[Answered] Discuss India-Africa trade ties. Analyse impact of African Continental Free Trade Area (AfCFTA) on India-Africa trade.

India and Africa have social and economic relations dating back many centuries. Deepening relations have been reflected in the patterns of trade and investment, as well as people-to-people interactions, cultural exchanges and cooperation at the continental and at the regional and bilateral levels. Trade and investment relations have witnessed strong growth in the recent past, reflecting expanding economic opportunities in both Africa and India.

India-Africa trade Scenario:

1. Bilateral Trade- India is Africa’s third largest trading partner.Since 2000, the economic cooperation between India and Africa has increased, helped by the India-Africa Forum Summit (IAFS) process. Both the regions have worked closely and engaged constructively with each other. The synergy that exists between India and Africa can be gauged from the robust trends in trade relations, wherein bilateral trade has increased five-fold in a decade – from $11.9 billion in 2005-06 to $56.7 billion in 2015-16.
2. Exports and imports- India’s exports to Africa increased almost four-fold – from $7 billion in 2005-06 to $25 billion in 2015-16 – accounting for 9.5% share in India’s total exports. India’s imports from Africa during the same period increased seven-fold from – from $4.9 billion to $31.7 billion – accounting for 8.3% share in India’s total imports. India’s imports from Africa grew at an annual average of 29.8 percent while its exports to Africa grew at an annual average of 15.9 percent.
3. Investment- India’s investments in Africa, saw an upsurge in last decade, mainly due to high-growth in some of the African markets and their mineral rich reserves. The Indian Multi National Enterprises (MNEs) have ventured into various sectors of investments spanning telecommunications, energy, computer sciences, power and automobile, among others. The major destinations of such investments were Mauritius, Mozambique, Sudan, Egypt and South Africa. However, India’s investments in Africa have witnessed a reduction since 2013. According to the World Investment Report 2018 of the UNCTAD, Indian FDI in Africa stood at $14 billion in 2016-2017, which is lower than $16 billion in 2011-12. One of the reasons for this is that apart from India’s traditional investors, few companies are looking at the continent for investment. An increase in the Government of India’s Lines of Credits (LOCs) to the African continent is not matched by a similar increase in investments by the private and public sectors.
4. Recent trends- Recent trends show a steady decline in the India-Africa trade in both actual and comparative terms from 2013 to 2017. In 2014-2015, the total India-Africa trade stood at US $71.5 billion, which went down to US $56.7 billion in 2015-2016 and has further dropped to US$51.96 billion in 2016-2017.

The balance of trade has also shifted in favour of Africa. India had a surplus of US $2.1 billion in 2005-06, which turned into a deficit of US$6.6 billion in 2015-16. India’s negative trade balance is mainly because of its high demand for oil and energy resources. India’s exports to the African countries have also been dominated by petroleum products. Therefore, in order to correct the trade imbalance, India needs to expand and diversify its export basket to include both primary and manufactured goods. In spite of such realities, there exists an enormous potential for improving the India-Africa trade and investment partnerships if the AfCFTA comes into force.

AfCFTA and its impact on India-Africa trade:

1. Robust Market for investment- The AfCFTA will provide a number of opportunities for the Indian firms and investors to tap into a larger, unified, simplified and more robust African market. It is critical for India to view Africa not just as a destination for short-term returns but as a partner for medium and long-term economic growth.
2. Positive outcomes for the India-Africa trade and investment partnership are hinged on Africa having sufficiently integrated markets, enhanced regional and continental connectivity, and improved infrastructure facilities. These will, in turn, help the African countries to address the supply-side constraints, remove bottlenecks, and move up the regional value chains.
3. Increase in exports- A study reports that, if the AfCFTA is established, India’s exports to Africa could increase by US $4.3 billion (or 10%) by 2022 because it will provide the Indian industries and companies a larger, more unified market with less restrictive regulations. Since the trade balance between India and Africa is in favour of the African countries largely due to India’s high demand for energy resources, crude oil and petroleum, the establishment of AfCFTA augurs well for India-Africa trade and investment partnership.

India agrees to the AfCFTA in principle and supports its successful implementation. This has been reiterated in the 2015 Delhi Declaration. However, India and Africa need to move in tandem to ensure that the full gains are realised. As the next step, New Delhi can help the AU Commission prepare the requisite architecture, such as common external tariffs, competition policy, intellectual property rights, and natural persons’ movement. It can also identify various African transnational corporations which are destined to play a greater role in a future continental common market and engage with them strategically. After the AfCFTA comes into force, it is expected not only to support industrialisation and structural transformation efforts in Africa but also offer a more visible and robust market for Indian firms and investors to access, thereby making Africa a top business partner for India.