Manufactured goods are opening gateway for India to explore export opportunities in Africa. With this, India is acknowledging the importance of African countries in its trade. Lubna Soge
Africa evidently offers an exciting opportunity for both export and investment and serves an alternative to the ultracompetitive markets. According to PHD Research Bureau, the research arm of PHD Chamber of Commerce and Industry, the trade between India and Africa has developed swiftly owing to stronger focus on political interactions which has also fostered closer economic relations. India’s trade with Africa increased by 10 times from around $7 billion in FY2004 to about $70 billion in FY2013 which is the highest amongst Europe, America, Asia and CIS & Baltics reported an analysis conducted by the PHD Research Bureau. According to another report by the World Trade Organization and Confederation of Indian Industry, India-Africa trade is anticipated to reach $90 billion by 2015. “The reason could be attributed to the increased importance of African countries in India’s bilateral trade relations. With the increasing diversification of India’s global trade towards emerging and developing countries, Africa has emerged as an important partner for India for trade and commerce during the recent years,” said Suman Jyoti Khaitan, President, PHD Chamber of Commerce & Industry. However, while Africa undoubtedly offers diverse opportunities for trade and investments there still are a few bottlenecks. Instabilities of the political environment in some regions in the continent, poor access to consumers and markets due to infrastructure gaps are challenges that the continent is facing today. While entry barriers to Africa are high, companies that develop strong distribution networks are all crafting high margins of profit. Africa’s imports from India are still dominated by manufactured goods while refined commodities have been increasingly important, these manufactured goods such as transportation and communication equipments, pharmaceuticals, electrical and electronic equipments and plastic articles still lead Africa’s imports from India, accounting for 66.9 percent of total imports to Africa in the last year. These manufactured goods have been stirring up the value chain helping the increased ten-fold export over the last decade, compared with labor-intensive and resource-based manufactured goods that doubled over the same period. Machinery and transport equipment accounted for 26.4 percent of Africa’s imports from India in the same year. South Africa alone imports $15 billion worth of engineering products from India. Besides, India also supports the fundamental economic activities of the African countries by exporting mineral fuels, pharmaceuticals, cereals, fabrics, organic chemicals and iron and steel. Duty-free fabrics exported to South Africa have amplified fabric export from India but India faces a major competition from South Korea, Taiwan and Hong Kong. India’s pharmaceutical export to Africa has increased even more after the Ebola outbreak. A breakdown of exports from India shows a rise in bulk drugs that amounted to $339.38 million at the end of September this year against $296.9 in the same period last year. Rajesh Neelakanta, Executive Director and CEO, BVC Logistics affirmed the rise in pharmaceutical export to Africa saying that the company is involved in transporting almost $500million worth of malaria testing equipment to different African countries in past few years. In Western Africa, the Ebola outbreak in Guinea, Liberia and Sierra Leone has disrupted markets, farming activities and livelihoods, acutely affecting the food security situation of the people. In this state of affairs where Africa is providing food export opportunities, India’s export of food grains has been slowing down as Indian traders have declined import orders from African nations fearing the outbreak. There is a significant decline in the rice export from India’s Kakinada port. Around 98 percent of export from Kakinada goes to African nations. Despite the slash in the rice export, India is expected to be the largest exporter of rice in the current year due to the demand anticipated from African and Middle East countries. Commenting on the same, trade analyst, Tejinder Narang said, “Ahead of the 2015 general elections in Nigeria, the government is expected to import huge quantities of rice to distribute to domestic consumer as a populist measures. India traders are set to gain.” After the announcement by Ashok Leyland about bagging two huge transport projects in Tanzania and Zimbabwe together worth $72.2 million another heavy increase of export to the continent is seen in vehicles. “We have made a conscious effort to provide thrust to our international operations, and Africa is a very important part of this strategy. These projects are a continuation of the many pilots we have done across Africa to offer integrated offerings and these orders have been won in the face of stiff global competition,” said Vinod K. Dasari, Managing Director, Ashok Leyland. An export of mineral fuels in India reported by the Ministry of Commerce and Industry analyzed that the Indian exports of mineral fuels were close to $13billion in 2014 out of which 23 percent was solely exported to Africa. Apart from exports, India has undertaken a number of investment projects in Africa. Indian companies have invested in pharmaceuticals, IT and telecommunications, and agriculture in Africa because of the industries’ high growth prospects. “Between East Africa and Southern Africa we have seen a lot of growth. The biggest foray for Indian companies has been in the infrastructure space. BVC Logistics has been associated with a host of export projects in the last four years. Specifically, there is a lot of infrastructure development in roads, rail, sanitation and communication led by Indian companies,” said Neelakanta. According to a report by KPMG, a consulting company, with investments in joint ventures and entirely owned subsidiaries marking the $33 billion bar, India has become one of the leading investors in African countries. The investments take in an extensive array of sectors including oil and gas, pharmaceuticals, petrochemicals, IT, fertilizers and infrastructure. Now with 70 million subscribers in 17 African countries, Bharti Airtel, a major player in the region, had acquired the African operations of Zain Telecommunications for an approximate US$10.7 billion in 2010. NIIT, Wipro and HCL too have made their way into Africa’s information, communication and technology sectors. Remarking on India’s trade with the Africa, Neelakanta said, “The engagement with Sub Saharan Africa mostly on the East coast, and the central and southern part of Africa is increasing tremendously. West Africa does hold strong potential for Indian exports. But because of the challenges in term of demographic disturbances that are prevalent in Western Africa there could be little more time required for Indian businesses to get good opportunities. As for Asian countries, Africa and Latin America are two big markets which are really not explored adequately in terms of business opportunity”