Africa, the second largest continent, is vast and divided by the Sahara desert into North Africa and sub-Saharan Africa. North Africa borders the Mediterranean Sea and stretches from the Atlantic Ocean in the west to the Red Sea coast and Suez Canal in the east.
This region, known as the Maghreb, is rich in oil and gas reserves and is part of the Arab world. It has a historical legacy of great Islamic empires in Tunisia and Egypt, which still showcase their glory today.
On the other hand, sub-Saharan Africa presents a different picture. It consists of forty-six independent countries with diverse cultures, tribal traditions, languages, economic conditions, geographical features, and societal structures. These countries possess significant wealth, including various precious minerals, oil, gas, and fertile agricultural lands capable of producing enough food for their own populations and others.
Unfortunately, this wealth has been a “curse” for Africa. Due to the lack of knowledge among the local populations, European colonial powers divided the resources of sub-Saharan Africa among themselves in the Berlin Conference of 1884-1885. Within a short span of two decades, almost 90% of sub-Saharan Africa was colonized by these powers, leading to the ruthless exploitation of African resources, immense human suffering, poverty, and the loss of millions of lives. This practice persisted well beyond the Second World War.
In response to the independence movements across sub-Saharan Africa, the African Union (AU) was established in 2002 with the aim of fostering socio-economic integration and ensuring peace and stability among its fifty-five member states. The Division of Economic Policy and Research (EPR) was established at the AU headquarters in Addis Ababa to support member countries in formulating appropriate economic policies and achieving sustainable and inclusive development.
Recognizing the challenges faced by the AU in achieving its objectives due to the sheer number of member countries, various Regional Economic Communities (RECs) were formed over time. In sub-Saharan Africa, the AU-recognized RECs include the Intergovernmental Authority on Development (IGAD), Common Market for Eastern and Southern Africa (COMESA), East African Community (EAC), Economic Community of West African States (ECOWAS), Community of Sahel-Saharan States (CEN-SAD), Economic Community of Central African States (ECCAS), and Southern African Development Community (SADC). There are several other sub-regional economic communities as well.
The REC member countries in sub-Saharan Africa are currently working towards economic integration by removing trade barriers, implementing unified customs duties, and facilitating the free movement of goods and services across borders. With varying degrees of progress in these areas, the AU launched the African Continental Free Trade Area (AfCFTA) in 2019, which is the world’s largest free trade area headquartered in Accra, Ghana. As of 2021, AfCFTA has become operational. Although member states face challenges related to adopting a single currency, this issue is expected to be resolved as the process continues over the next decade.
Throughout history, persons of Indian origin, collectively referred to as Indians, have been living in sub-Saharan African countries for centuries. Despite facing numerous challenges, such as encounters with cannibalistic African tribes, these individuals have never ceased their business activities. Initially starting as small traders from coastal India, many of them have established large agro-industrial units, including sugar and tea plantations, textile manufacturing, large-scale agriculture, dairy production, floriculture, and the manufacturing of steel bars, roofing sheets, plywood, and basic medicines. Some of the older settlers have even ventured into the fields of education, private banking, insurance, and electronic services.
However, the owners of these large companies often do not reinvest their profits in the countries where they operate. They prefer to keep and spend their money in the UK and the US since many of their family members reside there. While Indian businessmen and industrialists contribute significant tax revenue to their home governments, their activities do not significantly impact the equitable distribution of wealth in the countries where they operate. There are a few examples of Indian companies that have developed townships around their factories, complete with housing, hospitals, schools, colleges, and proper infrastructure for the benefit of their employees and the local residents.
Apart from the larger companies, there are also numerous small-scale Indian businessmen and traders scattered across sub-Saharan Africa. Indian communities can be found even in remote places like the Kingdom of Lesotho, Swaziland, and the South Kivu province of the DR Congo, where violent civil wars have persisted for over two decades. It is remarkable to witness these Indian traders leading relatively prosperous lives in the deep rainforests of central Africa.
Recognizing the long-standing relations between India and the Indian diaspora in sub-Saharan Africa, the Indian government has periodically revised its Africa policy. However, the full potential of this relationship has not been fully utilized. The Indian diaspora still considers India as their motherland, but India has not engaged with this widespread diaspora through a structured and calibrated policy. Adopting a clinical approach to meaningful economic cooperation with sub-Saharan African countries is necessary.
Although trade between India and sub-Saharan African countries has been substantial and continues to grow, there are imbalances in the trade dynamics. India imports crude oil, gold bullion, diamonds, and other precious metals from Africa, which narrows the overall trade balance. On the other hand, India exports its goods and services to many African countries, but the imports from those countries are negligible. Local business communities and government authorities in Africa have expressed their aversion to this trade policy, as Chinese products are much cheaper and dominate the market.
India’s Foreign Direct Investment (FDI) in Africa is significant, but more than 90% of it flows through Mauritius, a tax haven from where the money can be redirected to other countries. The remaining FDI is concentrated in sectors such as oil and gas, mining, pharmaceuticals, and textiles. Indian textile giants have invested in sub-Saharan African countries primarily to export their finished products to the US and EU countries, taking advantage of initiatives like the African Growth and Opportunity Act (AGOA) and preferential tax and quota-free exports to the EU.
The Indian government has also provided significant financial support to sub-Saharan African countries for development projects. However, the cooperative engagement between India and sub-Saharan Africa has not fully achieved the desired impact. African countries aspire for inclusive socio-economic development, poverty reduction, employment generation, and sustainable economic growth through wealth creation. Empowering Small and Medium Enterprises (SMEs) is crucial to achieve these goals.
This is an area where India has an advantage over its main competitor, China. With the presence of Indian businessmen throughout sub-Saharan Africa and the common use of the English language, and in some countries, French and Portuguese, resident Indians possess fluency in those languages. Moreover, many local SMEs have already adopted and successfully utilized Indian intermediate technologies.
To address the challenges faced by SMEs in Africa, the Indian government, in consultation with the African Union (AU), has implemented notable projects such as the Indo-African Vocational Training Centre (VTC) and the India-Africa Entrepreneurship Development Centre (AEDC) in Rwanda. These projects focus on fostering innovative enterprises and training in small and medium-scale industries, contributing to increased national wealth and job creation. While these projects have been completed and are currently operational, their objectives are yet to be fully realized due to practical challenges.
During a stakeholders’ meeting attended by concerned ministers, SME owners, and entrepreneurs from various countries, it was evident that almost all of Africa’s over 44 million SMEs face similar challenges for survival. Even if they manage to survive for a year or so, they lack the capacity to scale up production due to a lack of capital, appropriate technologies, and, most importantly, effective marketing strategies. Manufacturing and marketing are treated as separate business activities, and many SMEs operate informally as small family-owned units that are not members of any trade or business associations. Registering with government authorities remains a distant goal for many of these enterprises.
Furthermore, most SMEs in Africa do not have bank accounts, and even for those that do, obtaining loans from banks is nearly impossible due to high-interest rates ranging from 12-14%. Microfinance institutions charge even higher rates, often exceeding 20%. As a result, these SMEs primarily sell their products locally, but their profit margins have been continually shrinking due to the influx of cheap Chinese products in the market. Consequently, these enterprises inevitably meet their demise when their seed capital dries up.
India must actively engage in this space by making SMEs in sub-Saharan Africa viable and sustainable. Given that nearly 90% of the workforce in African countries is employed in the SME sector, it is crucial to start by facilitating detailed and sustained interactions between expert economic policy analysts from both the government and private sectors and their counterparts in the AU’s Division of Economic Policy and Research (EPR). With 46 countries in sub-Saharan Africa, each with a different economic structure, size, and availability of raw materials, it is necessary for Indian experts to identify regionally suitable SMEs and develop blueprints for individual countries or groups of adjacent countries in collaboration with the relevant Regional Economic Communities (RECs).
Following this, two separate actions need to be taken. Firstly, reports from Indian experts should be circulated among trade and business organizations across India to identify Indian companies willing to invest in SMEs in sub-Saharan Africa. These investments do not necessarily have to be substantial, as even small amounts can initiate pilot projects. Secondly, local partners, either existing businessmen or new entrepreneurs, need to be identified with the assistance of Indian businessmen already familiar with the local socio-economic structure, demand and supply chains, and sources of affordable raw materials and other production inputs.
With the invaluable support of VTCs and AFDC, this symbiotic approach can demonstrate the effectiveness of India’s policy by implementing pilot projects in different regions. The success of these ventures will undoubtedly attract more Indian and local businessmen to participate in this endeavor.
It is important to note that this article is based on the author’s experience from diplomatic assignments in sub-Saharan Africa and working at the Africa desk of the Ministry of External Affairs. It aims to analyze the issues related to the stagnated Indo-African economic relations and propose a practical approach to fulfill Africa’s aspirations and create long-term opportunities for Indian businessmen. However, it should not be interpreted as an economic policy paper.
The author is a former Indian Ambassador and High Commissioner who has served extensively in Gulf, West Asia, and Eastern & Southern African countries.
Source: financialexpress.com