In an increasingly multi-polar world, Africa is an important partner for India on all global strategic issues. Africa is one of the fastest growing regions with huge natural resources. It offers not only resources to India's increasing needs but also a huge market for Indian firms for trade and investment.
The India-Africa Forum Summit 2015 (IAFS-III), which will be held from October 26-30, is the country's biggest outreach towards Africa, in which 54 countries from the African continent will participate, with the heads of states and governments of 35 nations having confirmed their participation. It is one of the largest gatherings of leaders in the country. The previous two summits—in 2008 and 2011—did not see participation of more than 15 leaders.
IAFS-III would also open a new and more intense strategic engagement which is economically beneficial to both Africa and India.
In an increasingly multi-polar world, Africa is an important partner for India on all global strategic issues. Africa is one of the fastest growing regions with huge natural resources. It offers not only resources to India's increasing needs but also a huge market for Indian firms for trade and investment. According to African Economic Outlook 2015, the continent's GDP is expected to strengthen to 4.5% in 2015 and 5% in 2016, after subdued expansion in 2013 (3.5%) and 2014 (3.9%). This growth performance is boosted by rising investment in natural resources and infrastructure, strong household spending, and rising trade with emerging countries like India and China.
Recognising the growth potential of Africa, India in recent years has made sustained efforts to increase it trade, investment and help in capacity building to boost the dynamics of South-South Cooperation.
Economic drivers
India-Africa bilateral trade has grown nearly 23% annually between 2005 and 2013, including in the global economic crisis period. The trade was $93 billion in 2013 and is projected to reach $100 billion by end of this year. In fact, the Indian government through its Duty Free Tariff Preference (DFTP) scheme promotes African exports to India.
Recently, the government amended the DFTP to cover around 98% of tariff lines. Under the scheme, imports of most products from the least-developed African nations to India attract lower duties. The government is also considering expanding and augmenting the Lines of Credit extended to Africa. A study carried out by IPE Global under the Knowledge Partnership Programme (KPP) shows that several sugar industries have come in Ethiopia as a result of the Lines of Credit extended by the Indian government. The study also shows that more than $1 billion in Lines of Credit have been provided for the development of three sugar companies in the African country. Importantly, India needs Africa to fulfil its ever-growing energy needs, especially crude oil and gas—nearly one-fifth of India's crude oil imports are from Africa with major suppliers being Nigeria, Angola, Algeria, Egypt, Cameroon, Equatorial Guinea and Sudan. African countries have proven oil reserves of 132 billion barrels, while annual oil production in the region is 478 million tonnes per annum—about 12% of global oil production. As a result, Indian oil companies are constantly looking for opportunities to buy equity stakes in oil and gas assets in Africa, and are already present in nearly 24 countries of the continent.
Several Indian companies in Africa are the largest source of FDI to the continent among the developing countries. Capital investments from India to Africa have steadily grown to $54.5 billion between 2003 and 2014, with 363 projects. Sector-wise Indian investment in Africa suggests that extractive sectors—including coal, oil and natural gas, and metals—account for over 55% of India's capital investment in Africa. The rising trade and investment relationship between India and Africa is win-win situation for both. On India's side, economic growth is inevitably pushing the country to expand its footprints across the continent, including sourcing raw materials and energy to sustain economic activities at home. For Africa, Indian investment provides extra demand for its commodities, technology and resources for improving infrastructure bottlenecks. In addition, Indian investment also augments skill development and integration with global supply chains in Africa, which is vital for rapid economic transformation.
The China factor
China's growing importance and dominance in Africa is a well-established fact. China's trade with Africa touched more than $200 billion in 2013 and is estimated to cross $385 billion by the end of 2015. Chinese investment in Africa has been massively driven by the need of the African states and China's geo-economic strategy. According to China, in 2012, its FDI in Africa reached $2.52 billion, reflecting annual growth of some 20% since 2009. Further, infrastructure development is a huge problem for Africa and China fits in perfectly to help the continent overcome its infrastructure deficit. At the same time, it gets opportunities for its heavy industries to invest in Africa. For instance, it is estimated that Africa suffers from a $900-billion infrastructure deficit and, hence, Chinese footprints with regard to infrastructure development for Africa are everywhere. However, as the Chinese economy slows down, there are fears that China-Africa bilateral trade would leave several African economies vulnerable as they are heavily dependent on China.
Geopolitical reasons
At a time when China is looking to upgrade its relationship with Africa, it is imperative that India provides a counter-balance to the Chinese hegemony in the continent. It is time that India leveraged its geographical proximity to Africa and her historic cultural, political and economic ties with the region. India needs Africa not only to meet its growing energy needs but also to access new markets in Africa with a rising middle class. Most importantly, India needs the support of African countries not only to negotiate contentious issues affecting its development in multilateral forums like WTO, World Bank, IMF, etc, but also to fulfil its ambition to become a permanent member of the UN Security Council. In addition, the Indian diaspora, which has a significant presence in the region, remains untapped.
It is evident that the forthcoming summit would reiterate India's commitment and comprehensive support to Africa's development efforts through various initiatives including enhancing Lines of Credit to the region, encouraging private sector participation, providing help to improve institutional and skill capabilities, and pursue its developmental agenda in Africa through the South-South Cooperation model. The summit is significant as it will highlight the new government's vision for cooperation with the fastest growing region in the world.
(The author is a Senior Fellow at Observer Research Foundation, Delhi)
Courtesy: The Financial Express
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Kangkanika Neog Programme Associate Council on Energy Environment and Water (CEEW)
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