Powerhouse India is poised to become a key brick in Africa’s trade construction
Jim O’Neill coined the term “Brics” in 2001 but, as he reiterated at the recent Discovery leadership summit, it has become more about the “ICs” in the past decade.
Global growth averaging 3.4% per annum in the current decade has in large part been driven by China, where growth itself has averaged 8%. Less talked about, but also a significant driver of global economic activity, has been India, which has grown by close to 7.5% per annum.
In the decade 2020-2030 India has the potential to expand faster than China, increasing its global influence even further. And if India can grow while also improving productivity, O’Neill suggests it could have the same influence on the global economy in the next 15 years as China has had over the past 25-30 years.
With India’s economy growing, so too have the trade and investment flows between India and Africa. India’s annual bilateral trade with Africa reached a peak of about $73bn in 2014, according to the International Trade Centre. Subsequent steep declines in commodity prices saw this plunge to about $48bn in 2016, before rising to about $53bn today. Close to 50% of total exports from India to Africa comprise processed petroleum products, pharmaceuticals and vehicles, while about 50% of total imports represent crude petroleum and gas, with mineral resources and coal making up a significant portion of the balance. Industry experts expect the trade between India and Africa to soar to $150bn by 2023.
Unsurprisingly against this backdrop, a significant portion of the foreign direct investment from India into Africa has been towards oil and gas, and mining. Significant gas discoveries in Tanzania and Mozambique are likely to gain traction in the coming years and India will be an obvious beneficiary. Indian investments in other sectors in Africa are focused mainly on vehicles, fast-moving consumer goods, pharmaceuticals and telecoms. Interest in other sectors has been sporadic. Projects backed by sovereign guarantees and financed by direct foreign investments have also been gaining traction, with several Indian engineering, procurement and construction companies offering their services.
Corporate activity has been dominated by a handful of companies in the past few years. From the Indian investors’ perspective, there is active interest in the pharmaceuticals and fast-moving consumer goods sectors, and there are a number of Indian corporates with existing investments in Africa. Indian automotive group Mahindra and the Tata Group, which straddles the steel, automotive, energy, chemicals, consumer products, services and information technology sectors, have a material presence in Africa. So does major pharmaceuticals producer Cipla and mineral resources conglomerate Vedanta.
Bharti Airtel, whose Airtel Africa division provides telecommunication services in about 15 African countries, is competing with SA’s MTN in Nigeria and elsewhere. Bharti is looking to list its Africa operations on both the London and Johannesburg stock exchanges.
It is financial institutions that have led corporate activity from the African continent into India. FirstRand is the only SA bank with a branch licence in India and we will celebrate 10 years of successful operations in India early in 2019. Investment and insurance groups Sanlam and MMI are also active in India. Naspers is looking to India to invest some of the $10bn it received from its recent sale of shares in Chinese internet group Tencent, to further bolster its business.
Some SA corporates, however, have exited India recently. Hospital group Life Healthcare, for example, has just sold its interests while drug maker Adcock Ingram has also liquidated some assets, saying significant additional investment was needed to compete in the Indian pharmaceutical market.
India is likely to become the fifth-largest economy in the world in 2019. With its proximity to Africa, history as a trading nation and huge Indian diaspora living across Africa, trade flows in this corridor are expected to balloon. To ensure this is a long-term, sustainable partnership driving Africa’s growth, it is important that the continent benefits from jobs and technology transfers in addition to financial investments. The political will to support an ongoing partnership is also there, with Indian Prime Minister Narendra Modi saying on his recent visit to the continent that “Africa is at the top of our priorities”.
Given our shared history and strong political relations, I believe SA businesses in particular should factor India into their strategies and consider carefully how they can capitalise on the economic miracle India is fast becoming. As a group, we believe in its potential and will continue to invest in FirstRand India to serve companies that wish to trade and invest in India and Africa.
• Formby is Rand Merchant Bank CEO.