India’s economic miracle

As the Chinese economy wobbles, a growing India has the potential to offer increasing investment opportunities for Africa.

While growth in some of its emerging market peers has slowed, India is bucking the trend with stellar growth rates. India’s trade with Africa was worth $71 billion last year. Indian investments make up about 7 percent of total foreign direct investment to Africa. India’s bilateral trade with Africa accounts for 6.5 percent of Africa’s total trade.

China is still Africa’s largest trading partner. China’s trade with African countries was likely to reach $300bn at the end of last year, according to the China-Africa Industrial Forum held in November. Indian Finance Minister Arun Jaitley admits that China has “an early mover advantage” over India.

With the slowdown in China’s economy – and reduced trade with Africa – India is repositioning itself to increase trade with the continent. India has rivalled China in Africa for political influence, resources and trade.

Rajat Gupta, a director at McKinsey & Company, said: “Africa is the next front for Indian businesses. Africa has some of the highest returns on investments. Indian firms would find this opportunity of great help in funding their projects in Africa.”

Research by McKinsey & Company reckoned that India could increase its trade with Africa to $160bn by 2025 if it focused on expanding trade in information technology, agriculture, pharmaceuticals, consumer goods and infrastructure development.

The 2007/2008 global and Eurozone financial crisis was the impetus for India’s turn to Africa for resources. India’s over-dependence on the industrial economies of Europe and North America was heavily exposed when these countries experienced slowdowns. The Indian governing, business and intellectual elite pushed for India to diversify its trade to other regions, including Africa. Under the new India leadership of Prime Minister Narendra Modi, there has also been increased competition for influence between India and China elsewhere, particularly in Asia and the BRICS (Brazil, Russia, India, China and South Africa) grouping.

In November, India organised the largest India-Africa summit yet, inviting heads of state from every African country to New Delhi, to boost trade, investment and political alliances.

India called its summit a “partnership for prosperity”.

In Africa, India has increasingly presented itself as a “fairer”, more supportive and non-exploitative partner to Africa, compared to China. China is under fire in many African countries for perceived unfair trade deals, poor workmanship and bringing in Chinese workers, rather than employing locals.

India has a huge appetite for energy, and is seen, after China, to be one of the largest consumers of energy. The International Energy Agency predicts that oil consumption in India will increase from 4 million barrels a day to 10 million a day by 2040.

India imports 80 percent of its crude oil needs. One of India’s key strategic objectives is to secure long-term energy security, especially to reduce its over-reliance on Middle Eastern oil.

The fall in commodity prices and the slowing of the Chinese economy have hit many of Africa’s resource-exporting economies. Oil has fallen to 12-year lows this year following global oversupply.

India is increasingly seeing cheap hydrocarbons from Africa as a solution to plug its long-term energy deficit. Currently, 22 percent of India’s crude oil imports are from Africa. Over the past decade, India has secured new oil supplying contracts from Nigeria, Angola and Sudan. It is now the biggest buyer of Nigerian oil. The new oil and gas fields of East Africa are also attracting keen Indian interests.

Last week, Indian Oil Minister Dharmendra Pradhan said India firms ought to take advantage of the falling oil prices to buy up stocks for future demands.

As part of its effort to strengthen its energy security, India has expanded its nuclear energy infrastructure. The country is particularly on the lookout for uranium, from producers such as South Africa.

Whereas China’s investment in Africa is led by state-owned companies, India’s investment is driven by the private companies, with the support of the Indian government. According to McKinsey & Company, Indian companies require cheaper capital to pursue African projects.

Last year, India made $10bn in credit available to Indian companies to invest in Africa. Indian companies are increasingly looking at using cheap funds, mostly for developing long-term infrastructure projects in Africa, from countries such as Singapore, South Korea and Japan. Noel Tata, managing director of India’s Tata International and chairman of the Conference of Indian Industry’s Africa Committee, said such third-country funds could “help Indian companies which find it difficult to fund projects with long gestation periods”.

India also needs Africa’s political support as allies for developing country demands for fairer global trade, finance and political rules in global forums such as the World Trade Organisation, World Bank and UN. India and African countries are for example discussing how to secure a coalition to get industrial countries to agree to reform the global tax rules to prevent industrial countries from securing the bulk of international tax revenues and to combat illicit financial flows from developing countries to industrial ones. India has been lobbying African countries to support its bid for a permanent seat on the UN Security Council.

Most of India’s imports from Africa are raw materials, rather than manufactured goods. Apart from oil, gas, coal, uranium and gold, India imports raw cotton, precious stones and textile yam. India exports finished petroleum products, cars, pharmaceuticals and telecommunications equipment to Africa.

Exporting raw materials does not create significant jobs or wealth, is cheaper and only benefits a small elite. In contrast, manufactured products are more expensive, create more jobs and wealth to more people, and reduce poverty more widely.

Indian-manufactured goods in Africa also risk killing off African efforts to produce basic manufacturers locally – essential for Africa’s industrialisation.

South African Trade and Industry Minister Rob Davies has warned that the quality of trade between India and Africa needs to be improved. “We continue to supply raw materials. We (Africa) need to supply more value-added products,” he said.

It is notoriously difficult to get African-manufactured products into India, with both high tariff and non-tariff barriers.

Futhi Mtoba, former president of Business Unity South Africa, said challenges that hindered South African business in India were lack of transparency regarding India’s tariff schedule and stringent licensing and packaging rules.

African countries need to strike deals with India whereby they jointly produce manufactured goods – such trade would be a “win-win” for both Africa and India.

Indian journalist Aman Sethi has pointed out that almost 90 percent of India’s investment in Africa has been in Mauritius, a tax haven, “prompting concerns that Indian companies are avoiding taxes on Indian investments by ‘round-tripping’ their profits”.

*This article featured in the African Independent and can be viewed by clicking here.

William Gumede is Associate Professor, School of Governance at the University of the Witwatersrand. He is Executive Chairperson of Democracy Works Foundation and former Deputy Editor of The Sowetan newspaper.

During the anti-apartheid struggle, Gumede held several leadership positions in South African student, civics and trade union movements. He was a political violence mediator and area coordinator for the National Peace Committee during the multiparty negotiations for a democratic South Africa and was seconded to South Africa’s Truth and Reconciliation Commission. He is the author of several number 1 bestsellers. His more recent books include: Restless Nation: Making Sense of Troubled Times (Tafelberg); and South Africa in BRICS – Salvation or Ruination (Tafelberg).

To read publications by William Gumede on our website please click here.

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