ASHWIN LAKHAN: Rising SA-India trade will boost tech, food, green infrastructure

India and SA boast a strong, growing trade relationship, fuelled primarily by a complementary exchange of resources and manufactured goods. However, the mix and scale of trade are expected to change over the next decade as the two countries develop an even closer relationship. 

TotalEnergies bilateral trade between India and SA stood at $18bn in 2023 and is evenly balanced, with India exporting to SA at about $10bn a year and SA to India at about $8bn. Two-way trade is expected to more than double to $40bn over the next decade as the breadth of the relationship extends into new, mutually beneficial sectors. 

A major driver is that overall relations are at a record high after the inclusion of the AU as a full member of the G-20 during India’s presidency, with diverse political and economic engagements. 

Negotiations for a preferential trade area between India and the Southern African Customs Union (including SA) are under way. A successful agreement could significantly reduce trade barriers in a further boost to trade volumes, as preferential access may be granted to certain products from participating countries.

Current trade pillars include resources of which SA is a treasure trove, including minerals such as coal, copper and manganese ore, which find ready buyers in India’s booming industrial sector. Key exports from SA to India also include mining coke, coal, gold, precious and semi-precious stones, bulk minerals and ores, pulp and waste paper, as well as iron and steel. 

India is a manufacturing powerhouse, exporting petroleum products, vehicles, pharmaceuticals, telecom equipment, industrial machinery for dairy and construction machinery. 

While the potential of current sectors remains strong, there are promising opportunities in other areas such as information technology, food and beverages and green infrastructure. 

India’s IT expertise is expected to be a valuable asset for SA’s development. It can cater to SA’s growing demand for digital transformation across various sectors such as banking and financial services (financial inclusion), digital public infrastructure and healthcare. Increased collaboration in areas such as fintech and cybersecurity is also expected.

Renewable energy

India also has a strong food processing industry comprising sectors such as fruits and vegetables, poultry and meat processing, fisheries, food retail and the dairy industry. SA offers an expanding market for these products with a fast-growing population. 

Both countries have a need for green infrastructure development. With both aiming for energy security and a shift towards renewables, there is potential for collaboration in renewable energy solutions, clean coal technologies, and efficient power transmission. Collaboration in this sector could be mutually beneficial. 

India ranks fourth globally in renewable energy (as per the REN21 Renewables 2022 Global Status Report) and due to policy measures, government support and incentives, its manufacturing capabilities and exports in the area of high-efficiency solar PV modules are set to be significantly enhanced. 

The International Solar Alliance, an alliance of more than 120 countries led by India, is set to fund solar projects in Africa in a boost to the renewable energy transition. With a total project pipeline exceeding $240bn, India has the potential to play a pivotal role in enhancing global supply-chain resilience for renewable energy technologies and critical components.

India has already established itself as a major exporter of vehicles, including cars, to SA. This trend is likely to continue, with growing demand in SA and India’s advantage in manufacturing cost-effective vehicles. SA’s growing healthcare and the intended introduction of universal healthcare in the form of the proposed National Health Insurance create a favourable environment for Indian pharmaceutical companies. Pharmaceuticals is a key focus area of Indian investment in SA. 

The minerals and metals sector is already a significant contributor to trade between the two countries. As both countries look to expand their industrial bases, this sector is likely to see continued growth.

There are also several economic reasons for the growing optimism about the future of India-SA trade. Both countries have growing economies, which will naturally lead to increased demand for imported goods. The two countries have strong political ties, which can help to facilitate trade agreements and remove barriers. There is also a growing focus on co-operation between the two countries, with initiatives such as the Brics grouping fostering economic collaboration.

India has a large, growing domestic market, which is a major driver of economic growth. We expect private consumption and investment spending to remain strong. The Indian government is taking steps to improve the business environment and attract foreign investment.

Despite the positive outlook, there are also challenges to overcome. The distance between the two countries can make logistics expensive and time-consuming. Some trade barriers still exist, which can hinder trade flows. The global economic climate can also affect trade between India and SA.

Several bilateral agreements have been concluded between SA and India since the assumption of diplomatic relations in 1993, in diverse areas ranging from economic and commercial co-operation to defence, culture, health, human settlements, public administration and science & technology. 

Africa is India’s fourth-largest trading partner and within the continent SA is India’s second-largest trading partner after Nigeria. 

• Lakhan is co-head of investment banking at RMB.