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Trade imbalance between Africa, India worrying

James Ngomeli

Despite years of trade with India, its relation with Africa has been nothing more than a tossed coin that keeps landing on the head—in favour of India.

The recent Indo-Africa Summit that was meant to address the trade imbalance ended up being a diplomacy spectacle and less on substance.

Perhaps nobody captured the picture better than President Uhuru Kenyatta who stated that Kenyan traders need to undertake more value addition before exporting anything to India. India charmed African leaders with a promise of $10 billion (Sh1 trillion) in credit to back a “partnership of prosperity” and pitching a broad alliance for global reform.

It also promised an additional $7.4 billion (Sh740 billion) in soft loans and $1.2 billion (Sh120 billion) in aid provided since the first India-Africa summit in 2008. Besides, India will offer grant aid of $600 million (Sh60 billion).

Of that, $100 million (Sh10 billion) will go to an India-Africa Health Fund. India has had a good chance to make a meaningful impact in Kenya through investment in solar energy technology that Kenya so urgently needs, among other areas.

India has failed to capture this opportunity due to lack of a clear policy guidelines to promote the trade between the two countries, choosing instead to stick to the current arrangement where it benefits from raw materials and exports back finished products.

This arrangement with Kenya is repeated in several countries in sub-Saharan Africa. And statistics prove this trend. India exports consumer goods to Africa. In return, Africa almost exclusively exports raw materials to India.

World Bank data for 2014 shows that of the total imports from sub-Saharan Africa, 84 per cent were raw materials, while just two per cent were consumer goods. India’s exports to the continent mirror this trend – 67 per cent consumer goods and barely two per cent raw materials.

The top five exports to Kenya include pharmaceuticals, steel products, machinery, yarn, vehicles and power transmission equipment. Main Kenyan exports to India include soda ash, vegetables, tea, leather and metal scrap.

“This pattern runs contrary to Africa’s long-stated objective to transition regional economies away from natural resource dependence and toward higher-productivity manufacturing,” according to a Brookings India report.

It will, however, not go without mention that there is a rising Indian investment in Africa’s infrastructure and communications sectors.

One of the contentious issues is a policy started by India in 2008 called the duty-free tariff preference, or DFTP, scheme. It provides relief on import duty to a set of items imported from the least developed countries (LDCs).

DFTP is supposedly meant to help these countries achieve economic growth through exports as the import duty relief makes them cheaper. Critics, however, say the scheme is designed in such a way that it favours the import of raw materials over processed or manufactured items.

At the Africa business conclave organised in 2014 by the Confederation of Indian Industry, it was pointed out that raw cashews imported from African LDCs get duty-free access, but processed cashew nuts do not get this benefit.

“If the intent is to help LDCs, it should be very clear with no strings attached,” Vinaye Ancharaz, senior development economist at the Geneva-based International Centre for Trade and Sustainable Development, told the conclave.

Although the relations between India and Africa have generally been good over the years, it was only in the first decade of the 21st century that they gained significant momentum.

The push came from India’s burgeoning post-liberalization private sector but the pull was the “African Renaissance” project – championed by the then South African President Thabo Mbeki. Alongside trade and developmental aid, energy security is the third major focus area of India-Africa ties.

With only 0.3 per cent of the global energy resources and 17 per cent of its population, India is an acutely energy deficient country. By 2025, 90 per cent of India’s oil demand will come from outside. —The writer is Chief Energizing Officer Brands and Beyond ltd.

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