- Business and Employment
China Africa & US – Trade Relations with India
Globalisation is a historical process. It envisages a compression of the world, blurring of national borders, interlocking of nations, and mounting transnational relations, with a shift in emphasis from state to market forces as the drivers of policy. This is the context within which new trade relationships with China, Africa and the United States, coins India as the emerging giant in reshaping national and global destinies. This makes it critical to investigate more closely the relationships they hold mutually in these diverse regions to enhance strategic interests.
The re-emerging powers of China and India account for 40% of the world’s population. Viewed together, they controlled around 44% of the world’s GDP in the 18th and the 19th century, however, their hold loosened in the 20th century from 16.4% of global GDP in 1913 to 8.7% in 1950, rising to 12.59% (average between 1985 and 1995) and 16.88% (between 1995 and 2003). Forecasts suggest that by 2025-30 there will be resurgence of their power as they once again come to control over 40% of the world’s GDP. Over the recent years, both nations have achieved high growth rates using different models of development. China has functioned within a centralised political structure centred on state led development that is increasingly embracing the private sector. India has adopted a mixed state and market based economy within a democratic political system.
Trade and investment have underpinned the ties of China and India with Africa. This can be uncovered through examining recent trends in Asia-Africa economic exchange. It emerges that there are persistent historical biases, rooted in the colonial era, tilted against Africa in terms of the nature of trade and investment. This has led to a dependence on exports of commodities and minerals, the import of manufactured and capital goods, and the overwhelming investment in extractive sectors with the limited creation of employment. However, despite this imbalance, the relationship between India and Africa is gradually ushering in new trade and investment possibilities with diverse industries and services beginning to emerge. This arouses the hope of inducing structural change in African economies especially with the long and distinguished history of trade between India and Africa. It goes back thousands of years to the days when Indian traders, using the seasonal monsoon winds, sailed to the East coast of Africa in search of mangrove poles, elephant tusks, and gold and gemstones that made their way up from what is now Zimbabwe. This intensified with the establishment of Omani suzerainty in the 17th century over Zanzibar and its hinterland. The island of Pemba produced a copious variety of sought-after spices such as cardamom, cloves, cinnamon and black pepper.
A number of Indian merchants, some of whose descendents live in East Africa to this day, trace their presence in East Africa to this period. There was also the large immigration of Indian labour during the colonial period, brought over to work on the railways in East Africa, and on sugar and other plantations in Mauritius, Madagascar and Southern Africa. Many descendents form the bulk of the Indian diaspora in Africa today. As the population of the diaspora grew, so did trade between their original homeland and their new-found habitat. Indians became critical links in the export of African commodities such as tea, coffee, cotton and the import of manufactured goods and grains such as rice, pulses and textiles. In more modern times, Africa’s trade with Europe and the United States dominated the trading patterns until the gradual swing to the East, principally led by China, gained increasing momentum. Indian companies were fairly quick off the mark too, re-establishing contacts with the continent and expanding the volume of trade exponentially. For example, bilateral trade was worth $1 billion in 1995. By 2008, that figure had hit $36 billion, according to the African Development Bank Group, and in 2011 it had risen to $45 billion. By end 2014, bilateral trade is anticipated to climb to more than $75 billion.
These trade trends can be clearly traced on a national as well as a continental level. Economic relations between South Africa and India, for example, have grown many-fold since diplomatic relations between the two countries were first properly established in 1993. Bilateral trade between 2003-04 and 2008-09 alone increased threefold, from $2.5 billion to $7.5 billion. In January 2011 following a visit by India’s commerce and industry minister, Anand Sharma, to South Africa, an unprecedented new bilateral trade target of $15 billion by 2014 was agreed upon. At present, Africa enjoys a positive trade balance with the subcontinent. India’s imports from Africa reached $18.8 billion in 2009 while exports from India to Africa were $13.2 billion in the same year, according to the African Development Bank. Exports from Africa are typically raw materials, including oil and minerals, while exports from India tend to be manufactured and finished goods, including transport equipment, industrial machinery and pharmaceuticals. Nigeria, South Africa, Kenya and Tanzania are the most important destinations for Indian products in Sub-Saharan Africa.
Oil is a central commodity shaping the economic relationship between Africa and India and, therefore, merits special attention. Mining and hydrocarbons are key drivers of Indian engagement in Africa. According to the Confederation of Indian Industry (CII), based in South Africa, India is the world’s fifth largest consumer of oil and will be in third place by 2030. As India’s population continues to rise and become wealthier, energy consumption levels are predicted to double over the next two decades. In addition, because India lacks oil reserves, it is highly dependent on foreign producers. Currently, India gets over 70 percent of its oil from the Middle East, with Saudi Arabia followed by Iran being their most important suppliers. However, Delhi is now eager to diversify its portfolio of crude energy suppliers, mainly by boosting the amount of oil it purchases from African countries. To this end, India has been working hard to nurture its relations with major oil-producing African countries, including Nigeria, Ghana, Equatorial Guinea and Sudan. India also imports coal from South Africa. India’s imports of crude oil from Africa have increased - from 22 million tonnes in 2004-05 to over 35 million tons in 2010-11, according to reports.
India is also increasingly interested in oil exploration on the continent. Exploration and production firm Cairn India, for example, made its first overseas acquisition in August, when it purchased a 60 percent interest in a gas discovery block on the South African west coast. Indian oil firms have also bought into oil exploration projects in Nigeria and Libya. Africa’s nuclear energy potential is also driving India’s interest in the region. Uranium mining, essential to power India’s nuclear energy sector, is another area that has elicited great interest from Indian companies. India is exploring uranium mining opportunities in Niger and Namibia. Africa is an equally important source for India of precious metals and gemstones, especially gold and diamonds. India is the world’s major jewellery maker with the jewellery sector constituting 19 percent of India’s total exports. Furthermore, India is the world’s leading processor of diamonds, accounting for 85 percent in terms of volume on the total world market. Gold in particular defines India’s economic relations with South Africa, the latter being the world’s leading supplier of gold. The trend of Indian investment in Africa is also positive. Overall, Indian investment in Africa is believed to be around $33 billion.
On the western front India-U.S. bilateral relations too have developed into a global strategic partnership, based on increasing convergence of interests on bilateral, regional and global issues. Regular exchange of high level political visits coupled with wide ranging dialogue architecture has enabled sustained momentum to bilateral cooperation and helped establish a long-term framework for India-U.S. global strategic partnership. The bilateral cooperation is now broad-based and multi-sectoral, covering trade and investment, defence and security, education, science and technology, cyber security, high-technology, civil nuclear energy, space technology and applications, clean energy, environment, agriculture and health. People to people interaction provide further vitality and strength to bilateral relationship. Bilateral partnership enjoys bipartisan support in both our countries. At present, bilateral trade is around $100 billion. The US India Business Council had said bilateral trade between the countries could touch $500-billion mark over the next one decade. India has received about $12 billion in FDI from the US companies already during April 2000 to March 2014.
A quick look at the figures would show total bilateral trade in goods touched USD 63.7 billion in 2013, registering growth of about 1.7% over the last year. Indian exports accounted for USD 41.8 billion whereas, US exports stood at USD 21.9 billion. The merchandise trade in first three months (January to March) of 2014 was USD 15.26 billion, growing at 2.94% over the same period last year. Total trade in services in 2011 was USD 54.42 billion, registering a growth rate of 16.12%. In 2011, India's exports to the United States reached USD 26.80 billion, and US exports to India accounted for USD 27.62 billion. There are several dialogue mechanisms to strengthen bilateral engagement on economic and trade issues, including a Ministerial Trade Policy Forum and a Ministerial level Economic and Financial Partnership, which play a very important role in driving this growth.
As with China and the US, Modi pushed his infrastructure initiative. US firms will build new generation locomotives in India as well as help in track overhaul, to bring in the transformation of Indian Railways. The defence production secretary was in the US weeks before Modi's visit to set the stage. India and US have extended for another decade the landmark defence framework agreement. For the first time, US has offered India high grade technology for the next generation of Indian Navy vessels. The Navy, according to sources, is in the process of building over 40 different classes of warships and destroyers.
On the business end, Boeing recently signed a deal in Bangalore to build part of the mainframe of the Chinook helicopters in India as well as some sustainable components for the C-17 aircraft, this, before the Chinook deal is finalized. Sources said GE is opening a new manufacture and skilling-integrated plant in Pune in November. India will draw heavily on US assistance to create the next IIT in Goa, recreating the success of the Kanpur IIT, a new national defence university in India, as well as bringing 1000 US professors from the top 100 universities each year to teach in Indian universities. The Indian government has promised to pay them a minimum of $3000 a month for their efforts. The Indian side was clear that every item on the agreements harmonized with the PM's focus areas, with the overriding objective - to get the job done. So far this year there have been eight hundred thousand visas granted to Indian by the US embassy, with the aim to achieve one million visas in a year. A transparent and vibrant trade culture will help in the increasing the manufacturing base in India. Indian-Americans have formed one-third of start-up companies in Silicon Valley and now with improved Indian intellectual property rights, in line with international standards, American investor confidence will get a major boost. The United States stands as the fifth largest contributor to Foreign Direct Investment in India.
Trade and commerce form a crucial component of the rapidly expanding and multi-faceted relations between India and the United States from a modest $ 5.6 billion in 1990, the bilateral trade in merchandise goods has increased to $ 63.7 billion in 2013 representing an impressive 1037.5% growth in a span of 23 years.
India's merchandise exports to the U.S. grew by 4.2% from $ 28.96 billion during the period January-August 2013 to $ 30.17 billion during the period January-August 2014. US exports of merchandise to India fell by 10.4% from $ 15.05 billion during the period January-August 2013 to $ 13.49 billion during the period January-August 2014. Bilateral merchandise trade during the period January - August 2014, was at $ 43.65 billion.
Therefore in this context of the fast changing equations, India’s bilateral trade promises with China, Africa and the US is set to become the most potent instrument for resolving political difficulties and facilitating progress in actualising strategic partnership for the future. Partnerships like these remain an essential pre-requisite for the success of India’s regional and global political initiatives.
© 2017 Anupam Chanda