The path to real India-Africa economic partnership

Kingsley Moghalu
Kingsley Moghalu
Kingsley Moghalu Senior Fellow, Council on Emerging Market Enterprises The Fletcher School of Law and Diplomacy - Tufts University, Former Deputy Governor - Central Bank of Nigeria

October 20, 2015

Content from the Brookings Institution India Center is now archived. After seven years of an impactful partnership, as of September 11, 2020, Brookings India is now the Centre for Social and Economic Progress, an independent public policy institution based in India.

Editor's note:

The chapter is part of a briefing book ‘India and Africa: Forging A Strategic Partnership’ edited by Dr. Subir Gokarn, Dr. WPS Sidhu and Shruti Godbole. 

Africa Rising?

From the 1980s and the 1990s, when large numbers of Africans, despondent from a combination of civil wars, coups d’etat, pandemics and puny economies, migrated to Western countries in large numbers, Africa has now become the subject of more positive global attention  and interest.

But, is this development, in which Africa has come to be regarded as the “last frontier” of the global economy- an inevitable outcome of globalization – really a cause for celebration? Will it lead to the real rise of the continent as an economic power in the mold of Asia or the West? Is Africa engaging the world – and glo­balization – on its own terms? Or are we seeing another, more-sophisticated-than-1885-Ber­lin scramble for Africa?

The World Bank calculates that Africa received capital flows of $48.2 billion in 2011, an increase of $8 billion, and notes that “the region is increasingly being recognized as an investment destination”. Yet Africa’s share of world trade is a minute 3 per cent, with less than 5 per cent of Foreign Direct Investment (FDI) flows. In 2010 the combined GDP of the 54 countries that make up the continent was just barely equal to that of India, and just 100,000 individuals account for 80 per cent Africa’s GDP, while the continent’s share of global poverty rose by 8 per cent between 1999 and 2008. The GDP of the entire sub-Saharan Africa, including South Africa, is just about equal to that of Belgium or that of metropoli­tan Chicago, a city in the United States. And all the electricity produced in sub-Saharan Africa, half of which is, in fact, produced by South Africa, is equivalent to that of Spain, which has 20 times fewer people than Africa.

It is true that Africa’s macroeconomic con­text today is probably better than it has ever been, and that Africa will increasingly become a consumer of commodities – including its own – rather than merely exporting them. But this remains an opportunity, not an arrival at the desired destination. It is important to ac­knowledge the undoubtedly better trends that have emerged in the continent – and given how beaten down Africa’s image in the world had been before the advent of the last decade, one supposes that a bit of celebration at this new turn of events is not completely out of place. But circumspection is still required.

Economic globalization has hurt Africa. The gains for African countries from opening up to international economic forces without ad­equate internal preparation have been limited and far outweighed by the adverse impact of the continent’s engagement with economic globalization. Economic policies enunciated by the Bretton Woods Institutions – the Inter­national Monetary Fund, the World Bank, and the World Trade Organization – led to lost decades of development opportunities and out­comes. Structural adjustment and liberaliza­tion without the proper foundations as a core condition led to t he effective de-industrializa­tion of the continent by weakening the manu­facturing sector, increased income inequality, and marked drops on average per capita in­comes in many African countries. Trade liber­alization under WTO regimes has not brought benefits. It has removed incomes from tariffs previously available to African countries, and these incomes have not been replaced by effective internal resource mobilization through taxes and other methods.

Nevertheless, one of the paradoxes of global­ization is that the phenomenon has so opened up the world and its inhabitants to each other that the prospects and opportunities for eco­nomic advancement are now almost universal. This process, underpinned by the invention and innovation of industrial technology that began two hundred years ago after the indus­trial revolution, is not a secret. It is open to any country or region that is prepared to harness it. Perhaps the secret lies in what is beneath the surface – the full understanding of all the di­mensions of that process and the preparation to harness the recipe. It has nothing to do with the presence or absence of natural mineral endowments. If it did, Africa would have long ago become the richest continent in the world rather than the impoverished one it has been.

It is against this backdrop, in which Africa has come to view Asia, in particular China, as a viable economic model, that we can examine the continent’s growing relations with another rising power on the Asian continent – India.

India, Africa and the 2015 Summit

The India-Africa relationship goes back to thousands of years over which Indian mer­ chants and Africa have traded. In the more contemporary past, India and African coun­ tries collaborated closely in the Non-Aligned Movement during the Cold War, and in the struggle against Apartheid in South Africa.

But the intricateness of this relationship are yet to be reflected fully in the contemporary economic sphere, and China’s rising economic engagement in Africa is today the dominant reference point. China’s trade with Africa hit $210 billion in 2013, with 2,500 Chinese com­panies operating in the continent.

India-Africa trade is playing catch -up, projected to get to $100 billion in 2015. India is now the largest trading partner of Nigeria while India is now the largest importer of Nigerian crude oil. But Africa has far more in common with India. An increased strategic economic engagement between the two partners has the potential to be much more genuinely beneficial to both parties than the increasing criticisms of a certain lopsidedness in China’s relations with the continent. The 2015 India-Africa Forum Summit should reposition India-Africa economic relations along some deeper contextual com­monalities than merely transactional activity.

This approach will enable African countries gradually emerging in the global economic consciousness to achieve transformation­al outcomes beyond simply being a stage for global economic competition between rising powers, such as India and China.

The common challenge that confronts India and Africa is their struggle against poverty. In India, these tensions are represented not only in the economic philosophies of the previous and present national governments but is also evident in the criticism of the late Indian man­agement guru C.K. Prahalad, who highlighted “the fortune at the bottom of  the pyramid”, by Raghuram Rajan, the Reserve Bank of In­dia Governor who has said that micro-lenders should not seek to make a fortune off the poor.

Put differently, this argument is about  inclu­sive business. With Africa gradually emerging as a continent of  possibilities  and  opportuni­ty in the global economy, and with India rising as a global power in the 21st century, the 2015 India-Africa Forum Summit must go beyond pomp and pageantry to set a concrete set of objectives with time frames for their achievement. Given the shared history of trade and immigration between the two, and several similarities of circumstance and  challenges, this should not  be too difficult.

The need for such specific outcomes from this summit is even stronger because Afri­ca is the ‘last frontier’ of the global economy with which it appears every other region of the world seeks a preferential relationship. Sum­mits with African countries and their leaders are becoming a crowded affair. India’s third and enlarged Africa summit joins five others — those between China, United States, the European Union, Japan and Turkey individual­ly with African countries. Since differentiation and brand uniqueness are important aspects of strategy, India as the host should adopt a well thought out value proposition for a deep­ened economic, technological and diplomatic collaboration with their African guests. Afri­can countries, for their part, need to find com­mon ground on the mutual benefits they can share with India more broadly as a continent, and more specifically between each of them as different countries, with India.

This is the foundation on which India-Africa relations must now proceed. The world has changed markedly from the days of the Cold War, the Non-Aligned Movement, and the struggle against Apartheid. These were the predominant anchors of the India-Africa rela­tions of that era. Today, the economic ambi­tions of India and Africa, with both parts of the world experiencing marked economic growth but still contending with the challenge of widespread poverty among their populations, create an imperative for win-win partnership.

African countries should no longer allow themselves to be pawns in a chessboard of great or rising power rivalry between India, China, the United States and other dominant global economic actors.

With India and virtually all African countries having discarded state-dominated “command economies” for the free market to varying degrees, the two sides will benefit much from a mutual review and sharing of experience from the trade-offs between different kinds of cap­italist frameworks for economic growth and development.

The path to real economic transformation in Africa, which is what the continent’s leaders seek, does not lie in the export of its raw materials and imports of finished, value-added products.

The path to transformation is to develop Af­rica’s human capital and make manufactur­ing the basis of its trade with others. India has significant capacity and experience in these areas, including the manufacture of automo­biles.

The India-Africa relationship should be an­chored on investments by Indian firms in Afri­can countries and access to Indian markets for African multinationals, of which several exist in areas such as telecommunications, cement manufacturing, banking, and others. Develop­ing investments in social infrastructure such as education and healthcare through online edu­cation that transfers technical skills, or well­ equipped hospitals in African countries to re­verse the flow of “medical tourism” would be excellent areas for expanded collaborations.

Africa and India have come a long way, and have a long path into a future in which they are both emerging and rising players. The bet­ter angels, however, are in the details of how they can expand their relationship for mutual benefit.