Trade and Investment Relationship

Report
India – Africa
Trade and Investment Relationship
CII Conclave
Siddhartha Roy
Economic Advisor – Tata Group
E-Mail: [email protected]
March 19, 2013
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 2000-01 to US$ 67.9 bn in
2011-12 and is expected to reach US$90 bn by 2015.
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.
INDIA’S EXPORTS TO AFRICA
LDC* vs. NON-LDC
KEY PLAYERS
Total Exports to Africa $ 24.7 bn
2011-2012
$ 7.2 bn
To LDCs
(29.1%)
To non-LDCs
Source: Commerce Ministry, India
*Least Developed Countries
$ 17.5 bn
(70.9%)
% Share
USD bn 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
^LDC
INDIA’S IMPORTS FROM AFRICA
LDC vs. NON-LDC
KEY PLAYERS
Total Imports from
$ 43.2 bn
Africa
2011-2012
$ 9.4 bn
From LDCs
(21.8%)
From non-LDCs
Source: Commerce Ministry, India
% Share
USD bn 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
$ 33.8 bn
(78.2%)
*LDC
AFRICA - FDI INFLOWS
USD billion
73.4
63.3
52.6
2007
2008
2009
43.1
42.7
2010
2011
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.
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.
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 2010. This led to
almost 17000 new job creation.
• Between 2003-2009, 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.
FDI VS. PORTFOLIO INVESTMENT (USD BN.)
80
60
Africa
40
FDI
20
Portfolio
0
-20
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
-40
80
Brazil
60
40
FDI
20
Portfolio
0
-20
40
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
India
30
20
FDI
10
Portfolio
0
-10
-20
2000-01
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
OVERSEAS DEVELOPMENT ASSISTANCE, NET
(USD BN)
50
48
46
44
42
40
38
36
34
32
30
2005
2006
2007
2008
2009
2010
2011e
2012p
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.
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 2011-12 was Rs. 150 cr (USD 27.5 mn) as
compared to a miniscule Rs. 10 cr in 1997-98.
• 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.
FUNDING REQUIREMENTS & DEFICIT FOR
INFRASTRUCTURE IN AFRICA
USD bn. annually
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
7.0
2.0
9.0
9.0
0.0
Irrigation
2.9
0.6
3.4
0.9
2.5
Sector
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.”
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
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.
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.
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
Business environment
Market Size
Lack of tax incentives
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
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
THANK YOU!

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