities to enhance agriculture education, science and research. India also provides short term customized short-term trainings related to transferable skills focusing on training of trainers, targeted visits by Indian professionals for field demonstrations, on the spot consultations and in-country trainings, and exchange of literature, seed and planting materials and sharing of best practices in agriculture.
India and Africa want to expand two-way trade, greater market access and investment facilitation. Therefore, India decided to build the India Africa Institute of Foreign Trade which will provide professional education in the field of international trade and management. India also decided to build the India Africa Diamond Institute which will help to develop capacitates and skills in processing and polishing of raw diamonds. Various initiatives were taken to improve the private sector and business-to-business (B2B) linkages. The Indian Government will also prepare an India Africa Business Guide to highlight opportunities on both sides for trade and investment through Chambers of Commerce of both sides, Organization of business councils at the regional level, and upgrading the industrial supply-side capacities and enhancing competitiveness.
India decided to establish ten vocational training centers in Africa through the National Small Industries Cooperation. India has provided around 5.4 US$ billion in Lines of credit to African countries over a five year period and a separate 500 US$ to develop capacitates in Africa. Moreover, regional integration is an important objective Africa. India has engaged with many of the RECs and has developed an implementation process for this purpose. India will financially support mutually agreed programmes carried out by African Union and RECs and has also provided USD 300 to support regional integration infrastructure projects through the African Union (AU).
In the second India Africa Forum Summit in 2011, India and Africa decided to cooperate for increasing agricultural output and work towards achieving the Millennium Development Goals of halving the proportion of people suffering from hunger or malnutrition. Both India and Africa agreed to collaborate in the implementation of Comprehensive Africa Agriculture Development Programme (CAADP). India’s Duty Free Tariff Preference Scheme for Africa’s LDCs announced in 2008 was welcomed by African countries. African countries also found the India-Africa Project Partnership Conclave to be useful in bringing Indian and African entrepreneurs together.
In the Delhi Declaration adapted after the third IAFs in 2015, India and Africa agreed to continue to work together to promote investment exchanges and encourage establishment of direct trade relations through opening of new markets and raising the level of trade relations between India and Africa. India supports long term capital flows to Africa especially in infrastructure. In this regard, India supports the Programme for Infrastructure Development in Africa (PIDA). India and Africa also decided to cooperate and coordinate in the field of women empowerment and enhance women’s economic, social and legal status.
India and Africa decided to work together within the framework of the Tripartite Free Trade Agreement (TFTA), and support the establishment of a Continental Free Trade Area (CFTA), establish the African Economic Community (AEC), and to support the work of the Continental Free Trade Area-Negotiating Forum (CFTA-NF) towards concluding the negotiations by 2017. India and Africa agreed to work towards creating a conducive environment for trade facilitation in accordance with WTO Bali Trade Facilitation Agreement. India supports the establishment of Small and Medium Scale Enterprises (SMEs) and Medium and Small Industries (MSIs) in order to promote employment creation. India is also looking to promote Public Private Partnership (PPP) by encouraging Indian businesses to set up skills development units in African industrial zones.
India’s Trade with Africa (USS bn):
|India’s Export to Africa (US$ bn)||7||10.03||14.2||14.8||13.4||19.7||24.7||29.1||31.2||32.8||25|
|Africa’s Share in India’s Exports (%)||6.8%||8.1%||8.7%||8.0%||7.5%||7.9%||8.1%||9.7%||9.9%||10.6%||9.5%|
|India’s Imports from Africa (US$ bn)||4.9||14.7||20.5||24.7||25.6||32||44.1||41.1||36.6||38.6||31.7|
|Africa’s Share in India’s Imports (%)||3.3%||7.9%||8.1%||8.1%||8.9%||8.6%||9.0%||8.4%||8.1%||8.6%||8.3%|
|India’s Total Trade with Africa (US$ bn)||11.9||25||34.7||39.5||39||51.7||68.8||70.3||67.9||71.5||56.7|
|India’s Trade Balance with Africa (US$ bn)||2.1||-4.4||6.3||-9.9||-12.2||-12.2||-19.4||-12||-5.4||-5.8||-6.6|
Source: Ministry of Commerce and Industry (MOCI), Government of India; and EXIM Bank Analysis
An analysis of the above table clearly demonstrates that:
*India’s exports to Africa have increased almost four-fold from US$ 7 billion in 2005-06 to US$ 25 billion in 2015-16, thereby accounting for 9.5 per cent share in India’s total exports.
*India’s imports from Africa, on the other hand, increased by nearly seven-fold from US$ 4.9 billion in 2005-06 to US$ 31.7 billion in 2015-16, thereby accounting for 8.3 per cent share in India’s total imports.
*India’s imports from Africa grew at an annual average of 29.8 per cent during 2005-06 to 2015-16, as against India’s exports to Africa that grew at an annual average of 15.9 per cent during the same period.
*Due to large and rising imports from Africa, India’s trade deficit with Africa stood at US$ 6.6 billion in 2015-16, from a surplus of US$ 2.1 billion in 2005-06.
Table 2: India’s Major Export Destinations in Africa
|Region/Countries||2014-2015 (US$ mn)||2015-2016 (US$ mn)||Share in Exports to Africa in 2015-16||Share in India’s Exports in 2015-2016*|
Note: India’s global exports in 2015-2016 was US$ 262,290.1 million
Source: Ministry of Commerce and Industry (MOCI), Government of India; and EXIM Bank Analysis
Table 3: India’s Major Import Sources from Africa
|Region/Countries||2014-15 (US$ mn)||2015-16 (US$ mn)||Share in Imports from Africa in 2015-16||Share in India’s Imports 2015-16*|
|Cote d’ Ivorie||532||573||1.8%||0.2%|
Note: India’s global imports in 2015-16 was US$ 381,006.6 million
Source: Ministry of Commerce and Industry (MOCI), Government of India; and EXIM Bank analysis
Table 4: India’s Major Export Items to Africa
|Commodity||2014-2015 (USD mil)||2015-2016 (USD mil)||Share in Exports to Africa in 2015-16||Share in India’s Global Exports in 2015-16*|
|Mineral fuels, oils and its products||10,118||4,950||19.8%||1.9%|
|Vehicles other than railway or tramway||3,296||2,606||10.4%||1.0%|
|Machinery and equipments||1,690||1,616||6.5%||0.6%|
|Electrical machinery and equipment||952||900||3.6%||0.3%|
|Plastics and its articles||790||849||3.4%||0.3%|
|Sugars and sugar confectionery||530||640||2.6%||0.2%|
|Articles of iron or steel||765||623||2.5%||0.2%|
|Meat and edible meat offal||754||599||2.4%||0.2%|
|Iron and steel||737||511||2.0%||0.2%|
|Articles of apparel, not knitted or crocheted||478||413||1.7%||0.2%|
|Man-made staple fibers||309||284||1.1%||0.1%|
Note: India’s global exports in 2015-2016 was US$ 262,290.1
Source: Ministry of Commerce and Industry (MOCI), Government of India; and EXIM Bank Analysis
Table 5: India’s Major Import Items from Africa (US$ mn)
|Commodity||2014-2015 (US$ mn)||2015-2016 (US$ mn)||Share in Imports from Africa in 2015-16||Share in India’s Global Imports in 2015-16*|
|Mineral fuels, oils and its products||25,924||17,839||56.3%||4.7%|
|Natural or cultured pearls, precious or semiprecious stones||5,099||6,486||20.5%||1.7%|
|Edible fruit and nuts||1,104||1,313||4.1%||0.3%|
|Copper and its articles||438||634||2.0%||0.2%|
|Ores, slag and ash||1,170||600||1.9%||0.2%|
|Salt, sulphur, lime and cement||515||514||1.6%||0.1%|
|Iron and steel||791||502||1.6%||0.1%|
|Edible vegetables and roots and tubers||310||443||1.4%||0.1%|
|Wood and its articles||309||333||1.1%||0.1%|
|Aluminium and its articles||234||251||0.8%||0.1%|
|Coffee, tea, mate and spices||156||199||0.6%||0.1%|
|Pulp of wood or of fibrous cellulosic material||88||186||0.6%||0.1%|
|Machinery and equipment||145||155||0.5%||0.0%|
Note: India’s global imports in 2015-2016 was US$ 381,006.6 million
Source: Ministry of Commerce and Industry (MOCI), Government of India; and EXIM Bank Analysis
Table 6: India’s Approved Overseas Direct Investments in Africa (US$ mn)
|Country||Apr 1996-Mar 2010||2010-11||2011-12||2012-13||2013-14||2014-15||2015-16||Apr 1996 – Mar 2016|
|Central African Rep||–||–||–||0.1||–||–||–||0.1|
|FDI Outflow to Africa||12215.8||13346.7||7510||4717.5||7492.5||4790.2||3970.5||54043.3|
|Share in India’s Total FDI Outflow||13.7%||30.4%||24.3%||17.6%||20.3%||15.5%||18.0%||19.2%|
Note: ‘-‘ Negligible / Unavailable
Source: Ministry of Commerce and Industry (MOCI), Government of India; RBI and EXIM Bank Analysis
Table 7: FDI Equity Inflows to India from Africa (US$ mn)
|Country||FDI Inflow during April 2000 to March 2016 (US$ mn)||Share in India’s FDI inflow (%)|
Note: ‘-‘ not available / negligible
Source: Department of Industrial Policy and Promotion, ministry of Commerce and Industry, Government of India; and EXIM Bank Analysis
India and the African continent today represent two vibrant and development oriented economies of the world. In the past few years, a number of African countries have seen tremendous economic growth and have been labeled as some of the fastest growing economies in the world. Six of the world’s top ten fastest growing economies are in Africa. India’s expanding economic engagement with Africa is both a cause and consequence of African economies showing impressive growth rates, averaging over 5 percent in the last decade. It is likely that India will emerge as an important export destination for several African countries in the future and this will help to generate income and employment through export opportunities. However, much remains to be done to transform the production capacity of African economies to take advantage of India’s growing interdependence with the global economy.
Although there has been a remarkable progress in the volume of trade and investment between India and Africa in the recent past, there are various pressing challenges like supply capacity limitations, accessing buyers for export which continues to hamper trade flows. Therefore, more emphasis needs to be placed on harnessing stronger linkages on the investment front and faster technology transfer. Given India’s projected growth, her demand for natural and energy resources coupled with massive untapped resources in Africa, Indian entrepreneur’s quest to ensure raw material security, improved business climate and macro-economic policies adapted by African governments, trade and investment between India and Africa is expected to grow. Realizing the opportunities in Africa, Indian government has extended support measures to facilitate the development in Africa, such as providing LOCs through EXIM Bank to African entities to facilitate project finance.
The host of initiatives taken under the IAFS and the Plan of Action (POA) in 2008, 2011 and 2015 has led to a vibrant economic engagement between India and Africa. India has placed a lot of emphasis on agriculture, trade, industry and investment, finance, regional integration and small medium scale enterprises (SMEs).
Therefore, it can be summed up that both India and Africa offer opportunities for each other to enhance mutual cooperation and diversify their trade and investment relations. The increase in economic cooperation has helped to open up new avenues of cooperation between India and Africa. In this respect, growing emphasis has been placed on Security and Defense cooperation between the two regions, which I will explore in the next chapter.
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