A 20-fold increase in bilateral trade in a little over a decade is no mean achievement. India and Africa have accomplished this, with bilateral trade touching $60 billion in 2011, from $3 billion recorded in 2000. A quantum increase in bilateral trade volumes in the last 3-4 years has, in fact, induced both sides to raise the bilateral trade target to $90 billion by 2015 from $70 billion set earlier.
This was announced in a joint statement made at the Second Meeting of the India-Africa Trade Ministers held in New Delhi in March 2012.
EXPORT INITIATIVES
As India and Africa take affirmative steps to realise the stated goals, both sides are cognisant of the fact that boosting the trade volumes in the near term alone will not be enough. To sustain this growth over a longer period of time, Indian and African governments and industry would have to broaden the trade basket, even as India aims to increase the bilateral trade with each of the African economies. Currently, India-Africa bilateral trade is concentrated on commodities and low-end manufactures. Also, India’s two-way trade with several African economies is way below potential. These issues need to be addressed expeditiously.
Over the years, India has made the effort to boost exports to Africa, with EXIM Bank of India extending lines of credit (LOCs) to African governments on commercial terms, and on concessional terms at the behest of the Indian government.
This is to support India’s export of eligible goods to African economies on deferred payment terms. India has been able to step up exports of manufactures like machinery and transport equipment, petroleum products, paper and wood products, textiles, iron and steel, plastic and linoleum products, rubber manufactured products, agro products, chemicals and pharmaceutical products. India is importing petroleum, metallurgical goods, raw cotton, fruit, vegetables and preparations, chemicals, non-metallic mineral manufactures precious stones, textile yarn, gold, nickel, and ferro-alloys from Africa.
India thus emerged as Africa’s fourth largest trade partner, after the European Union, China and the US. However, the current trade composition will not greatly help India increase its share of Africa’s global trade. In 2011, India accounted for 5.2 per cent of Africa's global trade, compared with China’s share of 16.9 per cent. For India’s share of Africa’s global trade to increase, Indian industry will have to push higher-end manufactures into African markets.
OIL AND OTHER MINERALS
At the same time, Indian imports of oil from Africa are boosting the bilateral trade volumes. It is pertinent to note that of India’s top 10 trading partners in Africa, seven export oil to India. India faces a huge energy deficit, importing 80 per cent of its crude oil requirements. Africa supplies around 20 per cent of India’s fuel imports.
Besides oil, Africa is rich in gold, diamonds, platinum, copper, manganese and uranium. India's diamond-cutting industry — the world's largest — depends on rough diamonds from Africa, while uranium in Niger, Uganda and Tanzania is vital for India's nuclear power industry.
Importantly, greater value-addition to raw commodities within Africa is necessary to enable African economies to benefit further from the Africa-India relationship. In 2011 Africa had a $14.8 billion trade surplus with India. However, this is almost entirely the result of primary commodities exports.
Geographical diversification of bilateral trade is the other key issue to be addressed. Historically, India has been active in East Africa. An active Indian Diaspora and already well-established Indian conglomerates have aided closer economic ties with this region. But India is deepening the economic engagements with parts of Africa that have little or no shared history or cultural contiguity.
Some of India’s fastest-growing economic ties are with countries such as Ethiopia and Sierra Leone, which have small Indian communities, but high growth prospects and investment opportunities.
ENERGY SECURITY
Most African economies enjoy a favourable trade balance with India. Moreover, India’s top four African trading partners – Nigeria, Angola, Algeria and South Africa -- account for 68.6 per cent of total Africa-India trade, and they all have trade surpluses with India.
On a larger plane, India has always maintained a stakeholder interest in Africa’s sustained prosperity, and this is reflected in some of India’s export goods that provide a lifeline to African societies. Take the case of anti-retro virals (ARVs). Indian pharmaceutical firms have supplied affordable ARVs to Africa to fight the AIDS menace.
It may be added that given the composition of Africa-India engagement, an Indian economic slowdown is not likely to impact India-Africa trade and investment flows.
India’s non-oil and non-gold demand will likely slow this year, but Africa’s oil exports to India will only increase as India prepares to firm up its energy security.
Indian and African businesses are indeed consciously working toward broadening the bilateral trade and investment ties.
The India-Africa Business Council (IABC), launched a year ago, is one such initiative taken to boost the bilateral business ties.
The key question is: In what timeframe will the Indian and African governments bring about product and geographical diversification of the bilateral trade?
(The author is Director-General, Confederation of Indian Industry.)