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T S Vishwanath: Ready for the African safari?

With large FDIs moving to Africa, India should focus on more than just development aid to build sustainable ties with the continent

T S Vishwanath  |  New Delhi 

The African continent has been clearly recognised as the next big market for trade and investment globally. A free trade agreement (FTA) with different regions of Africa will be the next logical step in building a dynamic partnership with the region, stated India’s Commerce and Industry Minister Anand Sharma recently while addressing industry. The World Bank, too, has come up with a five-year strategy for Africa detailing its role in the region.

China has been engaging intensely with Africa for the last few years. It sees the continent as a large base for resources to fuel a growing economy. India’s relationship with Africa, on the other hand, has been dictated by the need to build a sustainable partnership that provides a platform to engage and collaborate to enhance capacity and capability for both sides. Therefore, Mr Sharma’s comment of negotiating FTAs with different African nations as the next logical step is a very important move to cement the deep relationship that has grown over the years.

A World Bank report titled Africa’s Future and World Bank’s Role in it provides several insights into the growth in a continent where countries are at different levels of development and growth.

A striking feature of the change is that the private sector’s role is increasing in a big way in Africa. According to World Bank’s estimates, the flow of foreign direct investment (FDI) into the continent has been greater than the flow of FDI in India. Interestingly, Indian companies have been in the forefront along with the Chinese in investing in different African countries. Importantly, India is seen as a long-term player in the region since it has looked beyond natural resources to invest in Africa.

Bharti’s investment in South Africa is seen as an example of how Indian companies are looking at long-term partnerships in Africa. As the Bank points out, Africa “could be on the brink of an economic takeoff, much like China was 30 years ago, and India 20 years ago”.

The World Bank, in its document, states that it will leverage public money to crowd in private resources to Africa and will work with development agencies to build a “Marshall Plan” aimed at relaxing the financing constraint to reach the Millennium Development Goals (MDGs).

This provides a perfect setting to start negotiations with some large countries to sign comprehensive economic cooperation agreements. With several multilateral financing institutions poised to enter Africa, some of the key constraints that the small- and medium-sized businesses face, such as inadequate financing options and lack of infrastructure, could be overcome in the coming years. This will provide a spurt in economic activity, which will help develop large markets for goods and services.

An important aspect that would have to be kept in mind while developing an FTA model with African nations would be to negotiate with sub-regional groupings rather than individual countries. This will help both sides since it could help build value chains across the continent and India. Some of the important countries that would need to be tapped for such sub-regional groupings would be South Africa, Kenya and Nigeria.

Africa provides several opportunities for collaboration ranging from education to agriculture and technology to investment. India should, therefore, look at economic partnership agreements with African nations since it will help both sides engage far better in the coming years.

Such agreements will also help India cement the already close partnerships it enjoys with several countries in Africa. As a first step, it would be a good idea to prepare a comprehensive study that covers all aspects of a possible partnership between India and Africa. This study should also look at different countries that India should engage with and provide a medium- and long-term strategy for economic engagement with Africa.

India’s official relationship with Africa over the years has been mainly focused on development aid. But with large private investment flows moving towards Africa in various sectors, it is time to re-look the strategy to engage with Africa.

It will be important for the Indian government to closely engage with industry in India for developing an Africa strategy since it will help develop a more sustainable partnership, which will be beneficial to both India and Africa.

The author is Principal Adviser, APJ-SLG Law Offices

First Published: Thu, January 20 2011. 00:49 IST