India – Africa relations: a trajectory yet to reach its peak
Taku Fundira, tralac Researcher, discusses India-Africa relations
Viewed as the second-fastest growing emerging economy in the World, India was historically considered as underdeveloped with low levels of mechanised industry. Economic reforms that began in the 1990s have served to accelerate the country’s growth and turned the country into an open market economy with a modern industrial sector.
Export promotion remains the focus of India’s trade and investment policy. The effect of the global financial crises led India to adopt policies in the short term that were aimed at curbing and reverse the declining trend of exports and to provide additional support especially to those sectors which have been hit badly by recession in the developed world.
This article focuses on India’s strengthening relations with Africa and takes a look at what is driving this relationship.
Going Global – Africa the target
There is a growing realisation that the future growth of Indian companies will be substantially driven by the share they have in the global market. Indian companies are acquiring overseas assets to establish their presence in foreign markets and to upgrade their competitive strength (IBER, 2011). An unprecedented decade of economic growth in Africa, coupled with a series of policy and institutional reforms, has attracted emerging global powers into the continent, seeking to gain a stronger foothold in the continent in their bid to reach more markets and forge new political alliances.
Initially limited to Kenya, Nigeria and Uganda in the 1970s, India’s influence has expanded geographically between 2000 and 2007 with Indian companies now doing business in over 20 African countries (Dickerson-Nyema, 2011). Africa, considered as one of the richest natural resource regions in the world today represents one of the largest untapped potential for investment, thus becoming a very attractive market for India as reflected by the increasing footprint andinvestments by India within the African continent. India’s trade with Africa has doubled in the past four years, from US$24.98 billion in 2006–07 to US$52.81 billion in 2010–11 (India-Africa Invest).
This steady upward trajectory on the trade front is being complemented by stronger investment ties, with Indian investments in Africa totalling more than US$33 billion to date, with US$ 1.52 billion invested in 2009-2010 period alone (Frontier India, 2011; India-Africa Invest). Indian companies are active in a range of sectors, including mining, pharmaceuticals, machinery and equipment, chemicals, textiles, paper and paper products, financial services, software, refinery and printing.
Forging strong ties
The importance of Africa as a trade and investment partner cannot be overemphasised. Regarded as the third-fastest growing economic region in the world, it comes as no surprise that countries are flocking and seeking economic and political relations with Africa. India is no exception. The establishment of the India-Africa summit in 2008 marked a new chapter and new vision and more recently the second Afro-India Summit last year, with leaders of 15 African countries, produced a surge of shared goodwill. On its part India has pledged over US$5 billion in loans over the next three years on easy terms for African countries willing to trade with India, as well as US$1 billion for education, railways and peacekeeping. Compared to 2010 in which India gave US$25 million to Africa, this is a steep rise in aid and assistance and marks a striking shift for a country which itself is still a big recipient of aid (Economist, 2011).
Bilateral relations are also being further strengthened as India strives to maintain a foothold in the Continent where competition from other emerging markets such as China and Brazil are also strengthening their ties. In Southern Africa, Brazil is negotiating a preferential trade agreement (PTA) with South Africa, Botswana, Lesotho, Namibia and Swaziland who are members of the Southern African Customs Union (SACU). While there have been delays in finalising and signing the PTA, India is keen to trade and invest in this particular region and South Africa has emerged as the most favourable investment destination for Indian resource companies and the conclusion of the PTA could fast track investment flows according to India’s Mines Ministry. The strengthening of such bilateral ties have been driven by India’s need to meet is resource needs in the energy and metals sectors making PTAs necessary to seal these relations.
Prospects for the future
As a result, India’s domestic development experience accustomed to dealing with hundreds of millions of poor Indian consumers, and success in building a vibrant manufacturing and services sectors, while also aiming to narrow social inequality have attracted attention from several African countries who are keen to replicate some of its programs.
India is keen to leverage its advanced technological know-how in helping African countries in areas that are key to the continent’s development, including agriculture and disease fighting as reflected by the commitments India has taken both at a regional and bilateral level. India can therefore be viewed as a partner for African countries that is able to offer successful strategies to fight the continent’s most pending problems such as hunger and AIDS.
India’s relations with Africa are yet to reach a peak and there is potential for both parties to benefit from this relationship. Africa is poised to benefit significantly from relations with major global players. Africa must seize the moment to ensure it benefits proportionately from these relations and address the challenges that have perpetually plagued the Continent. Among these challenges include the issue of food security, poverty alleviation, infrastructure and employment.
Dickerson-Nyema A.E. 2011. Investment in Africa, The Diaspora Voice, May 2011.
Economist, 2011. India in Africa: Catching up – Long timid in international affairs, India is starting to make waves, The Economist, May 26, 2011. Print Edition, [online]: http://www.economist.com/node/18745335
IBER 2011. India trade at a glance, India Brand Equity Foundation (IBER), available: http://www.ibef.org