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Why Delhi is key partner for Africa economic progress

President Uhuru Kenyatta is pictured upon his
President Uhuru Kenyatta is pictured upon his arrival at Indira Gandhi International Airport for the Third India-Africa Forum Summit in New Delhi late on October 27, 2015. PHOTO | AFP 

It is widely known that China has been making significant inroads into Africa over the past two decades and a great deal of energy has gone into analysing Sino-Africa economic interaction. However, barely any attention has gone into analysing India’s growing footprint on the continent.

Last month the Third India Africa Summit took place in New Delhi, signalling India’s interest in the region.

Carlo Lopes of the UN Economic Commission for Africa (UNECA) made an important point when he recently stated that Chinese foreign direct investment (FDI) is less than one per cent of the country’s total global investment yet India invested as much as 16 per cent of its outward FDI, valued at $70 billion, in Africa in 2013.

Further, Africa is responsible for 26 per cent of India’s total inward FDI stocks at $65 billion, more than Brazil, China, the Russian Federation and the US.

Analysts make the point that Indian FDI to Africa is concentrated in oil, gas and mining, and investment in the manufacturing sector is focused on automobile and pharmaceutical firms.

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Most of the Indian FDI in African countries is through Greenfield investments and joint ventures.

India’s growing investment in the region is seen to be motivated by a blend of factors such as socio-cultural ties, particularly due to a healthy Indian diaspora on the continent estimated at over two million, host country policies, regional integration agreements, bilateral investment treaties as well as GDP growth in Africa.

However, India’s FDI into the continent is focused on a limited number of countries; in 2012 up to 95 per cent of India’s total FDI stock went to Mauritius alone partly due to its favourable tax treaty.

In terms of trade, the IMF estimates that the value of India’s exports to Africa have increased by over 100 per cent from 2008 to 2013, and the value of India’s imports from Africa also grew dramatically from 2008-2013 by over 80 per cent.

This year Indo-African trade is expected to be about $70 billion.

African exports to India have been growing annually at 32.2 per cent while Indian exports to Africa grew annually at 23.6 per cent.

Sadly in terms of trade composition, a vast majority of exports from Africa to India are raw materials such as crude oil, gold, raw cotton and precious stones.

Indeed, while India’s merchandise imports from Africa totalled $447.5 billion in 2015, oil imports accounted for $116.4 billion and gold was $34.4 billion.

Exports from India to Africa mainly consist of high-end consumer goods such as automobiles, pharmaceuticals and telecom equipment.

Trade between Kenya and India stood at $4.23 billion in 2014 and the country has been jostling with China for the top. India is also becoming an important lender to the continent; $8 billion was provided in Lines of Credit (LOCs) to Africa between 2008 and 2011 and Africa constitutes 53 per cent of India’s operative LOCs.

There is clearly much more room for growth if India wants to be as significant as China and the US on the continent. Indeed as China re-orients itself, India can become an important partner for Africa.

From an African perspective, countries should focus on diversifying their exports to India, tapping into the technological expertise while setting stage for attracting FDI from India.

Were is a development economist email: [email protected]

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