India-Africa ties energised with oil and other products

India and Africa are coming closer to each other faster than most realize. In the last few years India has diversified its energy procurement to African countries.

In 2005, India did not import any oil from African countries.

Just eight years later, more than 20 per cent of India’s oil and gas imports are from Africa. While much is being traded, India has also begun investing in the energy sector in Africa.

State-run Oil and Natural Gas Corporation (ONGC) has just acquired a 10 per cent stake in an offshore gas field of Anadarko Petroleum Corp in Mozambique for $2.64 billion.

It’s not just Mozambique. India has increased its purchase of oil and gas from a range of African countries. The biggest sellers of petroleum products to India from the continent are Nigeria, South Africa, Angola, Egypt, Algeria and Morocco.

India has reduced its dependence on Gulf countries to bring some balance in its acquisition portfolio. For India it is important to reduce dependence on Middle East for oil and for the African countries it was important to find more buyers to get the best price for their products. This growing dependence on Africa will be a key dynamic that will shape trade and investment with India.

Within Africa also, India’s overall economic relationship is changing. In 2001 Southern Africa accounted for nearly 60 per cent of exports to India while West Africa accounted for just above 16 per cent. Now West Africa is the largest supplier with a share of 40 per cent, while the share of Southern Africa is 24 per cent.

As India faces a higher import bill with falling rupee, its plan to diversify its oil basket further will be useful. Apart from Iran, India can even consider doing special arrangements with oil-producing countries of Africa.

A recent report by Confederation of Indian Industry has an interesting nugget. Investment from Africa to India is growing. “Morocco and South Africa are the next largest investors in India with investments worth US$137 million and US$112 million, respectively.

Investments from South Africa have been growing at a steady pace with Tiger Brands, Airports Company South Africa & Bidvest, SAB Miller, FirstRand Bank, Standard Bank, Old Mutual, Balela Leisure, Anglo-American, Sasol and Nandos Group Holdings having made investments in the Indian Market,” says the report.

While the figures may not appear high, this is a beginning of an important development. The growing economic interdependence of India and African countries will add confidence to their dealings with the rest of the world.

Western markets are turning protectionist by raising barriers to trade and investment from developing countries. India and Africa can counter this with selling products and services to each other. There are several market similarities that can be built upon.

Now governments on both sides will have to invest in improved transport and logistics linkages. All direct flights between India and African hubs like Nairobi, Addis Ababa and Johannesburg are fully booked on most days. With better connections, even tourism between the two regions will become more affordable.

The author tracks India’s political economy and its engagement with the world.