Indian-African relationship goes back decades, after the Bandung Conference in 1955 which was held in the spirit of South-South Cooperation. The Bandung conference gave rise to the Non-Aligned Movement (NAM) which lay the groundwork for subsequent South-South cooperation that launched India into its engagement with Africa. The conference brought together newly independent nations of Africa and Asia. Over the years, they had a shared experience of struggle against European colonisation and were facing common developmental challenges. However, India’s policy and engagement with Africa solidified under the current Indian regime.
Africa is a vast, hugely diverse continent comprising 54 countries. It offers similarly sprawling opportunities for multinationals seeking new markets for organic growth. This potential, however, doesn’t come without distinct challenges. Each African nation has a unique business environment, yet many tax authorities can be aggressive and focused on multinationals. And while all countries have regulation, there can sometimes be a disconnect between law and practice, which organizations have to navigate.
The continent, Africa is a dynamic trade partner, geographically close to India. Given India’s cumbersome logistic and bureaucratic costs domestically, it can be cheaper for a firm in Mumbai to ship a product to Kenya than to transport it to Kolkata. African and Indian consumers have similar levels of income and, consequently, compatible quality requirements. This opens a trade opportunity for Indian firms that would fail to meet the higher standards of developed countries. And India shares certain cultural and institutional similarities – such as language and institutions based on a common colonial past, particularly in East Africa – which facilitates investment in areas where other foreign investors would be dissuaded. Meanwhile, some 3 million people of Indian origin live on the continent. More than 1 million of these call South Africa home while Kenya, Tanzania and Uganda also have large numbers of diaspora Indians. Many Indians were brought by the British to Africa as indentured laborers to work on sugar cane plantations, mining or railroad construction.
As we always recall, colonial map made little sense bred conflict, and the West has often approached Africa as a patron, rather than a partner. It furthermore created single-crop economies, which sentenced African economies to market-based fluctuations. Through direct control of African economy and political administration made possible colonialism. Forced integration of developing states into the international trading arena augmented the already prevalent inequality between developed and developing states. The advent of globalization and increased trade integration has strengthened trade between the two partners. There is recognition on both sides of the importance of the other as a market and as a long-term trade partner, especially with regard to global value chains. To step out towards globalization, currently there is a growing realization that the future growth of developing economies will be influenced by the share that they can garner in the world market, not only by producing in the country and exporting, but also by acquiring overseas assets, including intangibles like brands and goodwill, to establish overseas presence and to upgrade their competitive strength in the overseas markets.
Africa is an emerging investment and trade destination due to a large consumer market, high potential of economic growth, improving the business environment and investment regulations, and high rates of return on investment. The depth of relation of India and Africa has been reflected in the patterns of trade and investment, as well as people-to-people interactions, cultural exchanges, and cooperation at the continental and at the regional and bilateral levels. India imports more from Africa than Africa does from India. A large share of Indian imports from Africa are oil and minerals. However, the India-Africa relations in food and agriculture are already important but have potentials for expansion. For complex reasons Africa had no transformation of its agriculture comparable to India’s during its erstwhile Green Revolution in the 1960s and 70s. The African continent and the Indian Subcontinent still have a lot to learn from each other, especially as food systems and food value chains are modernizing and technologies in agriculture and food sectors are spreading.
The investment trend from emerging economies is so much significant that the trend is emerging as an important indicator of such dynamic process. World economy is currently witnessing a rising investment trend from developing economies. This Outward Foreign Direct Investment (OFDI) is also contributing in a significant way to the global competitiveness of the firms of these economies by providing access to strategic assets, technology, skills, natural resources and markets, and increasing resources. OFDI from developing economies and countries in transition is increasing rapidly in recent years. It has risen from-$147 billion in 1990 to over $1 trillion (tn) in 2004. More enterprises from an increasing number of developing countries are becoming transnational. For instance, the number of developing-country firms among the Fortune 500 rose from 29 in 1998 to 45 in 2005.
Although India is not the biggest investor in Africa, it is not an insignificant player by any means. Statistics cited in the African Economic Outlook 2017 show that India is ranked second (after China) in terms of trade share with Africa. Here too, there is a wide gap in actual value of trade, with China’s total trade with Africa being more than 2.6 times its trade with India in 2015. Interestingly, both India and China were almost at par in terms of total value of trade with Africa in 2000. Moreover, the relocation of low-end manufacturing from China might reinforce positive income effects of lower commodity prices in oil-importing countries. The backwinds can be expected to stimulate FDI inflows into Africa. Benefits from reduced fiscal pressures in countries with high fuel shares in imports (Egypt, Ethiopia, Kenya, Mozambique and Tanzania) mirror significant challenges for energy exporters (Angola, Chad, Congo, Gabon and Nigeria) and other commodity exporters (Ghana, South Africa and Zambia) arising from depressed commodity prices.
The major exporter to India is Nigeria, amounting USD$ 7659.48 in 2016-17. The estimated value of imports from Nigeria to India stood at US$ 7.7 billion in March 2017, making it the top import source for India. Nigeria accounts for about 26% of India’s total imports. It is followed by South Africa with USD$ 5813.53 and Angola with USD$ 2596.49 in the 2016-2017 trade and investment year. The other exporting African countries together account for about 40% of India’s total imports from Africa. India imports crude oil, edible fruits and nuts from Africa. India’s key export as at April-February 2016-2017 to Africa was petroleum products. Other major export items included pharmaceutical products, vehicles etc.
India’s total imports from Africa were recorded at US$ 38.76 billion in 2019, falling to US$ 27.5 billion in 2020. Exports stood at US$ 29.59 billion in 2019, which fell to US$ 26 billion in 2020. Major products of exports from India to Africa include mineral fuels, pharmaceutical products, vehicles, cereals, machinery, plastics, sugar and chemicals. Total trade has seen a huge transition from US$ 6.8 billion in 2003 to US$ 68.35 billion in 2019, before the onset of the COVID-19 pandemic.
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Indian investment and trade as between the African countries has grown 18 percent annually since 2003, reaching $103 billion in 2023. Similarly, India is the second largest lender in Africa, with strong public-private partnerships and safeguards protecting borrowers from debt distress. In fact, most Indian aid is channeled through the African Development Bank (ADB), which New Delhi joined in 1983. India’s total investments in Africa amount to $70 billion, a figure the powerful Confederation of Indian Industry aims to increase to $150 billion by 2030. This makes India Africa’s third largest trading partner after the European Union and China. Meanwhile, as a part of the BRICS group, India has emerged as an economic power in the past two decades and this growth has been accompanied by an increase in demand for goods and resulted in a subsequent increase in investment towards African countries in sectors such as agriculture, minerals & mining, oil. While the growing importance of Africa for India has been reflected by a number of strategic initiatives spanning over decades, especially “Focus Africa” launched by the Government of India in 2002 to boost trade and investment, the India-Africa Forum Summit in 2008 and the notable Asia-Africa Growth Corridor, launched in 2017 as an economic cooperation agreement between the Governments of India, Japan and multiple African countries.
In 2008, India introduced its Duty-Free Tariff Preference Scheme for Least Developed Countries. Ties between various African countries and India have been reinvigorated under Narendra Modi’s premiership. Last year he set down India’s engagement with Africa under 10 guiding principles. These focused on industry, information technology, education, health, agriculture, security and intelligence cooperation and financial inclusion. These consists of a diverse set of actors with different agendas. This includes the government, public corporations, private companies, nongovernmental organisations and the Indian diaspora. One of the unique features of the Africa-India business relationships is the collaborative nature of the funding arrangements. The Indian-led finance arrangements are known to be less debt-laden and structured more as partnerships. The focus is on bringing projects onboard as quickly as possible so that they are able to fund themselves. This reduces the cost of financing quite significantly, leading to more sustainable projects in the long run.
The Covid-19 pandemic has been one of the worst humanitarian and economic crisis faced by the world, but its effects stand to be much more devastating, particularly for Africa, where economic and public health conditions are extremely vulnerable. There are vast investment opportunities for Indian investors into Africa market. Indian public and private sector enterprises are also investing in Africa, making India the eighth-largest investor there. Beyond loans and investments, India has also aided Africa in its fight against the COVID-19 pandemic. The Covid-19 pandemic has provided the impetus for a stronger partnership between India and Africa with potential benefits to both as they build back sustainably after the crisis. The pandemic has widened Africa’s financing gap to $345 billion and innovative solutions are needed. The infrastructure theme is a strong one for Indian investors into Africa. In September 2021, the Africa Finance Corporation (AFC) received a $100m credit line from the Export-Import Bank of India (India Exim Bank) to develop the critical infrastructure required to rebuild Africa’s economies in the wake of the Covid-19 pandemic.
Estimates suggest that Africa’s health financing gap is as high as $66 billion per annum, indicating that the conventional source of financing healthcare, viz. government financing and donor funding are inadequate. Improving access to equitable healthcare will require multi-sectoral interventions. Cooperation and participation of all stakeholders, including governments, private sector along with the international community and regional development institutions, will be required to build capacities of national health systems. India attracts nearly 50,000 medical tourists from Africa annually. The recent international air travel bans have made it increasingly difficult for medical tourists to avail such health services. Over 200 Indian companies across scale are doing business in Africa across sectors. The list is constantly expanding. They are present in all African geographies, notably Southern Africa and Eastern Africa. India investments in the African continent includes oil and gas, mining, banking and textiles which created jobs for local African citizens.
With combined population of 2.5 billion people and a gross domestic product of $5.5 trillion, there are multiple emerging opportunities for India and Africa to deepen cooperation and investment. Last year, Indian Commerce & Industry Minister Piyush Goyal has said, the country will look to work more closely with the African Continental Free Trade Area (AfCFTA), which includes 54 African countries merged into a single market, in the near future. The AfCFTA, a pan-African economic bloc with a combined GDP of $3.4 trillion, came into force on January 1, 2021. The African Continental Free Trade Area is expected to be a catalyst for intra-African trade, and this is expected to drive beneficiation activities and local capacity.
Moreover, AfCFTA would provide a strong basis for the industrialization and structural transformation efforts in Africa as it would boost intra-African trade and the continent’s industrial content. The establishment of AfCFTA also offers important opportunities for Indian firms and investors, as it would provide a potentially larger, unified, simplified and more robust African market to tap into. As a matter of fact, only after the establishment of AfCFTA would Africa and India be in a position to effectively enter into an economic integration partnership implying market access reciprocity. It is explicitly illustrated in the report that deepening integration between Africa and India would generate significant benefits for both partners. Such gains could even help to rebalance the composition of traded products by presenting opportunities to exploit value chains and enhance the structural transformation.
Updated on 21, April 2024.
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