Mutual cooperation fundamental to India-Africa partnership

India has a key role in Africa’s development process and lays particular emphasis on capacity building in different African countries. Stating this in his special address in the inaugural session of the two-day 11th CII-EXIM Bank Conclave on India Africa Project Partnership, being organised in New Delhi, Gen. (Retd) V K Singh, Minister of State for External Affairs, Government of India, said that India’s economic resurgence will have continued positive bearing on Africa’s development initiatives. 

The Minister said the Conclave provides India and Africa the opportunity to plan effective utilisation of the major offers made by India at the 3rd India Africa Forum Summit that was held in New Delhi in October 2015. He stated that mutual cooperation is fundamental to India-Africa partnerships. He underlined the need for deeper bilateral cooperation and partnerships for sustainable development, covering areas like clean technology, solar energy, and climate-resilient agriculture. 

According to the Minister, while India-Africa bilateral trade has increased from $30 billion in 2008 to $72 billion in 2015, there is immense scope for increasing the bilateral trade flows. He urged the least developed countries (LDCs) in Africa to take full benefits from the Duty Free Tariff Preferential (DFTP) Scheme extended to LDCs by Government of India, and thereby increase African LCDs share of total African exports to India. Mr Singh called upon CII and EXIM Bank to take renewed effort to facilitate simplification of procedures governing India-Africa business and investment engagements. 

Mr James Wani Igga, Vice President, Republic of South Sudan, invited Indian companies and investors to participate in South Sudan’s economic and industrial diversification. Currently, South Sudan has high dependence on oil production and exports. 

Mr Igga said that the South Sudan government extends a package of incentives to prospective investors that includes tax holidays, access to land, entry work permits, easy licensing, etc. He also underscored the need for greater joint efforts by India and Africa to meet the UN’s Sustainability Development Goals. 

Mr Kwesi Amissah Arthur, Vice President, Republic of Ghana, said in his special address that it is imperative for African economies to be insulated from the vagaries of global trade cycles. This could be achieved by reducing Africa’s dependence on exports of primary goods. Mr Arthur said that Indian companies and investors could play a key role in helping African industries to move up the value chain. He laid emphasis on deeper bilateral MSME cooperation, while adding that a robust MSME sector ensures more employment opportunities to the youth. 

Mr Okechukwu Enelamah, Minister of Industry, Trade and Investment, Republic of Nigeria, said in his special address that the deliberations at the Conclave should be directed toward critical evaluation of the earlier commitments made by India toward Africa so that there is greater clarity on what elements of cooperation and assistance need to be carried forward. Mr Enelamah said that the private sector can give concrete expression to the vision of Indian and African leadership for long-term bilateral cooperation and partnerships. He added that the civil society could also play a key role in this regard. 

Referring to the ‘Make in India’ campaign, he said that Nigeria would look to learn from India’s experience in driving local manufacturing growth. He also called for a more liberal visa regime that would facilitate easier people-to-people contacts between India and Nigeria. 

Mr Sumit Mazumder, President, Confederation of Indian Industry, said that Indian FDI in Africa which stands at $13.6 billion accounts for 16% of India’s overall outward FDI. Africa is the second biggest FDI destination for India, he said. Mr Mazumder underlined the growing complementarity between Indian and African economies in terms of manufacturing exports and resource trade. 

Mr Yaduvendra, Mathur, Chairman & Managing Director, EXIM Bank of India, said that large physical infrastructure development projects in Africa present compelling investment opportunities to Indian companies. He also called for focused attention on funding of innovations and innovative projects led by young entrepreneurs. 

Mr Noel N Tata, Chairman, CII Africa Committee and Managing Director, Tata International Ltd, said that as African economies aims to accelerate their manufacturing growth, India will be an attractive destination market for their products. 

Earlier, Mr Chandrajit Banerjee, Director General, Confederation of Indian Industry, said in his opening remarks that geographical and product diversification are key to India’s expanded trade ties with Africa. 

This Conclave has engaged the participation of 23 ministers from Africa, over 400 delegates from 37 African countries and over 400 delegates from India. At the session, the EXIM Bank report on “Focus Africa: Enhancing India’s Engagement with Southern African Development Community” and a background report on India-Africa Project Partnership were released.

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Focus Africa: Enhancing India’s Engagement with Southern African Development Community

Executive Summary

SADC, currently comprising 15 member states namely Angola, Botswana, the Democratic Republic of the Congo (DR Congo), Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, Tanzania, Zambia and Zimbabwe, is an integral part of the African region comprising 32.5 per cent of total land area of Africa, 27.7 per cent of total population of Africa. SADC is the second-largest contributor (in terms of GDP) to the African region, after ECOWAS. It accounts for 37 per cent of nominal GDP of Sub-Saharan Africa; 27.9 per cent of GDP of Africa and 0.8 per cent of global GDP in 2014.

The average economic growth of SADC was at 4.6 per cent in 2014, lower than 5.4 per cent recorded in the previous year, mainly due to sluggish growth in two of its major economies, South Africa and Angola. While South Africa’s growth was subdued due to frequent mining strikes and weakness of the rand during the year, fall in oil sector output affected that of Angola. DR Congo, Mozambique and Tanzania were among the fastest growing economies in the region in 2014.

Since mid-2014, major changes in the global economic environment have affected the region’s growth. Oil prices have declined since June 2014, and supply and demand factors have both contributed to these developments.

SADC’s combined GDP stood at US$ 686.8 billion in 2014, as compared to US$ 687.7 billion in 2013. SADC is largely dominated by oil exporting economies. South Africa is the largest economy in the region, accounting for 51 per cent of the region’s economy, followed by Angola (18.8 per cent), and Tanzania (7 per cent).

Average per capita GDP, at current prices, of the region, was at US$ 2,222.1 in 2014, a fall compared to US$ 2,278.8 in 2013. Average consumer price inflation of the region on the other hand has moderated during the same period (Table).

The economies within the SADC region are at varying stages of development, and also differ significantly in terms of their sizes. For instance, the GDP of SouthAfrica, which stood at US$ 350.1 billion in 2014, was much larger than the combined GDP of the remaining fourteen SADC countries, viz. US$ 336.7 billion. Positive growth rates of real GDP were recorded in all the member countries in 2014, accompanied by moderate inflation in most of the countries.

International Trade of SADC Countries

Reflecting the increasing globalization of theSADC economies, SADC’s global trade has witnessed significant upward trend in recent years. During the period 2004 to 2014, SADC’s total trade has risen nearly three-fold, from US$ 137 billion in 2004 to US$ 410.7 billion in 2014, growing at a compound annual growth rate of 11 per cent over the period.

SADC as a bloc has shown stable performance in terms of its global trade. SADC’s share in global trade has increased from 0.7 per cent in 2004 to 1.1 per cent in 2014. However, the share of SADC in Africa’s total trade has decreased from 41 per cent in 2004 to 34.8 per cent in 2014.

In the case of exports, SADC’s total exports have risen from US$ 61 billion in 2004 to US$ 208.3 billion in 2014, with a resultant rise in the share of SADC in global exports from 0.6 per cent to 1.1 per cent during the period. SADC’s exports have been driven by exports of South Africa and Angola, the two giants in the bloc accounting for 74 per cent of the region’s exports.

As regards imports, SADC’s total imports rose to US$ 202.4 billion (1.1 per cent of global imports) in 2014, up from US$ 76 billion (0.8 per cent) in 2004.

During the decade, trade balance of SADC reversed from a deficit of US$ 15 billion in 2004 to a surplus of US$ 5.9 billion in 2014. The shift to surplus was mainly driven by Angola (maintaining a trade surplus of US$ 37.2 billion in 2014), primarily due to large revenues from oil exports. Other economies in the region that maintained a surplus during the year include DR Congo, Swaziland, Zambia and Botswana. In the SADC region, economies that maintained a trade deficit in 2014 include South Africa, Tanzania, Mozambique, Zimbabwe and Mauritius.

Among the countries in SADC, the largest exporters are South Africa and Angola, together accounting for 74 per cent of SADC’s total exports in 2014. Other important exporters from SADC include Zambia, Botswana, DR Congo, Namibia and Tanzania. The major items exported by the region include mineral fuels (crude petroleum), the largest export item accounting for as much as 36 per cent of SADC’s total exports in 2014, followed by pearls and precious stones, ores and slag, copper and its articles, vehicles, iron and steel and machinery. In 2014, major markets for exports from SADC include China, USA, India, South Africa, and Switzerland.

As regards imports, the leading importers in SADC are South Africa and Angola, together accounting for 62.5 per cent of SADC’s total imports in 2014. Mineral fuels and machinery are the two largest import items, followed by electronic & electrical equipment, vehicles, plastics and articles, articles of iron or steel and pharmaceutical products. As regards SADC’s global imports, China has emerged as the leading supplier to SADC, accounting for as much as 14.4 per cent of SADC’s total imports in 2014, followed by South Africa and Germany. India is the fourth-largest source of SADC’s imports, accounting for 5.3 per cent in 2014.

India’s Bilateral Trade Relations with SADC Countries

SADC has emerged as important partner for India, both as an export destination as also an import source. The economic and trade linkages, which saw an expansion of trade volumes, stand testimony to the intensified economic engagement.

During the last ten years, India’s total trade with the SADC countries has witnessed over eight-fold increase from US$ 3.7 billion in 2004 to US$ 29.6 billion in 2014.

While India’s total exports to SADC has risen from US$ 1.6 billion in 2004 to US$ 15 billion in 2014, depicting a nine-fold rise during the period, India’s total imports from SADC have also risen, although at a slower pace, from US$ 2 billion to US$ 14.6 billion, showing a seven-fold rise. India’s trade balance with SADC turned into a surplus of US$ 0.4 billion in 2014, after witnessing a deficit for six consecutive years.

The increasing importance of India as SADC’s trading partner can be assesses from the fact that India accounts for a respectable 7.4 per cent of SADC’s global imports in 2014, which was significant improvement compared to 2.1 per cent recorded in 2004. Further, India accounts for around 7 per cent of SADC’s total exports, up from 3.3 per cent in 2004, depicting the rising importance of India in SADC’s trade configuration.

The importance of the SADC region can also be gauged from the fact that the region accounted for 4.7 per cent of India’s global exports in 2014, up from 2.2 per cent recorded in 2004. India’s imports from SADC region, as a percentage share of India’s global imports, accounted for 3.2 per cent in 2014. The period also witnesses a rise in the importance of SADC in India’s global trade configuration.

Foreign Investment in SADC Countries

FDIs flows to the SADC region have been mainly been resource-based. According to the United Nations Conference on Trade and Development’s (UNCTAD) World Investment Report 2015, FDI inflows to the SADC region stood at US$ 16 billion in 2014, as compared to US$ 5.6 billion in 2004. FDI flows to a region account for a nearly 30 per cent of Africa’s total FDI inflows in 2014.

South Africa and Mozambique continued to be major destinations for FDI inflows to SADC. Other destinations for FDI flows during the same year were Zambia, Tanzania and DR Congo.

Outward FDI flows from SADC declined to US$ 9.2 billion in 2014, as compared to US$ 13.2 billion recorded the preceding year. Outward FDI from SADC were primarily dominated by investments from South Africa and Angola.

India’s Investment Relations with SADC Countries

In the SADC region, Indian multi-national enterprises (MNEs) have ventured into both Greenfield and Brownfield investments, spanning across various sectors including manufacturing, mining, construction, and energy, among others. According to data from the Ministry of Finance and Reserve Bank of India, India’s approved cumulative investments in the SADC region during April 1996 to March 2015 amounted to US$ 46.5 billion. Mauritius, Mozambique and South Africa were the top destinations of India’s investments in the region. India’s investments in the SADC region accounted for nearly 93 per cent of Indian investments in Africa.

Indian FDI in Africa has traditionally been concentrated in Mauritius, taking advantage of the latter country’s offshore financial facilities and favourable tax conditions. Indian investors have, however, been investing in other countries in the region, too.

Indian banks are growing their partnerships with SADC countries largely based on their clients, who have increased demand for banking options in the region. Select Indian Banks in SADC region include Bank of India, Bank of Baroda, State Bank of India, Canara Bank, and ICICI Bank Ltd. Joint ventures by Indian Banks in the SADC region include Indo-Zambia Bank Ltd. (Bank of Baroda, Bank of India and Central Bank of India).

FDI inflows to India from SADC region have been dominated by investments from Mauritius that accounts for 35.2 per cent of India’s overall FDI inflow. During April 2000 to March 2015, FDI flows from the region into India stood at US$ 88 billion. Mauritius is the largest investor in India in terms of cumulative FDI inflows, mainly due to the Double Taxation Avoidance Convention. Others countries from the region investing in India include South Africa, and Seychelles.

Investment Opportunities for India in SADC Countries

SADC economies are one of the most resource-rich countries in the world. Areas of critical importance for SADC region include development of select sectors including infrastructure, agriculture and agro-processing, mining, manufacturing and ICT sectors, among others. The primary reason for low levels of development in the region stems from limited economic capacity to invest. Given these, select sectors which hold potential for Indian investments in the region have been identified in the study.

Strategies and Recommendations for Enhancing Bilateral Commercial Relations with SADC countries

Broad strategies for enhancing bilateral commercial relations with SADC countries include the following.

• Development of a strong Private Sector

An important challenge faced byAfrican countries, especially SADC member states is a lack of clear delineation of the roles of state and market. After the independence, most of the African countries tried to solve their immediate problems of poverty and food security by creating a strong state. Although, this has helped these countries to improve their human development factors, economically resulted in poor performance and development. This has resulted in many of the SADC countries remain in a backward state compared to many other developing countries. Hence, development of a strong private sector in the region is important. For the development of private sector, many elements including a well functioning financial system coupled with stable macroeconomic fundamentals are necessary. India being an economy with almost a similar background is better suitable to help these nations in this respect than many developed countries. Indian investors can play a major role by way of transfer of technical knowhow and technology which is suitable for the conditions and needs of a developing nation. This could help SADC countries to enhance its competitiveness by building its human and physical capital.

• Cooperation in Agriculture Sector Development

Agriculture and related activities constitute the bedrock of most countries in the SADC Region, and exports from the sector are important foreign exchange earners for these countries. Many countries in SADC are home to the world’s richest agricultural resources. As a result, several Governments in the region view that foreign investments in agriculture cultivation would lead to possible benefits for rural poor, including the creation of a potentially significant number of farm and off-farm jobs development of rural infrastructure, and social improvements, leading to povertyreduction. Moreover,nationalGovernments with a view to addressing the serious issue of food shortage have been framing policies towards attracting investors in the agricultural sector to tackle food, employment and sustainability crises. If these countries could frame and implement their agricultural policies in such a way that diversifies output, boosts productivity, and promotes strong linkages with other economic sectors and serves broad social policy objectives, then the region could easily overcome its underdevelopment and be on a path of development.

Indian companies can explore the possibilities of investment such as joint ventures or contract farming, setting up agro processing firms and investments in key stages of value chains. India’s investment could result in improving the agricultural sector of the host country through skill development, job creation, technological upgradation, supply of quality inputs like seed, better supply chain management, and biotechnology. India’s transfer of knowledge/ technology could help these countries to deal with the problem of food crisis. Indian scientific and agricultural research institutions have assisted many entrepreneurs for developing their business ideas in SADC countries. Indian investors could also focus on providing quality infrastructure to enhance the farm productivity in these countries.

Towards this end, the LOCs extended by the Exim Bank of India to SADC countries, which are earmarked for agriculture, irrigation and related projects, would also serve to contribute towards development of the agricultural and related sectors in the region.

• Development of Manufacturing Sector

Development of manufacturing sector in SADC member states is very important for the development and growth of the region. The dependence of many of the SADC member states on primary commodity exports, combined with reliance on manufactured imports has negatively affected the growth of the region. Also the recent global economic crisis has reduced development assistance and private capital flows to the region. Hence, development of a strong manufacturing sector is necessary. At present, Africa’s share in global manufacturing production and trade is very small. Furthermore, the manufacturing sector does not have strong links to the primary and service sectors. India could support SADC countries in creating productive capacity-building through various support and training programmes and technical cooperation. Government of India is helping these countries to build up on their manufacturing sectors through various policies and programmes, normally announced during India-Africa summits.

• Natural Resource Development

With many of the countries in SADC are endowed with mineral wealth and natural resources, enhanced bilateral cooperation for development/exploration of natural resources in these countries could benefit both India and SADC. Mineral production and development constitute a significant part of many SADC countries, and remain a key factor in their future economic growth. The SADC region has a majority of the world’s known resources of platinum, chromium and diamonds, as well as a large share of the world’s bauxite, cobalt, gold, phosphate and uranium deposits. For instance, South Africa’s mineral wealth is significant, with gold, platinum, coal, iron and diamonds being some of its key exports; while in the case of D R Congo, besides rich deposits of copper, cobalt, zinc, and diamonds, there are vast deposits of gold, considered to be the richest undeveloped gold deposits in Africa; Namibia has large reserves of uranium and is a leading global producers.According to World Gold Council, despite challenges India’s consumer demand for gold was the second-highest in the world (accounting for 27 per cent of the world gold demand), after China in 2015. In light of these, increased cooperation between India and the resource-rich countries in Africa and specifically SADC countries in developing/ exploring natural and mineral resources, with bilateral arrangements such as buy-back arrangements, could be an important strategy to enhance Indo-SADC commercial relations.

• Cooperation in Infrastructure Development

An important area of bilateral cooperation could be infrastructure development in African countries, especially SADC countries. Investment in infrastructure development, due to an increasing need for better infrastructural facilities, coupled with the endeavour of SADC countries for rapid economic growth, could prove to be a mutually rewarding area of bilateral cooperation. The lack of adequate infrastructure across Africa is currently holding back its GDP growth. Lack of forward and backward linkages between among different modes of transportation, declining air connectivity, poorly equipped ports, ageing rail networks, and inadequate access to all-season roads are key problems facing many of the SADC economies. Areas that hold immense investment opportunities include development of highways and roadways, development of railway networks and power systems, which would also help in regional integration, and the African continent at large, to a great extent. Large Indian construction companies could explore business opportunities to meet the infrastructural requirements in SADC member states, also contributing largely to economic development in the host countries.

Further, India could intensify its ongoing cooperation in training, capacity building, consultancy and project implementation through concessional credit in infrastructure areas, including water supply management, maritime connectivity, road and railway construction and upgrading. Thus supporting Africa’s Program for Infrastructure Development in Africa (PIDA) and enhancing cooperation in the Blue/Ocean Economy.

• Cooperation in Energy and Power Generation

Another area, which holds immense potential for investment and cooperation, is electricity generation and power transmission. While most Member States of SADC have abundant energy resources, insufficient use of existing energy systems has resulted in effective generation of electricity which is less than installed capacity due to drought, lack of maintenance and rehabilitation and also general system losses of electricity which includes transmission and distribution. As a result, energy production and consumption varies widely throughout the region. With industrial productivity steadily increasing in the region, the World Bank anticipates the demand for electricity to increase by 40 per cent over the next 10 years.

In this regard, the Southern African Power Pool is a key achievement of both Regional Integration and increased access to electricity. At present, nine SADC Member States have connected together their power grids, creating a rudimentary but competitive energy market. In doing so, the Southern African Power Pool has expanded trade in electricity, reduced costs, and improved energy stability throughout the region. Witnessing the benefits to participating Member States, SADC’s Regional Energy Sector Programme aims to incorporate the other outlying SADC Member States into the Southern African Power Pool, extending grid connections to encompass the whole region and furthering the benefits of a regional energy market.

To further enhance development of the energy infrastructure, SADC encourages investment in the region’s electricity infrastructure, especially in electricity plants, transmission lines, coal depots, and nuclear demonstration plants. Towards this end, the LOCs extended by the Exim India to countries in SADC, which are earmarked for power generation and transmission projects, would also serve to contribute towards development of the energy sector and power generation and transmission.

• Focus on Information Technology (IT) Development

The use of various electronic marketing technologies is necessary to improve and develop different sectors, but it largely depends on Internet access and penetration rates in countries, which is still at a backward stage in most of the SADC countries. With the strength and capability that India possesses in the realm of Information Technology sector, Indian IT firms could explore the opportunities in SADC countries, and focus on investing in subsidiaries or joint ventures in the areas of e-governance, financial services and e-education. Indian companies could also share their expertise in providing software programmes and services for banks and financial institutions in the region. For instance, Indian companies, such as NIIT, Aptech, karROX which already have presence in SADC countries, could expand their network of training centers in other SADC countries. Designing specialized e-learning courses on the web for providing technological assistance, manufacturing process know-how, troubleshooting and other technical areas also present opportunities. Such initiatives would help industry and commerce, promote education in remote areas, create employment opportunities and provide healthcare to remote areas in the region, thereby contributing to overall development of nations in the region.

• Cooperation in MSME Sector

At present MSMEs (micro, small and medium enterprises) make up the majority of businesses in Africa and especially in SADC and there is enormous scope for the development of this sector. SME sector development in the SADC region is constrained by a number of factors like lack of accessibility to modern technology, limited access to international markets, lack of management skills and training and lack of finance. Towards developing entrepreneurship and human capability, India could share its expertise and experience with countries in SADC, particularly in the SME sector wherein India has developed successful SME clusters. An important element in this direction could be for delegations from these countries to visit India to study success factor of SME clusters in India, and developing similar clusters in their countries based on resource and skill endowments. SME financing is another area where India could support this sector.

• Investment in Human Resource Development

An associated area of bilateral cooperation could also be investing in human resource development. Human resource development is recognised as the premiere need of most SADC member states. Businesses focusing on health, education and skill development are more likely stable businesses, which are in increasingly high demand in many countries, due to their direct impact on improving the standard of life. Towards this end, SADC member countries could also tie up with Indian institutions such as the Central Food Technological Research Institute (CFTRI), Mysore and Entrepreneurship Development Institute of India (EDI), Ahmedabad and National Small Industries Corporation Ltd. (NSIC), New Delhi. Further, Indian institutions could also share their expertise in the fields of export capability creation in the region, institutional strengthening and export development in the form of technical assistance and sharing of expertise through site visits. In the third India- Africa Forum Summit in 2015, India announced US$ 600 million grant assistance, including 50,000 scholarships for enhancing skills, training and learning. Indian investors could also help SADC governments in setting up various higher education institutes, universities and provide scholarships to students for various exchange programmes like Study India Programme, which could improve the quality of education in these countries. This type of academic arrangements between Indian and SADC universities will boost academic mobility between both regions.

• Developing Linkages with Investment Promotion Agencies/Chambers of Commerce

Besides streamlining their investment regimes, many countries in the region have set up specialised investment promotion agencies/Chambers of Commerce to promote and facilitate inflow of foreign investment into these countries, while also serving as one-stop-shop for investment related activities. In light of the key role of these institutions, building closer cooperation and linkages with these investment promotion agencies in SADC would serve to enhance access to information about investment opportunities in the region. Such relationship would serve to enhance knowledge about potential areas for investments in the region.

• Focus on Multilateral Funded Projects

Besides participating in investment activities that are promoted by the respective governments of countries in SADC, Indian companies could also endeavor to participate in multilateral funded projects. Multilateral institutions such as the World Bank and the African Development Bank (AfDB) support and fund a number of projects in Africa and SADC. They broadly cover areas such as agriculture and related activities; infrastructure development such as roads, telecommunication, postal services, electricity, water supply and sanitation; mining and quarrying; rural and urban development; environment and natural resource development; health care and education; financial market development; and tourism development.

Thus, for India, with countries in the SADC region emerging as important trade and investment partners, and the need of these countries for strategic partnership in their developmental and growth endeavours, sharing of experiences in capacity building, investments and endeavours in growth-inducing sectors in SADC member states could prove to be strategic in fostering and enhancing long term commercial relations as also presence in SADC member states.