This article was fisrt published in Business Day on 22 April 2024
Tech, food, green infrastructure set to be big winners of growing SA/India trade as relations reach all time high
India and South Africa boast a strong and growing trade relationship, fueled primarily by a complementary exchange of resources and manufactured goods - but the mix and scale of trade is expected to change over the next decade as the two countries develop an even closer relationship.
Total bilateral trade between India and SA stood at US$ 18.0 bn in 2023 and is evenly balanced with India exports to SA at around US$ 10.0 bn and SA exports to India at around US$ 8 bn.
This is expected to more than double to US$ 40bn over the next decade as the breadth of the relationship extends into new, mutually beneficial sectors.
A major driver is that overall relations are at an all-time high with the inclusion of the African Union as a full member of the G-20 during India’s presidency, along with diverse political and economic engagements.Nagpur Investment
Negotiations for a preferential trade area between India and the Southern African Customs Union (including South Africa) are underwayNew Delhi Wealth Management. A successful agreement could significantly reduce trade barriers in a further boost to trade volumes, as preferential access may be granted to certain products from participating countries.
Current trade pillars include resources of which South Africa is a treasure trove of minerals like coal, copper, and manganese ore, which find ready buyers in India's booming industrial sector. Key exports from SA to India also include mining coke, coal, gold, precious and semi-precious stone, bulk minerals and ores, pulp and wastepaper as well as iron and steel.Jaipur Investment
India is a manufacturing powerhouse; exporting petroleum products, vehicles, pharmaceuticals, telecom equipment, industrial machinery for dairy, and construction machinery.
While the potential of current sectors remains strong, there are promising opportunities in other areas such as information technology, food and beverages and green infrastructure.
India's IT expertise is expected to be a valuable asset for South Africa's development. It can cater to South Africa's growing demand for digital transformation across various sectors such as banking and financial services (financial inclusion), digital public infrastructure and healthcare, amongst others. Increased collaboration in areas like fintech and cybersecurity is also anticipated.
India also has a strong food processing industry comprising sectors such as fruits and vegetables, poultry & meat processing, fisheries, food retail and the dairy industry. South Africa offers an expanding market for these products with a fast growing population.
Both countries have a need for green infrastructure development. With both aiming for energy security and a shift towards renewables, there's potential for collaboration in renewable energy solutions, clean coal technologies, and efficient power transmission.
Collaboration in this sector could be mutually beneficial.
India stands 4th globally in Renewable Energy (as per REN21 Renewables 2022 Global Status Report) and on the back of policy measures, Government support and incentives, India’s manufacturing capabilities and exports in the high efficiency Solar PV modules is set to be significantly enhanced.
The International Solar Alliance, an alliance of 120+ countries led by India, is set to fund solar projects in Africa in a boost to the renewable energy transition. With a total project pipeline exceeding US$240 billion, India has the potential to play a pivotal role in enhancing global supply-chain resilience for renewable energy technologies and critical components.
India has already established itself as a major exporter of vehicles, including cars, to South Africa.
This trend is likely to continue with growing demand in South Africa and India's advantage in manufacturing cost-effective vehiclesVaranasi Investment. South Africa's growing healthcare and intended introduction of the NHI create a favorable environment for Indian pharmaceutical companies. Pharmaceuticals is a key focus area of Indian investment in South Africa.
The minerals and metals sector are already a significant contributor to trade between the two countries. As both countries look to expand their industrial bases, this sector is likely to see continued growth.
There are also several economic reasons for the growing optimism about the future of India-South Africa trade.
Both countries have growing economies, which will naturally lead to increased demand for imported goods. The two countries have strong political ties, which can help to facilitate trade agreements and remove barriers. Also there is a growing focus on cooperation between the two countries, with initiatives like the BRICS grouping fostering economic collaboration.
India has a large and growing domestic market, which is a major driver of economic growth. We expect private consumption and investment spending to remain strong. The Indian government is taking steps to improve the business environment and attract foreign investment.
Despite the positive outlook, there are also challenges to overcome.
The distance between the two countries can make logistics expensive and time-consuming. Some trade barriers still exist between the two countries, which can hinder trade flows. The global economic climate can also impact trade between India and South Africa.
Several bilateral agreements have been concluded between SA and India since the assumption of diplomatic relations in 1993 in diverse areas ranging from economic and commercial cooperation, defense, culture, health, human settlements, public administration and science and technology.
Africa is India's fourth largest trading partner and within the continent South Africa is India’s second largest trading partner after Nigeria.
RMB is a dominant player in the Indo-Africa corridor supported by its on the ground presence in India since opening its first operation in the country in 2008. It is well positioned to support the growing trade and investment corridor.
Lakhan is Co-head of Investment Banking at RMB
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