1. India – Africa Trade and Investment Relationship CII Conclave
Siddhartha Roy
Economic Advisor – Tata Group
March 19, 2013

2. SOUTH-SOUTH COOPERATION
The weak economic conditions in the western world could impact the flow of FDI, ODA and trade with African economies.
Increasing role of large developing countries in global trade, finance and investment coupled with their rapid economic growth suggest that Africa focuses on long-term & mutually beneficial engagement with the these economies.
India and Africa have shared healthy economic and political ties for a long time. To further boost the ties, India has undertaken major policy initiatives e.g. India-Africa Partnership conclaves, India-Africa Forum, Focus Africa Programme etc.
India has emerged Africa’s fourth largest trade partner after EU, China and US. India Africa trade has soared from US$ 4.5 bn in to US$ 67.9 bn in and is expected to reach US$90 bn by 2015.

3. SOUTH-SOUTH COOPERATION CONTD..
India’s engagement in Africa is aimed at building a sustainable partnership centered around capacity building, technology dissemination, people-centric approach, educational support, capital support etc.
At the 2nd India-Africa Forum Summit, held in May 2011, India announced a Duty Free Tariff Preferential scheme (DFTP) for the 49 least developed countries, 33 of whom are in Africa. This will cover 94% of India’s total tariff lines and, more importantly provide preferential market access on tariff lines for 92.5% of the global exports of all LDCs.
Items covered - cotton, cocoa, aluminium ores, copper ores, cashew nuts, cane sugar, readymade garments, fish fillets, non industrial diamonds etc.
It is hoped that the LDC’s in Africa, who have not yet subscribed to the DFTP scheme, would do so shortly and make use of this increased market access to the large Indian market. 

4. INDIA’S EXPORTS TO AFRICA
LDC* vs. NON-LDC
KEY PLAYERS
Total Exports to Africa
$ 24.7 bn
To LDCs
$ 7.2 bn (29.1%)
To non-LDCs
$ 17.5 bn (70.9%)
USD bn
% Share in Africa
SOUTH AFRICA
4.7
19.2
NIGERIA
2.7
10.9
EGYPT A RP
2.4
9.8
KENYA
2.3
9.2
TANZANIA REP^
1.6
6.5
TOTAL
13.7
55.6
Source: Commerce Ministry, India
^LDC
*Least Developed Countries

5. INDIA’S IMPORTS FROM AFRICA
LDC vs. NON-LDC
KEY PLAYERS
Total Imports from Africa
$ 43.2 bn
From LDCs
$ 9.4 bn (21.8%)
From non-LDCs
$ 33.8 bn (78.2%)
USD bn
% Share in Africa
NIGERIA
14.7
34.0
SOUTH AFRICA
9.9
23.1
ANGOLA*
6.6
15.3
EGYPT A RP
3.0
7.0
ALGERIA
2.2
5.0
TOTAL
36.5
84.4
Source: Commerce Ministry, India
*LDC

6. AFRICA - FDI INFLOWS
Source: World Investment Report 2012, African Economic Outlook 2012
FDI inflows to Africa declined for the third consecutive year after peaking in 2008.
In 2011, while FDI inflows increased by 14% in East & South East Asia and 16% in Latin America & Caribbean, it declined by 1% in Africa.

7. AFRICA - FDI INFLOWS (CONTD..)
FDI is an important source of productive investment (fixed assets & inventories) in Africa. According to UNCTAD 2010 investment report, the average share of FDI in gross fixed capital was 19.2% in Africa which is almost double the world average and well above 12.4% for other developing countries.
Between 2010 and 2011, FDI to Africa from developed countries fell leading to increase in share of developing and transition economies for the first time. According to World Investment Report 2012, share of the later increased from 45% in 2010 to 53% in 2011.
This is expected to rise further as these economies look for additional natural resources and access to growing African markets.
Apart from natural resources, investment is also getting routed into manufacturing and services which enhances the potential for technology transfer and increasing productivity and thereby aiding economic growth of countries not rich in resources.

8. INDIAN INVESTMENT IN AFRICA
Total Indian investment in Africa is upwards of US$ 33 bn.
According to research agency “fdiIntelligence”, Africa recorded 26 new manufacturing projects from Indian companies in 2011, a rise of 44% from This led to almost new job creation.
Between , 70 Indian companies invested in greenfield projects in Africa, totaling US$ 25 billion; this represents close to 5 percent of total greenfield FDI projects in Africa, according to African Development Bank.

9. FDI VS. PORTFOLIO INVESTMENT (USD BN.)
Africa

10. OVERSEAS DEVELOPMENT ASSISTANCE, NET (USD BN)
Source: African Economic Outlook 2012
ODA, an important source of finance along with FDI, has stagnated in the post crisis period.
The trend could continue well in the future because of the sovereign debt crisis and the austerity measures in the OECD countries.

11. INDIAN AID TO AFRICA
Indian aid to Africa is mostly in the form of capacity building, skill development, credit lines, scholarships and knowledge sharing.
Total aid to Africa during was Rs. 150 cr (USD 27.5 mn) as compared to a miniscule Rs. 10 cr in
During the 2nd India-Africa summit held in May 2011, India unveiled US$ 5.7 bn in credit and grants for development projects and over a 100 capacity building institutions in Africa.
Relationship between aid and trade can make the process sustainable.

12. FUNDING REQUIREMENTS & DEFICIT FOR INFRASTRUCTURE IN AFRICA
USD bn. annually
Sector
Capital expenditure
Operation and maintenance
Total Requirement
Actual Spending
Deficit
Total
60.4 33
93.3
45.3 48
Power
26.7
14.1
40.8
11.6
29.2
Water & Sanitation
14.9
7.0
21.9
7.6
14.3
Transport
8.8
9.4
18.2
16.2
2.0
ICT
9.0
0.0
Irrigation
2.9
0.6
3.4
0.9
2.5
Source: World Bank (2010)
Current spending on infrastructure in Africa is roughly $ 45 bn. per year  there is a
gap of $ 48.3 bn. annually which needs to be filled
According to African Economic Outlook 2012, “Africa’s inability to mobilize finance and private sector involvement has held up energy and infrastructure development. The recent Africa Energy Outlook 2040 study (NEPAD, African Union and AfDB 2011) concludes that an estimated USD 43.6 billion per year will be needed to meet forecast energy demand for Africa up to 2040.”

13. EMPLOYMENT GENERATION IN AFRICA THROUGH MEANINGFUL COLABORATION
At 200 mn, Africa has the youngest (15-24 yrs) population in the world and it is expected to double by 2040.
Working age population (15-64 yrs) grew from 443 mn to 550 mn between 2000 and 2008, an increase of 25% (CAGR of 2.7%) and is likely to reach 1 bn by 2040.
The youth population is not only growing fast but also getting better educated which calls for creation of meaningful jobs to engage them in the productive sectors of the economy. Failure to do so could pose a risk and threat to social cohesion and political stability in Africa.
Source: African Economic Outlook 2012

14. EMPLOYMENT GENERATION IN AFRICA THROUGH MEANINGFUL COLABORATION (CONTD
In many segments, the emerging African demand pattern is similar to India’s 10 years ago.
Consequently, the technology and product offerings of Indian firms can meet the cost structure and product aspirations can of the African consumers.
This provides an opportunity to Indian firms to invest in Africa and thereby creating meaningful employment opportunities.

15. INDIA-AFRICA TRADE RELATIONSHIP
The WTO-CII study indicates:
Since 2005, India-Africa economic partnership has moved to a new trajectory.
Trade and investment are the two facets of this relationship, followed by development assistance.
Notwithstanding global economic crisis, South-South economic partnership has grown.
Key sector of Indian investment – IT, telecom, energy, automobile, engineering services, project management and supplies.
Trade has gone beyond natural resources and encompasses value added products.

16. INDIA-AFRICA TRADE RELATIONSHIP CONTD..
Survey results from 60 key African and Indian companies suggests - where commercially driven development assistance can make a difference, key problem areas for trade:
Access to trade finance
Access to market – knowledge about market
Transport and logistics cost
Africa’s difficulties in investing in India
Absence of bilateral investment treaties
Business environment
Difficulty in securing finance
India’s difficulties in investing in Africa
Absence of bilateral treaties
Market Size
Lack of tax incentives

17. UNDERSTANDING INDIA-AFRICA RELATIONSHIP
Africa is not a homogenous market, it is a fragmented economy
Different countries are at different stages of development
There has been some success in removing import duties within regional groupings
However a range of non-tariff and regulatory barriers remain – raising transaction costs
Movement of goods & services and people across borders is somewhat restricted
Consequently, internal transport costs are high. This adds to the costs of goods & services in the hinterland
Intra-Africa fragmentation restricts the size of the market

18. INDIA-AFRICA RELATIONSHIP (A BILATERAL OR REGIONAL ALTERNATIVE)
Learning from CEO’s Forum (India-South Africa)
Take up issues impacting bilateral trade and investment and suggest policy measures to meet a trade target
Focus on sectors of interest – Financial services, mining, pharma & healthcare, infrastructure & power, manufacturing
Issues considered – tariff barriers, visa applications, PTA possibility and technology transfer
Principles of reciprocity and partnership
Action oriented proposals and need for policy tweaking/change
Similar format can be used with other African countries/regions - A private stakeholder’s initiative with government support

19. THANK YOU!