Engaging with Africa

Gurjit Singh | Updated on July 21, 2021

India has much to gain by supporting AfCFTA

No discussion on Africa today is complete without the hope and expectations emanating from the Africa Continental Free Trade Area (AfCFTA). The aim is to create a unified market of 1.3 billion people of Africa by harmonising standards, customs procedures and rules of origin. It could have a combined GDP of $3.4 trillion. It has the potential to lift 30 million people out of extreme poverty. Trade facilitation measures could provide $292 billion of the $450 billion potential income gains. The potential impact in lifting Africa from an aid basket to a trade and FDI led growth path is immense.

Fifty-four of the 55 members of the African Union signed the agreement, and 36 have ratified it.

Figures by various institutions indicate how Africa as a whole will benefit. In reality, intra-African trade is abysmally low at 17 per cent. This is most likely to benefit from an effective implementation of the FTA. This will give an incentive to new FDI catering to intra-regional trade.

Identify the sectors

To support the AfCFTA, India can take a closer look on how FDI will be attracted into specific countries and sectors. Agro-processing, automotive, pharmaceuticals, textiles, chemicals and leather can support local manufacturing as well as the SME sector for intra-African trade. Companies can choose better organised and connected countries for new FDI.

It needs to be recognised that while intra-African trade is promoted, in reality it is going to be intra-regional African trade, not inter-regional trade. Djibouti or Ethiopia on the eastern coast are unlikely to have much trade with Senegal or Nigeria. Even within COMESA, which has 20 members from Egypt to Comoros, the main trade is between countries closer together. This is a result of the lack of connectivity, harmonised standards and evident complementarity.

Thirty-eight African countries have established 230 special zones for industrial clusters. Ethiopia has one for pharmaceuticals, Lagos and Gabon have new private ones, and Djibouti has one too. This is a growing trend and Indian investors can see the benefits of the SEZs in select locations.

From India, pharmaceuticals are a major export to Africa. Some Indian companies have also invested in countries with a large enough market.

The current demand for the post-pandemic world is a larger amount of healthcare and pharmaceutical FDI into Africa since most African countries want to stand on their own feet. For this, their own systems are not incentive enough for FDI. Vigorous efforts need to be made to attract Indian companies. What is required are harmonised registration procedures, at least in each REC. The costs of registering the same formulation in neighbouring countries is both time consuming and expensive.

AfCFTA needs to make special efforts, and engage with the its major trading partners, especially India. There is presently no conversation between AfCFTA and India. In fact, AfCFTA Secretariat has not given any priority to India. India needs to discuss issues like rules of origin, non-tariff barriers and level-playing field with African partners. China often does this to prevent harm to the interests of Chinese companies that would invest there. The EU continues to discuss regional economic partnership agreements with the RECs.

India needs to be proactive on this and start working with its top 10 destinations for investments. This will support Indian businessmen who are likely to invest or have invested in the regions by getting their concerns addressed at the national and regional level while the AfCFTA is actually being negotiated. Simply waiting for the AfCFTA to take shape and then study its impact will not be fair to Indian entrepreneurs.

The Indian private sector in Africa needs much more government intervention and support, even though overseas FDI has never seriously been a part of India’s policy. As we move from a debt to FDI led partnership with Africa, such supportive intervention is necessary.

The writer is a former Ambassador to Germany

Published on July 21, 2021

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