India set to leverage emerging markets to hit $2 trillion export target

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Although India is Africa’s second largest trading partner, the volume of trade remains modest compared to its main trading partner, China. India accounted for about 6% of Africa’s imports in 2021, while China accounted for almost 20%. This remains in line with India’s modest global share of world merchandise exports, which stood at 1.8% in 2021 compared to China, which exceeded 15%.

India’s exports to Africa peaked at US$37.9 billion in 2021, making it the region’s second largest source of imports.

Mineral fuels and oils (mainly refined petroleum) accounted for 19.1% of total exports to Africa, followed by vehicles (10.4%), pharmaceuticals (10.3%) and cereals (8.5%). %), reflecting a mix of essential and consumer goods. India was also Africa’s second largest export destination, accounting for 6.3% of the continent’s global exports.

Although India is Africa’s second largest trading partner, the volume of trade remains modest compared to its main trading partner, China. India accounted for about 6% of Africa’s imports in 2021, while China accounted for almost 20%. This remains in line with India’s modest global share of world merchandise exports, which stood at 1.8% in 2021 compared to China, which exceeded 15%. China’s exports to Africa amounted to $148 billion in 2021 and remain well diversified, with manufactured goods such as electrical equipment, machinery, vehicles, plastics, iron and steel, and items representing more than 45% of its exports to Africa.

Machinery and mechanical appliances supplied by India accounted for 3.9% of Africa’s imports and machinery and electrical equipment accounted for 3%, while those supplied by China accounted for 27.3% and 24.8% respectively in 2021. While products such as machinery and electronics accounted for 6.1% and 4.8% of India’s global exports, its share in global exports was marginal at 1% and 0.5%. Current government policies have attempted to increase the share of manufacturing globally to overcome India’s existing trade deficit in these sectors.

Furthermore, India’s exports to Africa remain concentrated in a few countries, with South Africa, Nigeria, Egypt, Togo and Kenya accounting for 50.7% of India’s exports to Africa. continent, implying the need to expand export markets to other countries on the continent. India is to increase its manufacturing exports to African countries by taking advantage of the opportunity presented by the African Continental Free Trade Area (AfCFTA) agreement launched on January 1, 2021, providing a US$3 trillion market .

Infrastructure financing accounts for a substantial amount of Africa’s public debt and these loans are mostly funded by foreign creditors, resulting in soaring external debt in the region. It presents a financial risk for investors, especially in countries with high political risks or countries vulnerable to currency risks. Of the 54 African countries, 29 countries are classified as at high risk of debt distress by the IMF and seven countries remain in debt distress, with an average gross general government debt-to-GDP ratio 68% higher than the pre-pandemic level of 62 %.

Concentration on alternative solutions such as local currency financing or countertrade agreements to finance goods as well as project exports could therefore be explored, especially in the case of resource-intensive countries to support future repayments and help low-income countries achieve their development goals.

Africa could become a sustainable supplier of a range of essential products for India. India’s top imports from Africa in 2021 included mineral fuels (mainly crude oil, coal and natural gas) accounting for 47.8% of India’s imports, followed by precious stones and metals (mainly gold) (25.4% share). In addition to this, Africa also supplied copper and copper articles, inorganic chemicals, edible fruits and nuts, fertilizers, plaster materials and cement, edible vegetables and roots and oilseeds together accounting for 20 percent of India’s total imports from Africa.

Another area of ​​particular interest to India could be the Pan-African Payments and Settlements System, a centralized payment and settlement infrastructure for intra-African trade payments, jointly developed by the African Union and the African Development Bank. ‘import Export. It aims to facilitate trade and other economic activities between African countries through a simple, low-cost and risk-controlled common payment clearing and settlement system. An agreement could be signed between the Reserve Bank of India and the African Union, aligning with the “International Indian Rupee Trade Regulations” and initiating a joint payment mechanism with PAPSS to facilitate rupee trade with India to ensure the supply of essential imports as well as facilitate exports to African countries that currently lack foreign exchange reserves or are fiscally constrained to undertake imports from India.

The trade finance gap in Africa remains at USD 82 billion in 2019, with 40% of African trade remaining intermediated compared to 80% globally. Regulatory restrictions and higher compliance costs were the main constraints cited for the withdrawal of international confirming banks from Africa, resulting in reduced availability of trade finance, especially for SMEs.

Credit enhancement schemes, including risk participation and transaction guarantee agreements supporting Indian commercial banks, could provide needed liquidity, thereby boosting exports to Africa. In addition, a dedicated line of credit to finance trade with Africa, channeled through development finance institutions, as part of India’s enhanced engagement with Africa and support for ZLECAf, could guarantee a sustainable supply as well as South-South solidarity.

Africa remains an important region for the Indian Development Assistance Program (IDEAS) which provides concessional lines of credit for infrastructure development and capacity building in beneficiary developing countries. Africa represents 40% of the total lines of credit granted over the years, the first beneficiary after Asia. In a strained global financial environment, India’s traditional approach to human capacity development could be complemented by a policy supporting increased exports of ‘made in India’ manufactured goods to Africa. India must leverage its goodwill to exploit export opportunities in emerging markets in Africa to meet its export targets of US$2 trillion by 2030.

The authors are economists from India Exim Bank. Views are personal.