Charles Robertson, chief economist at Renaissance Capital, argues that slower Chinese growth will not necessarily be detrimental for Africa, as Indian trade and investment is likely to increase. Indian demand for raw materials is likely to benefit the Democratic Republic of Congo (DRC), Guinea and Zambia, he says.
So what is the potential for Africa-India trade? African exports to Indian have increased partly as a result of India’s duty-free tariffs preference scheme for Least Developed Countries adopted in 2008. Africa-India trade could double by 2021, especially if appropriate steps are taken by government and business, according to a 2018 report from the African Export-Import Bank and the Export-Import Bank of India.
Taxation of trade is one factor that could prevent that potential from being reached. Hanan Morsy, head of forecasting and research at the African Development Bank, said in an interview that reliance on a narrow tax base, especially trade taxes, is a key reason for low domestic resource mobilization in Africa.
- On average, Morsy says, trade taxes accounted for 44% of total tax revenues in Africa in the last decade.
- For resource-rich countries such as Libya, Angola, Nigeria and Algeria, over 60% of their tax revenues came from trade.
On the Indian side, the list of products excluded from the LDC agreement still includes products where African LDCs have strong export potential, the African Export-Import Bank report says.
- Fruit and vegetables are excluded, as are wood products, base metals, processed cashew nuts, beverages, coffee, and copper and related products.
- Research in 2018 by the United Nations Economic Commission for Africa (UNECA) and the Confederation of Indian Industry shows that products on the exclusion list accounted for a significant proportion of total exports of several African countries, including Burundi, Ethiopia, Rwanda, Uganda, Malawi and Zambia.
- From these countries, only a small share of exports of these products is going to India.
The bilateral trade potential between India and Africa exceeds $42b, the African Export-Import Bank report says. Africa’s exports to India are concentrated in crude oil and primary commodities. That pattern is likely to continue in the light of India’s energy deficit, but natural resource and labour cost advantages should see the composition of trade develop to include more manufactured and agro-processed exports, the African Export-Import Bank says.
The report uses an export potential assessment methodology developed by the International Trade Centre (ITC) to identify products in which Africa and India are internationally competitive and which have good prospects of export in each other’s markets.
- The African product with the greatest export potential is cashew nuts, followed by ferrous metals, wood and vegetable materials, and pulses.
- Guinea-Bissau and Côte d’Ivoire account for almost half of Africa’s of cashew nut exports to India, and west Africa is the region with the greatest export potential.
- Africa’s export potential for wood and vegetable products to India is estimated at over $750 million.
- That may understate the full potential, which could be increased by exporting more higher-priced processed or semi-processed wood.
Bottom Line: Africa’s potential to export to India remains underexplored. Ending India’s exclusions on some products from LDC tariff-free status and diversifying African tax bases away from trade would be concrete steps forward.