Continental View of Indo - African Trade and Opportunities

                                                                                             -compiled by  Mrs. Sunanda Rajendran

Though India and African Continent, especially South Africa, have strong historical ties, still the huge potential in mutual trade, investment and other opportunities, which has been increasing over a period, have not been fully tapped. But now the realization has manifested that both parts of the globe can immensely benefit from each other’s growing economies.

One evidence of this realization is that India’s latest Economic Survey, a document of Indian Government which provides the up to date state of the Indian economy states that –

“There is a growing realization across Asia and Africa that the experience of Indian companies is more appropriate to their project needs, especially in hydro-power, irrigation, transportation and water supply systems.”

Two significant recent developments also support the above view. First is the recently introduced the Focus Market Scheme includes African countries amongst other select countries of trade interest to the Indian economy. It is reported that the Commerce Ministry has notified the 57 countries of Latin America and Africa which would be covered under its Focus Market Scheme. Some African countries include Angola, Benin, Botswana, Burundi, Cameroon, Ethiopia, Chad, Lesotho, Libya, Liberia, Mauritius, Morocco and Zambia. In this only those countries are included to which India’s exports are less than $200 million per year. Hence, countries like South Africa or Tanzania are not covered under the scheme. But these countries are bound to find ample opportunities through the growth dynamics of the Indian economy.

The Focus Market Scheme is an important part of the 2006-07 Annual Supplement to India’s Foreign Trade Policy 2004-09 (announced on April 7, 2006) which provides a stable policy regime keeping in mind contemporary developments. Many African countries are emerging as important trading partners and Indian Government plays a facilitative role through such schemes. Interestingly, the FTP policy 2006 admits that “Indian exporters have unfortunately been neglecting Africa amongst few other destinations, perhaps due to high freight costs & undeveloped networks. But these are the markets of the future, and it is of strategic necessity that we enlarge our market share here”. It is also important to note that this policy also provides the ‘Focus Product Scheme’ which aims to promote exports of products, manufacture of which would enhance employment.

The FTP also provides for India to become a GEM AND JEWELLERY HUB of the world, In this African countries, especially South Africa, could reap enormous opportunities of collaborative nature over the future period.
The aim of the FTP policy is doubling in India’s percentage share of global merchandize trade within five years. A ready Reckoner is to be released soon providing exact figures of trade country wise.
Another importanet development to be noted by the African continent is that the benefits of foreign trade are being taken to interiors ie rural areas of the country and for this the Vishesh Krishi Upaj Yojana is being expanded to include village industries based products for export benefits. This policy is renamed as Vishesh Krishi Upaj aur Gram Udyog Yojana – a rather long name, but one which adequately reflects its intent and coverage. Many of trade products in the future may come from rural areas of India. Besides, the FTP for the first time provides push to service exports.
The second development is that only two days back a MoU for a wide ranging cooperation, in the areas of governance, administration, local Government, education and Information Technology on a priority basis, has been signed between India and South Africa on the occasion of a four day visit of a South African delegation under the leader South African Minister Geraldine Fraser-Moleketi.

Both developments mentioned above are landmark developments in building up of healthy economic relations between India and African countries.With Indian and African growth story unfolding, this multi-faceted relationship is bound to strengthen further.Another development of enormous significance for the future is that both continents’ collective capacity in bargaining and voicing concerns that affect their economies in international forums is being made highly effective.

I Background and Historical Perspective.

Despite the many challenges facing Africa, GDP growth in the African countries has exhibited resilience in the face of the global slowdown and the ensuing uneven recovery. Considerable progress has been achieved through improved macro-economic management and continued structural progress in many countries. This has resulted from the strong commitments of many African governments to prudent fiscal, monetary and exchange rate policies.

Real GDP growth of the African region, which was projected at 4.5% in 2005, is forecast to rise to 5.9% in 2006

Country specific developments have also boosted overall developments in the region. These positive developments include large increases in oil production in Angola, Chad and Equatorial Guinea, recovery in agricultural output in Ethiopia, and Rwanda. While rise in global oil prices have affected oil importers, the rise in global commodity prices is expected to have a positive net impact on the trade balances of many countries.

Challenges facing Africa
While growth has been resilient, Africa continues to face a wide range of development challenges, including political instability that undermine macroeconomic stability and the long-run growth potential; adverse weather conditions and natural disasters that generate high output volatility; infrastructure and health conditions that hold back productivity growth. The need for African countries to redouble their efforts is firmly articulated in the New Partnership for Africa’s Development (NEPAD).

As stressed in NEPAD, a multi-faceted strategy is required to address these issues, including policies aimed at reducing conflict and improving political governance; promotion of competition, trade and foreign investment, underpinned by measures to strengthen macroeconomic policy frameworks; and a policy focus on developing the pro-poor sectors of healthcare, education, infrastructure and agriculture. Stimulus to sustained growth would emanate from the deepening of reforms, structural transformation, rebuilding institutional capabilities and sound as well as efficiently managed macro-economic policies.

Most of African countries fall in the bracket of developing or underdeveloped economies. Many of the African nations are rich in minerals and metals including gold, diamond and a rich source of oil and gas reserves.

On the other hand, India being an emerging economic power, today boasts of a substantially strong industrial and technological capacity and know how. It is one of the cheapest source to source drugs in the world. So both the continents have tremendous opportunities for promoting mutual trade.

India is amongst the top 15 largest manufacturing economies in the world. Its influential position in the global market definitely interests Africa. For many of the developing nations of Africa like South Africa and Egypt, India shares similar developmental challenges.

A view into the recent past:

• In the last few years, Indian industry is increasing its presence in sectors like IT and automobiles in Africa. India’s leading industrial houses like Tatas and Mahindras are increasing their presence in Africa.
• African countries are involved in road building and construction in India.
• Indian companies are increasing their presence in Africa’s electricity/power generation as well as mining technology.
• A number of agreements have been signed for strengthening mutual trade cooperation in the region of software development and IT services.

II Areas of Mutual Trade, Investment & other Opportunities.

India has had interest of bilateral trade cooperation with many African countries like Egypt, Nigeria, South Africa, Kenya, Mauritius, Ghana, Tanzania, Algeria and Sudan.

Main areas of mutual trade cooperation are pharma and health sector, engineering, chemicals, IT, water management, food processing, tourism, entertainment and education.
The African region is an important source for India’s imports of several items. South Africa is the fourth largest source, after Switzerland, Australia and the UAE for India’s gold imports accounting for 15.5% (US$ 1.6 bn) of India’s total gold imports (US$ 10.3 bn) during 2004-05.

Egypt has traditionally been one of India's most important trading partners in the African continent. India-Egypt Bilateral Trade Agreement has been in operation since March 1978 and is based on the Most Favoured Nation clause. Furthermore, India has emerged as the second largest export destination for Egypt after Italy.

Major Indian export items to Egypt are sesame seeds, refined cane sugar, tobacco, iron/steel casings, boneless bovine frozen meat, engineering goods including diesel engines, pumps & vehicles, cotton, jute yarn and other textile fibres, plastic & rubber, chemicals and pharmaceuticals (vaccines, blood & blood derivatives), paper and cereals (mainly wheat).

Major Indian import items are petroleum and products, raw cotton, rock phosphate, coking coal and marble.

Indian Projects in Egypt :
• There is a substantial presence of Indian projects and Joint Ventures in Egypt. According to the Egyptian General Authority for Foreign Investment (GAFI), India is the 12th largest foreign investor in Egypt with a total investment of approximately $330 mn in 43 projects.
• Alexandria Carbon Black (ACB) set up by Grasim India Limited with TRENCO and ATC as Egyptian partners has been the leading example of successful Joint Venture between Indian and Egyptian companies.

Information technology, biotechnology, renewable energy, remote sensing and satellite technology and nuclear medicine are possible areas for further cooperation.

With an area of 2.5 sq. kms, Sudan is the largest country in Africa. Setting up of COMESA with 20 countries around Sudan and the organisation’s emphasis on eventually realising custom free transportation of commodities through the borders of the member countries is bound to further enhance Sudan’s importance as a trade hub for the region.

India-Sudan trade relations are poised to increase steadily. The volume of bilateral trade reached US$ 110 mn in 2002. In the past 3-4 years, India Sudan bilateral trade has grown by 100%. India is the 6th largest exporter of commodities to Sudan after Saudi Arabia, China, UAE, Germany and United Kingdom.

The main products of India’s export to Sudan are Machinery & Equipment, Manufactured goods, Transport Equipment , Wheat & wheat flour, Chemicals & medicines, Other Food Stuffs, Textiles, Petroleum Products, Crude Materials, Tea, Beverages & Tobacco and Coffee.

Indian Ministry of External Affairs has given its clearance to Bharat Heavy Electricals Ltd. (BHEL) for setting up of a 1,000 megawatt of gas based power project in Sudan, the investment cost of which is estimated to be about $ 500 mn.

The Government of India has extended a line of credit to Sudan within the range of $ 110 mn which has been fully utilized and further lines of credit are likely to be extended to Sudan for its various development projects.

Algeria is gradually developing as an important trading partner in the North Africa region. India is planning to enter into several bilateral agreements with including an agreement on trade & economic cooperation for fulfilling this objective of doubling bilateral trade within the next 2-3 years.

India is presently negotiating agreements in the areas of investment protection and promotion, avoidance of double-taxation, air transport, maritime services, phyto-sanitary controls, veterinary sanitary and promoting a culture to develop transport links, financial infrastructure and legal framework for facilitating expansion of trade and economic cooperation between India and Algeria.

ONGC Videsh-Reliance Industries combine had joined hands with its rival bidder Sonatrach, Algeria's biggest national oil and gas company, for securing the contract for Tuba oil field development in Iraq. This move was aimed at strengthening OVL's position in bagging the Tuba contract, a discovered oil field, which is reported to yield as much as 3 lakh barrel of oil per day.

There is immense scope for future cooperation between India and Algeria. India can provide assistance and experience for the development of Algerian economy and infrastructure. India could provide consultancy in telecom, power, petroleum & natural gas, fertilisers, chemicals and infrastructure/construction projects. Both the countries could combine their efforts for setting up joint ventures.

The Djibouti economy is based on service activities connected with the country's strategic location and status as a free trade zone in northeast Africa. Scanty rainfall limits crop production to fruits and vegetables and most of its food requirements are met by imports. Djibouti provides services as both a transit port for the region and an international trans-shipment and refueling center. It has scanty natural resources and little industry. The nation is, therefore, heavily dependent on foreign assistance to help support its balance of payments and to finance its development projects.

The trade balance is between India and Djibouti is in favour of India. Bilateral trade from 1997-98 to 2003-04 grew by approximately 85%.

India’s export products are gems & jewelry, paper/wood products, plastics & linoleum products, residual chemicals, machinery & instruments, cotton yarn, fabrics, manmade yarn, fabrics, tea, pulses, spices, transport equipment, machine tools, manufacturers of metals, others ores & minerals, cosmetics/toiletries, non-basmati rice, floriculture products, drugs, pharmaceuticals and tobacco.

India’s import products are mainly raw hides & skins.

Areas for future cooperation include Information Technology related products and services, automobiles and parts, construction materials, foodstuffs, textiles and fabrics, engineering goods, electronic and electrical items, chemicals, pharmaceuticals including hospital equipments.

Regarding Kenya, India's principal exports are machinery & instruments, drugs and pharmaceuticals, cotton yarn, fabrics and made-ups, transport equipment and metals.
Principal imports from Kenya include inorganic chemicals, dyeing and tanning materials, pearls, precious and semi-precious stones and leather and raw hides & skins.
As far as India -- Tanzania relations are concerned, the two sides recognize the tremendous possibilities for investment in the fields of agriculture, trade and investment, small and medium industry, health and information technology, particularly with regard to prospects that exist in countries within the EAC and SADC region. India is assisting the small and medium industries in Tanzania by setting up a small industries information center in the SIDO of Tanzania. The cooperation is also being expanded in the health sector including supply of pharmaceutical products and setting up of joint ventures in the production of pharmaceuticals.

III What Needs to be Done to Promote Mutual Trade & Investments

Mainly, clear-cut and mutually beneficial Free Trade agreements should be formulated between India and each identified African nation where mutual trade opportunities exist and are growing. The effort should be to able to quantify the benefits to each member, at least tentatively in the document. For instance, India should be able to gain at least to this extent in export of this IT service to this nation in coming five years and vice versa.

Concrete steps needed are:

• Development of a Free Trade Agreement (FTA) between India and the Southern African Customs Union (SACU)
  
• Focused bilateral promotions agreements
  
• Opening gold and diamond and minerals mining in Africa for Private or PPP (Public Private Partnership) cooperation, allowing Indian companies to mine.
  
• More Joint Business Forums consisting of industry representatives to help grow interaction between Indian and African business community, which can identify projects and investment opportunities in various areas.
  
• There is a need for closer interaction, including regular ministerial- level dialogue between India and regional organizations such as SADC and EAC.
  
• India can support the objectives of NEPAD and expand its credit to African nations for realizing in a concrete manner the objectives of NEPAD, through strengthening economic linkages between India and African countries.
  
• On the social side, Extreme Poverty is a serious problem in many UDC African countries. India can contribute effectively by funding few well structured poverty eradication schemes, which could in the long run become self-supportive and sustainable.

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“Focus Africa” Programme
With a view to significantly enhance India’s trade with Africa, the Government of India launched an integrated programme “Focus Africa” from the year 2002-03. 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 when first introduced, focussed on the Sub-Saharan African region with added emphasis on seven major trading partners of the region, namely, Nigeria, South Africa, Mauritius, Kenya, Ethiopia, Tanzania and Ghana, which together account for around 69% of India’s total bilateral trade with the Sub-Saharan African region.
Effective April 1, 2003, the “Focus Africa” programme has been extended to cover 17 more countries in Africa (Angola, Botswana, Mozambique, Zambia, Zimbabwe, Namibia, Senegal, Côte d’Ivoire, Uganda, Madagascar, Seychelles, Egypt, Tunisia, Sudan, Algeria, Libya and Morocco), to cover in effect the entire African continent.
Specific focus products for exports to these countries have been identified, which in turn can be broadly classified into the following major product groups: cotton yarn, fabrics and other textile items; drugs and pharmaceuticals; machinery and instruments; transport equipments; and telecom and information technology. At the same time the “Focus Africa” programme envisages enhancing India’s exports to the region through integrated efforts of the Government of India, India Trade Promotion Organisation (ITPO), Export Promotion Councils (EPCs), Apex Chambers of Commerce and Industry, Indian Missions and institutions such as the Export-Import Bank of India, ECGC.
Annex
Regional Trading Arrangements in Africa
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 liberalisation, often in the context of IMF and World Bank supported programmes. At the same time, with creation or expansion of a number of important regional trading arrangements in other parts of the world, there has been a revival of interest among policy makers in Africa in regional integration, resulting in the establishment or renewal of such arrangements in Africa.
Major trading arrangements in Africa include:
  1. Common Market for Eastern and Southern Africa (COMESA) - Angola, Burundi, Comoros, Democratic Republic of Congo, Djibouti, Arab Republic of Egypt, Eritrea, Kenya, Madagascar, Malawi, Mauritius, Namibia, Rwanda, Seychelles, Sudan, Swaziland, Uganda, Tanzania, Zambia & Zimbabwe;

  2. Southern African Development Community (SADC) - Angola, Botswana, Democratic Republic of Congo, Lesotho, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, Tanzania, Zambia & Zimbabwe;

  3. Southern African Customs Union (SACU) - Botswana, Lesotho, Namibia, South Africa & Swaziland;

  4. West African Economic and Monetary Union (UEMOA) - Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal & Togo;

  5. Economic Community of West African States (ECOWAS) - Benin, Burkina Faso, Cape Verde, Côte d’Ivoire, the Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone & Togo;

  6. Central African Customs and Economic Union (UDEAC) - Cameroon, the Central African Republic, Chad, the Republic of Congo, Equatorial Guinea & Gabon;

  7. Economic Community of Central African States (ECCAS) - Angola, Burundi, Cameroon, the Central African Republic, Democratic Republic of Congo, the Republic of Congo, Equatorial Guinea, Gabon, Rwanda and Sao Tome & Principe;

  8. East African Community (EAC) – Kenya, Tanzania, and Uganda; Cross Border Initiative – Burundi, Comoros, Kenya, Madagascar, Malawi, Mauritius, Namibia, Rwanda, Seychelles, Swaziland, Tanzania, Uganda, Zambia & Zimbabwe;

  9. Economic and Monetary Community of central Africa (CEMAC) - Cameroon, the Central African Republic, Chad, the Republic of Congo, Equatorial Guinea, Gabon, and Sao Tome & Principe;

  10. Economic Community of the Countries of the Great Lakes (CEPGL) - Burundi, the Democratic Republic of Congo & Rwanda;
  11. Indian Ocean Commission – Comoros, Madagascar, Mauritius, Reunion & Seychelles;

  12. Mano River Union (MRU) – Guinea, Liberia & Sierra Leone.

These trading arrangements are envisaged to foster trade and investment relations amongst member countries by removal 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. The success of these arrangements in fostering intra-regional trade has been diverse, with COMESA, ECOWAS and SADC being the Source: World Development Indicators 2005, World Bank
Annex
Targeting Select Blocs in Africa
Strategy to enhance exports to Africa in terms of identifying target trade blocs in the region would entail selecting COMESA, ECOWAS, SADC, Cross Border Initiative and UEMOA on the basis of the success these trade blocs have achieved in promoting trade among the member countries. At the same time, these blocs represent countries in eastern, southern, and central as also western Africa.
Within each targeted trade blocs, strategy would entail identification of select member countries, based on trade complementarities with India as also potential for setting up joint ventures/WOS, which would then be used as a based for accessing the markets of other member countries. Such a strategy would further entail a detail analysis of the current trade relations among member countries, rules of origin criteria as also existing trade regulations within each member country.

Annex

Select Economic Information

Direction in Imports : Imports by region and countries.

Direction in Imports : Imports by region and countries.

India's Exports by Countries : April - March.

India's Imports by Countries : April - March.

Iindia's Major Export Destinations in Africa

India's Major Import Sources in Africa

Major commodities of exports (2004-05)

Major Items of Import from Africa (2004-05)

India's Exports by countries : April - March

India's Imports by Countries : April - March