Proactive approach required to boost India’s trade with Africa

Bidhu Bhushan Palo | The Dollar Business

Africa’s GDP is expected to grow to around $5-6 trillion by 2025

  Despite the gains India has made in bilateral trade with Africa in recent years, there exists a substantial bilateral trade potential for India and Africa in the coming years. According to the Ministry of Commerce, India’s exports to Africa stood at around $23.3 billion in April – November 2014, which is up around 16% y/y and accounts for around 11% of India’s total exports during the period. India’s imports from Africa have also grown around 13% y/y to around $28 billion in April – November 2014. Significantly, India’s trade with Africa has grown during a period when exports to traditional markets have slowed down. According to research firm, RNCOS, India’s total trade with Africa has grown at a CAGR of around 14.8% since 2009-10, growing from around $39 billion in 2009-10 to around $67 billion in 2013-14. RNCOS says that abundant natural resources in Africa can help meet India’s need in the energy sectors, while India’s expertise in services can help Africa in the coming years. Africa’s GDP is expected to grow to around $5-6 trillion by 2025 and India can play a key role in this growth due to its geographic proximity and historical trade ties. “Africa and India have set in common abundant natural resources, comparable demography and markets. This provides an opportunity for building companionship,” Shushmul Maheshwari, Chief Executive, RNCOS, told The Dollar Business. “In the modern times, India’s economic partnerships with the African countries have been expanding beyond trade and investment to knowledge sharing, technology transfers and skill development,” Maheshwari says. According to RNCOS, there exists opportunities in skill development, pharmaceuticals, consumer goods (expected to grow to $1.2 trillion by 2025), automotive, IT and agriculture sectors where the Indian industry can increase their presence in Africa. However, Indian companies must invest in brand-building and supply chain to forge a strong business relationship with African countries. This will require government support particularly in sectors such as energy which require low-cost funding for large projects, says RNCOS. A proactive government support will also be vital in competing with Chinese companies in Africa. Maheshwari says that Indian companies have majorly entered Africa as individual business, while Chinese firms have benefited from intense government to government initiatives. However, Indian companies have an advantage over their Chinese counterparts due to India’s strength in IT/engineering, entrepreneurship and minimal cost operating models which will stand India in good stead in several sectors such as FMCG, pharmaceuticals, IT, agriculture and infrastructure. “India’s expertise and experience in these sectors will support India in order to beat other countries such as China in trade with Africa,” says Maheshwari. India’s LOCs, of which around 60% goes to African countries, will also help Indian companies enter risky sectors in Africa. “By offering LOCs to African nations, India provides an alternative project financing options to them while at the same time creating an opportunities for India’s private and public sector conglomerates to enter in new markets,” he says.    

This article was published on January 17, 2015.