A note on India Africa Trade and Economic Relations

India – Africa Trade and Economic Relations – A Note

Confederation of Indian Industry


1

I. Introduction

Africa is slowly emerging as an engine of growth for the global economy. With a projected average growth of about 5.0% between 2013-25, it is second only to the emerging economies of Asia. The past decade, in fact, has only served to quicken Africa’s economic pulse. Its continuing rapid growth presents a very large opportunity for nations and companies to contribute to the development of this billion-people continent.

As Africa accelerates its own process of internal reform and increases the pace of its global engagement reaching out to newer markets across the globe, India needs to keep pace in enhancing its economic engagement with the region.

Today, India has the opportunity to propel this momentum further with a special value proposition to partner in Africa’s development based on our geographic proximity, cultural affinity, IT/engineering talent, entrepreneurship and low cost operating models. Building on these strengths, India should develop a new approach where Indian industry acts as a “solutions partner” to solve business and developmental challenges, and benefits from the business opportunities that this opens up.

II. India’s Bilateral Trade with Africa

India’s reliance on oil and gas from Africa has increased exponentially over the past few decades, from less than a single percentage point to an anticipated 90% per cent by 2025. As such, establishing solid trade and economic ties with Africa is of primary Indian economic concern. Africa has historically run a trade surplus with India, most recently estimated at just over USD6 billion in 2014-15.

India’s growing demand for energy to fuel its economic expansion spreads to other resources in Africa, including metals and minerals (also gold), while Africa imports an array of consumer goods and hi-tech requirements such as IT services, hardware and telecommunications technology.

a) India’s Exports to Africa

Looking at India’s exports to Africa, the items are much more diversified than its imports. Some of Africa’s largest imports from India account for just 2 per cent of its overall imports. Nevertheless, mineral fuels (mostly non-crude petroleum oils) are still the single largest import category (averaging 26 per cent of total imports from India during 2010-14).

On balance, Africa ran an average mineral fuels trade surplus with India of USD20.1 billion over the last five years. Vehicles accounted for an average of some 10.3 per cent over the last five years, with pharmaceutical products and machinery each accounting for an average of 8.4 per cent and 5.6 per cent of total imports from India, respectively


2

India’s Exports to Africa by Region

S. No.

Region 2013-14 (in USD Million)

%Share of India’s Total

Exports

2014-15 (in USD Million)


Exports

%Growth

1 Southern African Customs Union

5,394.93 1.72 5,532.43 1.78 2.55

2 Other South African Countries

2,328.65 0.74 3,214.03 1.04 38.02

3 West Africa 6,993.33 2.22 6,980.27 2.25 -0.194 Central Africa 1,092.19 0.34 1,251.26 0.40 14.565 East Africa 9,975.47 3.17 10,152.26 3.27 1.776 North Africa 5,441.63 1.73 5,711.68 1.84 4.96 Total Export to

Africa31,226.20 9.93 32,841.93 10.58 5.17

India’s Total Export 314,405.30 310,338.48 -1.29Source: Export – Import Databank, Department of Commerce, Ministry of Commerce and Industry, Govt. of India

b) India’s Imports from AfricaAfrica’s exports to India have grown sharply over the last decade, with mineral fuels consistently making up the majority of exports since 2006. Mineral fuel exports to India, which is mostly made up of crude oil (89 per cent in 2014), have grown from a mere USD832 million in 2005 to just over USD27.4 billion by 2014. The major African suppliers of crude oil to India last year were Nigeria (58.9 per cent) and Angola (21.7 per cent), with Egypt also supplying another 5.8 per cent of India’s total crude oil imports from Africa in 2014. In turn, South Africa has historically been India’s second largest supplier of imports (averaging 19.5 per cent of India’s total imports from 2010-14), with Africa’s southernmost country primarily exporting coal to India.

India’s Imports from Africa by Region

S. No.

Region 2013-14 (in USD Million)


Imports

2014-15 (in USD Million)


Imports

% Growth

1 Southern African Customs Union

6,598.42 1.47 7,567.23 1.69 14.68

2 Other South African Countries

6,540.91 1.45 5,259.43 1.17 -19.59

3 West Africa 17,236.80 3.83 20,034.56 4.47 16.234 Central Africa 108.2 0.02 265.82 0.06 145.695 East Africa 1,034.02 0.23 1,441.99 0.32 39.456 North Africa 5,108.57 1.13 4,065.83 0.91 -20.41 Total Imports

from Africa36,626.92 8.14 38,634.86 8.62 5.48

India’s Total Import

450,199.79 448,033.41 -0.48

Source: Export – Import Databank, Department of Commerce, Ministry of Commerce and Industry, Govt. of India


3

III. Trends in India – Africa Investment

a) Indian Investment in Africa

Between January 2003 and August 2015 Indian companies invested a total USD 55.07 billion, creating 100,584 jobs.

Indian Investment in Africa

Year Jobs created (Nos.) Capital investment (USD Mn.)2015 4,884 539.12014 6,193 1,051.902013 4,938 5,175.602012 8,351 7,501.802011 29,859 11,859.202010 12,613 4,619.402009 5,745 2,824.302008 9,688 6,293.002007 1,138 1,494.302006 7,708 7,807.002005 3,386 1,068.702004 3,119 3,979.902003 2,962 859.2Total 100,584 55,073.40

Source: fDi Intelligence from The Financial Times Ltd

Out of a total of 35 destination countries, the top five account for nearly 50% of the total investment made in the region.

FDI trends by destination country

Destination country No of companies Jobs Created Total investmentSouth Africa 56 9,558 5,092.60

Nigeria 30 13,765 12,440.70Kenya 33 7,460 2,573.70Egypt 27 8,654 4,457.00

Tanzania 18 1,981 736.4Ethiopia 17 15,102 1,815.00

Mauritius 17 1,975 484.7Ghana 15 5,827 2,214.80Zambia 13 5,039 1,480.50Uganda 10 1,128 600

Other destination countries 85 30,095 23,178.00Total 206 100,584 55,073.40



4

b) Indian Companies Operating in Africa

Indian companies have established a strong presence in Africa. Many Indian companies today are developing roads in countries like Ghana, Ethiopia, Nigeria, Gabon and Tanzania. Two Indian companies have been awarded contracts worth over 2 billion Br (over $100 million) to build roads in Ethiopia. JMC Projects Indian Limited Company, which participated in Ethiopia’s road construction for the first time, was awarded a 109 km project for 1.1 billion Birr. Another Indian construction company, SWE Infrastructure Developers Plc, has also signed an agreement for the construction of 66 km road project for close to a billion Birr.

Indian Railways has made forays into Africa, having supplied locomotives to Mozambique, Tanzania, Mali and Senegal, and coaches to Angola. It has also rehabilitated sections of railway in Mozambique and Liberia. Two currently operative LOCs ($27.7 million to Mali and Senegal combined and $10.25 million to Benin) by the India Exim Bank are for the acquisition of railway coaches and locomotives from India.

Hyderabad-based Ramky Infra is building Gabon Special Economic Zone, an industrial park, in capital Libreville.

In the telecom sector Bharti Airtel operates in 17 countries across Africa. It operates a GSM network in all countries, providing 2G or 3G depending upon the country of operation. In 2005, Tata acquired a license to operate independently in South Africa. This led to the launch of Neotel in 2006, the second network in the country. Neotel is now one of the leading providers of communication services in South Africa. Tata Communication is also a leading investor in three undersea cable systems that connect South Africa with Europe, Middle East and Asia including India.

Uninterrupted power supply is another prerequisite for enhanced trade and investment environment. India’s largest integrated power company Tata Power is offering technical services to Benin Distribution Company of Nigeria, marking the company’s foray into the power distribution sector in a foreign country. Companies such as Larsen & Toubro also have ventured in to the power sector in Africa and are laying transmission lines. Thermax is manufacturing boilers and other energy engineering equipment in countries like Kenya and Nigeria. Kalpataru Power Transmission Ltd (KPTL) has offered its expertise in power transmission business to the entire African continent and has been making a positive contribution to the overall development

Telecom Sector: the case of Bharti Airtel

Telecom is another sunrise sector in Africa, with Bharti Airtel leading the Indian charge. It acquired Africa’s mobile telecommunication company, Zain, in 2010 for $10.7 billion (enterprise value). Since then its subscriber base has risen to 62 million from 36 million. Bharti also offers high-speed data service in 11 countries and mobile remittance service in 15 countries. Bharti has adopted a low-cost business model in Africa with the help of its global partners: IBM, Ericsson, Nokia Siemens, Tech Mahindra and Spanco. The low-cost model has helped the company expand its presence in the rural areas there.


5

of all the countries in the region by way of delivering projects of international standards in the shortest possible period at very competitive prices.

Tata Motors is present in some African countries with its entire range of commercial vehicles which includes pick-up trucks, light trucks, medium and heavy trucks etc. Other major Indian heavy vehicle makers who have strong presence in Africa are Ashok Leyland and Mahindra.

c) African Investments in India

Between January 2003 and August 2015 African companies invested a total of USD 1.39 billion creating a total of 18,898 jobs.

African Investment in India

Year Jobs created Total Investment (USD Million)2015 573 49.92014 2,800 107.42013 1,000 83.32012 918 216.72011 802 69.62010 668 33.92009 50 8.82008 2,502 3452007 5,402 246.62006 2,468 83.62005 199 39.32004 1,373 26.52003 143 80.9Total 18,898 1,391.50


The top 10 companies account for 88.2% of job creation and 77.5% of capital investment. These companies operate in sectors such as IT and Software, Textiles, Coal, Oil and Natural Gas, Financial Services and Machinery among others.

The top countries that are investing in India include South Africa, Kenya, Mauritius, Tanzania and Senegal.

Top 10 Companies: Jobs Created and Capital Investment

Company Name Jobs created Total Investment (USD Million)

UST Global 10,338 395.5Pavers Foresight Smart Ventures 1,448 274.9Sahara Computers and Electronics (SCEL) 3,318 54De Beers 368 93.6FirstRand 288 103.6


6

Techno Brain 213 18.8CKR Consulting Engineers 121 11.5Mantis Collection 263 91.6VP Group (Vegpro Group) 255 25.7Mxit 50 8.8


IV. Suggestions to Broaden and Deepen India – Africa Economic Relations

1. To boost Africa’s exports of goods and services to India

• TosustainthegrowthinIndia-Africatradethereisaneedtobroadenthetradebasket,especially for Africa’s exports. Greater value-addition to commodities within Africa is necessary to enable African economies to benefit further from expanding trade with India.

• Exportsofvalue-addedproducts require, interalia,apositivebusinessenvironment,access to capital, skilled labour and sustained FDI that can be achieved through mainstreaming of trade in national development strategies.

• Intheshorttomedium-term,Africancountriesshould looktoovercomethehurdlesfaced by African firms in exporting to India. According to a survey conducted by CII and WTO, it emerged that for African exporters’ access to Indian buyers, trade finance and informal controls and shipment delays are some of the major concerns. The mitigation of transaction costs will have a significant impact in enhancing the export competitiveness of African products. The focus, therefore, should be on trade facilitation.

• India’sDFQFscheme–DFTPIschemeforLDCs,holdsgreatpotentialinboostingAfricanexports to India. The DFTP-I came into full force in August 2012. After the amendment of the DFTP scheme in April 2014, its coverage has increased to 34 countries and over 98 per cent of India’s total tariff lines. As per this latest amendment, there are 97 products in Exclusion list and 114 products in MoP (Margin of Preference) list. In other words, it means that, barring 211 tariff lines, India provides duty free market access to LDCs in the Indian market on all remaining products.

• DiversificationinAfricanexportsofservicesisalsocrucialfordevelopmentofAfricaneconomies. Tourism, accounting for over 50% of African services exports, still holds immense potential in exports to India by tapping into the growing tourism and business travel sector in India. Bilateral co-operation and promotion of African tourism in India would increase visibility and popularity of Africa as a travel destination.

2. To boost India’s exports of goods and services to Africa

• ForIndianexporterstransportandlogisticscosts,poorbusinessenvironmentalongwithaccess to African buyers are cited as major difficulties. The annual India-Africa Conclave is an important forum to bring buyers and sellers together. In addition, dedicated trade meets connected with a particular country or sector will help address information asymmetries as well as bring the growth markets of Africa closer to Indian producers.

• Duetohighshippingcosts,andcostofinsuranceinexportstoAfricancountries,manyIndian exporters prefer to sell free on-board basis instead of on-delivery basis. This is


7

generally not a good practise when exploring new markets and engaging with newer or smaller buyers. Lowering transaction costs and risks are crucial to enhanced trade between India and Africa. The export credit and trade finance institutions of India are playing a major role in market access initiatives of Indian firms in Africa.

• EXIMBankLOCshavehistoricallygalvanisedIndia’sexportstoAfrica.However,thereare certain areas that mandate urgent attention, such as, delays in the release of sanctioned LOC, monitoring of projects supported by LOC, greater transparency in the selection of projects to be supported by LOC, and synchronisation of different LOC projects that have received funding from multiple sources.

• Indianservicesexporterscitepoorbusinessenvironmentandaccesstobuyersassomeof the major impediments in exporting services to African countries. Many services firms also find that getting work visas/ permits is particularly difficult in some African countries. This should be addressed at the governmental level to facilitate services trade.

• TheIndianSMEsectorrequiresinformationonthegrowthprospectsinAfricaandhowtheir products can find a market there. While business associations can play a role, the commercial wings of Indian embassies in Africa can, and are playing a facilitating role by providing in-country research on market expansion opportunities available to Indian exporters.

3. Investment-led trade towards greater economic cooperation

• India’s investment-led trade approach could help sustain the dynamic trade growthbetween India and Africa, and help extend trade both in terms of the number of partners involved and also the range of goods and services traded. Investments for joint ventures between the countries would best open up the route for enhancing goods trade.

• Removing bottlenecks to Indian investments, including, protection of investmentsthrough e.g. BITs, access to capital, improved business environment, is imperative to ensure that Africa moves to a sustainable investment-led development model.

• Greatercooperationinagricultureandagro-processingwouldhaveagreatbearingonthe food security situation in both Africa and India. Africa’s farm sector is expected to grow to the tune of US$1 trillion by 2030, although this growth will largely depend on adequate technology infusion. Indian companies could help Africa’s agriculture sector in farm mechanisation, agro-processing and storage, investments in training and development of human resources for the farm sector, Greenfield investments, local vendor development, setting up of agro parks in Africa, setting up of horticulture industries and floriculture units, among others. In boosting Africa’s agricultural value addition, India too can meet its own food needs through imports, especially in pulses where India faces a major shortfall.

• Lack of adequate investments is a key reason for the under-utilisation of Africa’shydropower potential and other renewable and non-renewable energy sources. India has proven expertise in energy generation and can partner African countries build their energy infrastructure through manpower, technical and financial investments and engineering inputs.


8

• Thereshouldbe strong engagement among India and African countries across diverse services sectors. India has comparative advantage in many services sectors, including, ICT, education, vocational skills development, health and financial services in which Indian investments will serve the continent well.

• TheSouthernAfrican region is an important non-oil trading region for India.Tohelpincrease trade India and South African countries are looking to expand the India-SACU PTA towards a comprehensive economic co-operation agreement incorporating services and investments. The plans for a comprehensive economic cooperation partnership agreement with Mauritius, and similar agreements with several other regional communities in Africa should also be studied further. A joint study is also underway to work out a free trade agreement with COMESA.

4. Strengthening India’s development assistance in Africa

• Indiaintendsto“intensifyaid-for-tradeassistance”inthecomingyears.Inviewofthis,greater institutional mechanisms and global co-operation would help ensure that India’s assistance becomes more effective. India could benefit from the expertise of traditional donors on project impact analysis and best practices to improve quality of delivery and introduce mechanisms for better assessment of Indian project assistance.

• Trilateral co-operationwith traditionalDACpartners andemergingpartners from theSouth could also complement development assistance in Africa. Key gains can be made in sharing professional skills in the design and delivery of Aid for Trade programmes as well as project finance and technology transfer.

• Theshortageofwell-trainedtradeprofessionalsisaproblemfordevelopingcountries,which lack the institutional capacity to train them. It should be a priority for India to train trade professionals and to build institutional capacity in the African nations for negotiations at bilateral and multilateral forums.

5. Collaborating with Third Country for Investing in Africa

• ThereisimmensepotentialforcountrieslikeJapanandSingaporetobetterleverageminerals, oil & gas and other resources from Africa. India has been struggling to compete with China to an extent, due to the limitations of domestic funding.

• Thesecountriesfaceconstraintsofavailabilityofhumanresources,lackofknowledgeof local conditions and scale of operations. There is potential for complementing Indian engineering expertise and with funding and high end technology of these countries.

• ThiscanbemadepossiblethedevelopmentfundingagencieslendtoEXIMBankofIndia, which in turn can do onward lending for African projects. Projects of priority can be co-financed by Indian Line of Credit and third country funding.

• Bythisapproachtheprojectsofmuchlargervaluecanbefundedascomparedtofundingentire cost of projects by India Line of Credit alone and risks of the borrower country are shared by India and third country. There can be inward technology transfer to India in cases where Indian infrastructure companies execute projects jointly with companies from developed nations who may be co-financing a particular project. This will also help Indian infrastructure companies pre-qualify for future projects which otherwise would not be possible.

The Confederation of Indian Industry (CII) works to create and sustain an environment

conducive to the development of India, partnering industry, Government, and civil society,

through advisory and consultative processes.

CII is a non-government, not-for-profit, industry-led and industry-managed organization,

playing a proactive role in India's development process. Founded in 1895, India's premier

business association has over 8000 members, from the private as well as public sectors,

including SMEs and MNCs, and an indirect membership of over 200,000 enterprises from

around 240 national and regional sectoral industry bodies.

CII charts change by working closely with Government on policy issues, interfacing with

thought leaders, and enhancing efficiency, competitiveness and business opportunities for

industry through a range of specialized services and strategic global linkages. It also provides

a platform for consensus-building and networking on key issues.

Extending its agenda beyond business, CII assists industry to identify and execute corporate

citizenship programmes. Partnerships with civil society organizations carry forward corporate

initiatives for integrated and inclusive development across diverse domains including

affirmative action, healthcare, education, livelihood, diversity management, skill development,

empowerment of women, and water, to name a few.

In its 120th year of service to the nation, the CII theme of “Build India- Invest in

Development, A Shared Responsibility”, reiterates Industry’s role and responsibility as a

partner in national development. The focus is on four key enablers: Facilitating Growth and

Competitiveness, Promoting Infrastructure Investments, Developing Human Capital, and

Encouraging Social Development.

With 66 offices, including 9 Centres of Excellence, in India, and 8 overseas offices in Australia,

Bahrain, China, Egypt, France, Singapore, UK, and USA, as well as institutional partnerships

with 312 counterpart organizations in 106 countries, CII serves as a reference point for Indian

industry and the international business community.

Confederation of Indian Industry

The Mantosh Sondhi Centre

23, Institutional Area, Lodi Road, New Delhi – 110 003 (India)

T: 91 11 45771000 / 24629994-7 | F: 91 11 24626149

E: [email protected] | W: www.cii.in

Reach us via our Membership Helpline: 00-91-11-435 46244 / 00-91-99104 46244CII Helpline Toll free No: 1800-103-1244

Follow us on :

www.mycii.infacebook.com/followcii twitter.com/followcii

Business

A note on India Africa Trade and Economic Relations