Foreign Policy Blogs

India Continues Building Trade Ties With Africa

Photo: Vijay Soneji, The Hindu

China has become widely known for its breakneck pace of trade and investment across Africa and ubiquitous presence in cities and far flung areas alike. Africa-China trade reached $188 billion in 2015, according to McKinsey, and averaged a 20 percent increase since 2000. As the rapid expansion continues, other countries trading and partnering with African nations are more ‘under the radar’ and not appearing in headlines. India’s external trade has grown significantly with the continent across the Indian Ocean. There are many similarities the regions share in both challenges and opportunities, and plans are evolving to strengthen partnerships.

The African Development Bank (AfDB) hosted its 52nd Annual General Meeting in Mahatma Mandir in Gandhinagar, India. At the meeting, Dr Akinwumi A. Adesina, President of AfDB emphasized the point stating “in 2005-06 the total bilateral trade between India and Africa stood at $11.7 billion, which has reached to $56.9 billion by 2015-16. Now we expect the bilateral trade to exceed $100 billion in the next two years, helped by the (Indian) Prime Minister Narendra Modi’s push for India-Africa partnership.”

According to data from the World Bank World Integrated Trade Solutions (WITS), however, 84 percent of exports from Africa to India were natural resources in 2014. On the other end of the spectrum, exports from India to sub-Saharan Africa consist of consumer goods such as automobiles, telecom and pharmaceuticals. Furthermore, a portion of foreign investment into Africa currently is through Mauritius, a tax haven for investors. Africa’s consumer goods economy is growing but has a ways to go.

The AfDB developed ‘High 5’ priorities to strengthen domestic economies to unleash the continent’s potential: energy, agriculture, industrialization, integration and improving Africans’ quality of life. Prime Minister Modi expressed India’s commitment to partner with African nations to grow technical capabilities in those areas by harnessing India’s expertise and experience to provide value added. Mr. Modi, as well, expressed hope that more African nations join the International Solar Alliance, which framework agreement was announced at the Paris climate conference.

For example of collaboration, Africa is blessed with vast amounts of arable land but much of it goes unused or is inefficiently developed. Dr. Adesina said Africa has nearly 65 percent of the uncultivated arable land in the world. India developed a successful agriculture sector and technologies under challenging headwinds, thus a partnership with Indian companies would be a natural fit and could double as capacity building. Such areas as drip irrigation, mechanization and export supply chain could prove quite beneficial. Of course, if an efficient agriculture industry is developed, that can provide a thrust away from poverty.

Union finance Minister Arun Jaitley emphasized the point at the meeting, “there is a significant scope for the agricultural sector in Africa to benefit from the Indian experience. With the changing global landscape for agriculture India can be a partner in this area.”

In addition to trade, an article in the Indian newspaper, The Hindu, totaled that 152 lines of credit have been extended by the Exim Bank of India to 44 countries for a total amount of nearly $8 billion, $10 billion has been offered for development projects over the next five years and a grant assistance of $600 million at the last India-Africa summit in 2015.

Not One Brick, One Road

Mr. Modi also announced his support to developing an “Asian-Africa Growth Corridor,” also supported by Japanese Prime Minister Shinzo Abe. Within that model, one potential partnership could be port development in East and Southern Africa and connecting with landlocked countries for two-way trade which can connect with Indian or Japanese ports and Delhi-Mumbai Industrial Corridor. It has been called a ‘cooperation model.’ The leaders seek to further engage African nations to flush out the current outline vision document. Relevant infrastructure projects have  previously, and are currently, been developed by the AfDB and African nations, but Dr. Adesina mentioned utilizing Indian expertise would be beneficial as a wide array of projects are needed.

These efforts can also be viewed as an alternate to China’s ambitious One Belt, One Road record setting infrastructure project plan with a staggering estimated price tag of around $1 trillion. The range of OBOR stretches to across Asia, Europe and Africa. Chinese President Xi Jinping further described China is ready to invest $123 billion in roads, ports, energy, and other areas. China has potential to engage 65 nations with potential projects. The program is also widely suspected to drum up increased global influence and leadership, and trade ties are a strong economic method to achieve this goal. However, other nations are not simply going to cede their influence. As noted, India has increased its inroads in Africa, but not on the same scale.

The U.S. is Not Withdrawing

The United States was the top trading partner with Africa, but the rapid ascension of China and other partners has left it falling into the pack. Africa provides great opportunities, but is often viewed at as too risky to do business, thus a myriad of companies have not taken the plunge. The U.S. has, though, been investigating the potential of establishing free trade agreements with Kenya and Mauritius. Africa-U.S. trade reached $33.7 billion in 2016, according to the U.S. Department of Commerce.

The Africa Growth and Opportunities Act (AGOA), designed to provide markets for African goods and stimulate trade, was initiated under President Clinton in 2000 and last renewed in 2015 by Congress. Thirty-eight nations are eligible according to the U.S. Trade Representative (USTR). African exports under AGOA totaled $9.3 billion in 2016 with petroleum over the years continuously being the largest export product, 55.6 percent of the total, however down from years prior due to lower prices and increased U.S. production, according to the U.S. Department of Commerce. Non-petroleum exports have increased from $1.4 billion in 2001 to $4.1 billion in 2016. Some of the industries are autos and parts, apparel, fruits and nuts, cocoa, and cut flowers. In sum, the amount of the petroleum decrease led to a decrease in overall trade.

Further Road to Economic Growth

The newer economic engagement and development paradigm has shifted to include trade and not just aid. China has stimulated this model while other nations have increased trade and foreign direct investment; official development assistance (ODA) is a significant factor for improving the lives of African citizens at the last mile, but a portfolio of approaches is necessary to reach the goals of the AfDB and everyday African citizens. Trade and investment are front and center.

 

 

Author

Joe Gurowsky
Joe Gurowsky

Joe Gurowsky focuses on energy, environment, geopolitics, international development and climate related issues. Recently, he worked in Ethiopia and Tanzania regarding different energy related programs . Joe has also traveled to Costa Rica, Ghana, the UAE, Germany and Alberta, Canada for aspects of energy and environmental policy.

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