India-Africa trade: a unique relationship
Trade between India and Africa has a long and distinguished history. It goes back thousands of years to the days when Indian traders, using the seasonal monsoon winds, 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.
This intensified with the establishment of Omani suzerainty in the 17th century over Zanzibar and its hinterland. The island of Pemba produced a copious variety of sought-after spices such as cardamom, cloves, cinnamon and black pepper. A number of Indian merchants, some of whose descendents live in East Africa to this day, trace their presence in East Africa to this period.
There was also the large immigration of Indian labour 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. As the population of the diaspora grew, so did trade between their original homeland and their new-found habitat. Indians became critical links in the export of African commodities such as tea, coffee and cotton and the import of manufactured goods and grains such as rice, pulses and textiles.
In more modern times, Africa’s trade with Europe and the United States dominated the trading patterns until the gradual swing to the East, principally led by China, gained increasing momentum. Indian companies were fairly quick off the mark too, re-establishing contacts with the continent and expanding the volume of trade exponentially.
For example, bilateral trade was worth $1 billion in 1995. By 2008, that figure had hit $36 billion, according to the African Development Bank Group, and in 2011 it had risen to $45 billion. By 2014, bilateral trade is anticipated to climb to more than $75 billion.
These trade trends can be clearly traced on a national as well as a continental level. Economic relations between South Africa and India, for example, have grown many-fold since diplomatic relations between the two countries were first properly established in 1993. Bilateral trade between 2003-04 and 2008-09 alone increased threefold, from $2.5 billion to $7.5 billion. In January 2011, following a visit by India’s commerce and industry minister, Anand Sharma, to South Africa, an unprecedented new bilateral trade target of $15 billion by 2014 was agreed upon.
At present, Africa enjoys a positive trade balance with the subcontinent. India’s imports from Africa reached $18.8 billion in 2009 while exports from India to Africa were $13.2 billion in the same year, according to the African Development Bank. Exports from Africa are typically raw materials, including oil and minerals, while exports from India tend to be manufactured and finished goods, including transport equipment, industrial machinery and pharmaceuticals. Nigeria, South Africa, Kenya and Tanzania are the most important destinations for Indian products in Sub-Saharan Africa.
Oil is a central commodity shaping the economic relationship between Africa and India and, therefore, merits special attention. Mining and hydrocarbons are key drivers of Indian engagement in Africa. According to the Confederation of Indian Industry (CII), based in South Africa, India is the world’s fifth largest consumer of oil and will be in third place by 2030. As India’s population continues to rise and become wealthier, energy consumption levels are predicted to double over the next two decades.
In addition, because India lacks oil reserves, it is highly dependent on foreign producers. Currently, India gets over 70 percent of its oil from the Middle East, with Saudi Arabia followed by Iran being their most important suppliers. However, Delhi is now eager to diversify its portfolio of crude energy suppliers, mainly by boosting the amount of oil it purchases from African countries. To this end, India has been working hard to nurture its relations with major oil-producing African countries, including Nigeria, Ghana, Equatorial Guinea, Côte d’Ivoire and Sudan. India also imports coal from South Africa. India’s imports of crude oil from Africa have increased – from 22 million tonnes in 2004-05 to over 35 million tons in 2010-11, according to reports.
India is also increasingly interested in oil exploration on the continent. Exploration and production firm Cairn India, for example, made its first overseas acquisition in August, when it purchased a 60 percent interest in a gas discovery block on the South African west coast. Indian oil firms have also bought into oil exploration projects in Nigeria and Libya.
Africa’s nuclear energy potential is also driving India’s interest in the region. “Uranium mining, essential to power India’s nuclear energy sector, is another area that has elicited great interest from Indian companies,” notes the CII. India is exploring uranium mining opportunities in Niger and Namibia.
Africa is an equally important source for India of precious metals and gemstones, especially gold and diamonds. India is the world’s major jewellery maker – in 2008- 09, the gems and jewellery sector constituted 13 percent of India’s total exports. Furthermore, India is the world’s leading processor of diamonds, accounting for 85 percent in terms of volume on the total world market. Gold in particular defines India’s economic relations with South Africa, the latter being the world’s leading supplier of gold.
The trend of Indian investment in Africa is also positive. In South Africa, for example, cumulative investment between January 1994 and January 2011 was around $212 million, and 102 Indian firms are now in operation in the country. Overall, Indian investment in Africa is believed to be around $33 billion.
Dr Alex Vines, who heads the Africa Programme at Chatham House, believes that “we are seeing the beginning of an Indian re-engagement with Africa, which is private-sector driven. Indian businesses have been telling India’s foreign ministry it needs to step up its presence on the continent.” The state appears to be responding. In the wake of a high-level visit led by Indian Prime Minister Dr Manmohan Singh, a number of important development, investment and trade deals have been signed.
According to Dr Vines, China’s dominance in several areas in Africa has prompted India to move into less saturated economic areas. “India is competing in niche areas, in which the Chinese are not so interested, such as the diamond sector. It has focused more so than China in areas like agriculture, ICT and medicine. India has avoided direct competition.”
Indian investment in Africa is also more private-led than China’s, according to experts. “Qualitatively, in contrast to the Chinese, who largely concentrate on state-to-state deals, extractive industries and infrastructure development, the Indian presence in Africa is largely commercially driven, private and facilitated by the Export-Import Bank of India and the Confederation of Indian Industry,” says Raj Verma, a PhD candidate specialising in India-Africa relations at the London School of Economics.
Some studies suggest that India has performed better than China in terms of employing local Africans for their business ventures. Dr Vines says that “the extent to which this is true varies, and it depends on the company and the sector, but on the whole it seems to be a trend”.
The discussion also broadens out to whether India’s engagement is beneficial in terms of remedying Africa’s historic dependency on Western donors and conditions, which tie the hands of African policy-makers. “The engagement of emerging economies such as India may allow African economies to bypass,” says Verma. Apart from this, the Indian tie-up can benefit Africa in very particular and unique ways.
One of those areas is agribusiness. India has particular knowledge of a range of areas that Africa would benefit from tapping into to help address its food security challenges, including small-farm mechanisation. Indian investment in agriculture also has the potential to directly boost production. In June, Delhi launched a three-year project in West Africa to help boost the region’s declining cotton industry. Companies like Olam International (headquartered in Singapore but essentially an Indian firm) have invested heavily in countries like Gabon where they have vertically integrated their activities from planting and harvesting to marketing of finished products. Indian investors have also articulated their plans to spend $2.5 billion on millions of hectares of land in East Africa, to grow produce such as maize, palm oil and rice for export, mainly to India.
Another sector in which Africa could particularly benefit from cooperation with India is in its burgeoning ICT sector. “India can rightly claim that it has an edge over other developing countries in education, information and technology, and technology for tailor-made small and medium enterprises,” says Raj Verma. “It can impact African development through technology and skills transfer, leading to human capital formation or human resource development under the aegis of NEPAD [New Partnership for Africa’s Development] rather than just providing financial aid and extended lines of credit. For instance in Uganda, Indian technology led to nearly three times more electricity being generated – from 300 MW to 1,000 MW – than had been planned at the Karuma project,” he adds.
Moreover, India’s Indian Technical and Economic Cooperation (ITEC) programme is a particularly useful framework in which ICT skills transfer can take place. The ITEC programme has been under way since 1964, focusing on training, specific projects, deputation of Indian experts abroad, study tours and donating of equipment – for example, ITEC has provided 1,350 Ghanaians with training in India. Across the continent, the programme is proving beneficial in a range of areas that have a particularly promising outlook in Africa.
One area of ICT that could be of particular benefit to Africa is online education. India is a world leader in this field, along side countries like the United States, and the industry is expected to be worth $1 billion by the end of the decade. In Africa, the high demand for further education and the rapid growth in Internet penetration coupled with the lack of skilled teachers and teaching infrastructure means that the conditions are ideal for large-scale growth of Internet-based courses. In South Africa, the industry has, to some extent, already taken off, with the launching of firms like EduNet and Thutong. African countries, more widely, should seize the opportunity to tap into India’s expertise in the industry.
According to Raj Verma, Africa should cooperate with India in other areas. “Another sector where Africa can benefit tremendously is health care and pharmaceuticals, where the Indian government and private enterprises can be major players. India also provides a different model of development – a model of pluralistic, multicultural, democratic set-up that suits the African countries with their myriad ethnic, linguistic, religious and tribal divisions,” he says.
Finally, the fact that India has a lengthy history of economic ties to the African continent, which has resulted in the evolution of a significant Indian diaspora, should be recognised in any economic analysis of India-Africa relations. However, some experts argue that the relevance of the diaspora in defining economic ties will be limited in the future. “Indians investing in Africa are not associating themselves with Indian Africans so much. Indian businesses are not necessarily looking for partners of Asian descent on the continent. They are just looking for good business partners,” says Dr Vines.
To conclude, India’s relationship with Africa, like the continent’s relationship with China, has its opportunities and caveats. But the nature of those potential benefits and drawbacks are not identical. Therefore, the economic relations between India and Africa should be approached on its own terms, and its uniqueness should be recognised.
http://www.global-briefing.org/2012/10/india-africa-trade-a-unique-relationship/
