The recently concluded African Development Bank (AFDB) annual meetings in India saw a refocus of attention on India-Africa relations. Rapid growth in engagement between India and Africa in recent years has been overshadowed somewhat by the considerable attention given to China’s activities in the region. Indian investment is smaller in scale, but given historical ties with some Sub-Saharan African (SSA) countries, and a significant Indian diaspora, India’s engagement with Africa has been less controversial, and therefore has garnered less media attention.
In 2014, India overtook the US as Africa’s third-largest trading partner behind the EU and China. That year, bilateral trade reached $71.0bn, up from just $8.2bn in 2000. Since 2014, trade between India and Africa has softened, as has Africa’s trade with all of its main trading partners, given low commodity prices, although because India both imports crude petroleum and exports refined petroleum to the region, India-Africa trade has been hit particularly hard. In 2016, trade dropped to $ 47.3bn.
India suggested at AFDB 2017 that it expects trade with Africa to reach $100bn in the next couple of years. In our view, this is optimistic without a rebound in oil prices, but India is undoubtedly becoming more important; it is a top five trading partner for a large number of SSA economies.
An active Indian diaspora and already well-established Indian conglomerates have aided closer economic ties. However, while India’s relations with economies with which it has strong historical ties (such as Mauritius, Kenya and Tanzania) have remained robust, its fastest-growing ties in the region in recent years have been with Ethiopia, which has a small Indian community but high growth prospects. Ethiopia has attracted much Indian investment, in part because it has been one of the fastest-growing economies in the region, but also likely because the government’s focus on power and manufacturing (textiles) is aligned with Indian interests. Ethiopia is also the largest African recipient of long-term concessional credit from India, with $1 billion of lines of credit to the government for a sugar factory and infrastructure projects.
India has been an active investor in Africa for many years, although the bulk of this has been driven by private-sector companies rather than the government-to-government interaction typical of China’s engagement in Africa. Indian corporates have been extremely active in sectors including telecoms, oil and gas, agriculture and power and are already well integrated into a number of economies in the region. The true size of Indian private-sector involvement in the region is difficult to quantify; official overseas investment statistics do not capture the true scale of activity by Indian corporates and small and medium businesses set up by people of Indian origin.
Between 2010 and 2016, India’s overseas direct investments in Africa stood at $3.5bn excluding Mauritius. Africa, including Mauritius, receives around one-fifth of India’s foreign investment flows; but Mauritius accounts for around 18 per cent. Africa has also been the recipient of $3.9bn lines of credit (LoC) since 2002 to help Indian companies expand and export more to Africa. The scale of India’s investment in Africa has not been able to match that of China. China’s official FDI in 2014 alone ($3.2bn) was almost the same as India’s overseas direct investment in Africa for the whole of 2010-16 ($3.5bn). Recent pledges provide a clear illustration of the difference in scale: China committed to $60bn of lending at the December 2015 Forum on China Africa Cooperation (FOCAC) versus the $10 billion pledged by India at the India-Africa trade forum in the same year. At AFDB 2017, India’s Prime Minister Narendra Modi launched the vision document for an ‘Asia-Africa Growth Corridor’ (AAGC), a joint initiative between India and Japan, first discussed in November 2016. AAGC seeks to boost trade and investment with a focus on improving infrastructure and facilitating trade. India appeared to be positioning itself as a counterbalance to China’s influence in the region and this has been seen as a direct response to China’s One Belt One Road (OBOR) Initiative. While neither India nor Japan have the firepower to match China’s investment alone, it is hoped that collaboration with other Asian powers will provide a counterbalance to China’s influence in the region and help drive more Indian public-sector involvement too. The vision document suggests that the geographical focus of the AAGC in Africa will be broader than China’s One Belt One Road that purely touches on East Africa. The AAGC aims to develop a corridor connecting coastal countries (Mozambique, South Africa, Tanzania and Kenya) with landlocked countries, and a link to South Asia through Chabahar port in India, being developed with Japan’s help. Several phases are planned, expected to commence following consultation with African countries in 2018.
The first phase is likely to focus on the east coast of Africa including Ethiopia, Kenya, Uganda, Tanzania, Mozambique and South Africa. The AAGC also seeks to engage with island countries such as Mauritius. The second phase will prioritise Western Africa, as access points into land-locked African countries. What is clear is that India is more aggressively positioning itself as an alternative to China, and is attempting to close the gap that opened after being overtaken by China in Africa’s trade in 2002. Combined, India and Japan will be more able to balance China’s influence in the region.
Source: Ms Baynton-Glen, Economist for Africa at Standard Chartered Bank Group