India & SA Natural Economic
Partners in Times of Downturn
By Navdeep Suri, Consul General
Consulate General of India, Johannesburg

In purely macroeconomic terms, South Africa's GDP of over USD 280 billion makes it by far the largest economy in Africa. It accounts for almost 47 percent of the GDP of all of Sub-Saharan Africa and is two-and-a-half times the size of Nigeria, which has a GDP of USD 105 billion despite being the continent's largest oil producer. In Southern Africa, the South African economy dwarfs Angola, the second largest, by a factor of 12 and Botswana, the third largest by a factor of 30. Its per capita income of USD 5900 (USD 13,000 in PPP terms) places it squarely in the ranks of middle-income countries. The country prides itself on its business-friendly environment and a recent survey of 155 countries by IFC on ease of doing business ranks South Africa at the 28th place.

The South African economy can be characterized as a classic example of a dualistic economy. On one hand, it demonstrates many of the characteristics of a developed, first-world country. Many highways, airports, rail services and ports are comparable with their European counterparts. The same is true for power, telecommunications, financial services, the stock exchange and healthcare services.

Yet, these figures hide a more complex picture of the South African economy. 14 years after the formal end of apartheid and the introduction of democratic rule, a relatively small minority still dominates in large swathes of the economy. Unemployment, predominantly amongst the majority black community, is estimated at around 30 percent. UNDP's Human Development Report estimates that two-thirds of total income is concentrated in the hands of the richest 20 percent of the population, leaving the bottom 20 percent with a mere 2.0 percent. An infant immortality rate of 62 per 1,000, the world's largest population with HIV-Aids and a life expectancy of just 43 years, combined with scarce electricity, telecommunications, water and sewage facilities in many rural communities reveals an image that is more akin to much of Sub-Saharan Africa than it is to Europe.

The structure of the South African economy and the emphasis placed by the government on economic growth as well as socio-economic development creates natural complementarities with the Indian economy. On one hand, South Africa offers a significant market for Indian manufactured products, project exports and services in sectors ranging from state of the art products in the ICT sector to appropriate technology solutions developed by us for SME development, microcredit etc. It is also well-positioned as a preferred gateway into Southern Africa, with the Oliver Tambo International Airport in Johannesburg easily being the busiest transport hub in the region. On the other hand, it is home to a large number of technologically advanced companies in sectors ranging such as infrastructure, mining, petrochemicals, logistics and financial services. Our business promotion strategy must therefore encompass not only an export promotion effort but also a conscious focus on attracting South African investment in to India.

Trade Ties with India
Within this context, India's economic and commercial relationship with South Africa, in many ways, can be described as unique. An active trading relationship existed even before India's independence in 1947 and we were a major supplier of commodities like jute and tea to South Africa. However, India was among the first countries to impose sanctions against South Africa following the introduction of apartheid in 1948. This led to a virtually complete cessation of bilateral economic (as also political and other) relations until the establishment of democratic government in 1994. Since then, economic relations have been growing rapidly and the momentum has especially picked up over the last five years. This is reflected in bilateral trade statistics as well in joint ventures and foreign direct investments.

Starting from a relatively small base, bilateral trade has grown rapidly over the last few years rising from US$ 1.8 billion in 2001-02 to US$ 6.3 billion during 2007-08. We have typically had a substantial balance of trade deficit with South Africa, and in 2007-08, this stood at about US$ 955 million.

South Africa is India's largest market in Africa and our exports to South Africa have grown from just US$ 352 million in 2001-02 to over US$ 2.66 billion in 2007-08. Our exports comprise primarily of mineral fuels, automobiles and auto components, iron and steel, machinery and instruments, organic and inorganic chemicals, drugs and pharmaceuticals, cotton yarn and fabrics and rice and other cereals. Project exports are also beginning to show an encouraging trend, with software companies like TCS and power sector ones like KEC and Jyoti Structures winning sizeable contracts in South Africa.

India's imports from South Africa have also been growing substantially, rising from US$ 1.44 billion in 2001-02 to almost US$ 3.61 billion in 2007-08. Our imports from South Africa primarily comprise unwrought gold, coal, manganese ore, aluminum, organic chemicals (especially phosphoric acid), coal, pulp and waste paper, precious stones including diamonds, etc.

The dynamism seen in bilateral trade over the last few years is also replicated in the significant increase in Indian investments into South Africa and vice versa.

A growing number of Indian companies see the market potential of South Africa and have been attracted by its advanced infrastructure to set up operations that straddle a wide range of sectors including automobiles, pharmaceuticals, hospitality, IT, etc. Indian investments in South Africa reflect greenfield projects as well as acquisition of existing South African companies. Some of the key Indian investments include:
• The majority stake of Tata Communications in Neotel, South Africa's second national operator
• The Tata Steel investment in a greenfield ferrochrome smelter in Richards Bay
• Investments by Tata Motors in the automobiles sector
• The construction of hotels by the Taj group in Johannesburg and Cape Town
• The acquisition of Dunlop SA by Apollo Tyres
• Ranbaxy's acquisition of local generics manufacturer BEE Tabs and investments by Cipla and Dr. Reddy's in the pharmaceuticals sector
• The investments by the UB group in breweries and in private game reserves
• Investments by several Indian companies to acquire mining assets
• Facilities established by Rosy Blue and KGK for cutting and polishing of diamonds
• And several others
The above is only an indicative list and shows the willingness of major Indian business groups to establish a strong manufacturing/assembly base in South Africa that caters not only to the large domestic market but can also serve as a potential base for countries in the SADC region. Although accurate data on Indian FDI in South Africa is not available from Indian or South African authorities, our estimates based on interactions with heads of the relevant Indian companies indicate that they are currently executing projects worth over US$ 2 billion in South Africa.

Complementarity in the Indian and South African economies is also reflected in the growing trend of South African investments in India.

• SAB Miller has made substantial investments in India and has emerged as India's second largest brewer after the UB Group. By 2010, their investments in India will exceed US$ 1 billion.
• The Airports Company of South African (ACSA) in partnership with Bidvest and the GVK Group is now the prime operator of Mumbai Airport and responsible for its expansion.
• SANLAM, Hollards and Old Mutual have entered into joint ventures in the insurance sector. Sanlam has also taken an equity stake in SMC, a Delhi based securities brokerage firm.
• Naspers, South Africa's largest media group, has opened an office near New Delhi and is looking at several media segments.
• ALTECH has set up a facility in Chennai for manufacturing set top boxes for DTH broadcast.
• Batemans, a mining engineering firm, has also established a substantial KPO presence in Bangalore and Pune for providing engineering services and back office solutions to its clients
• Adcock Ingram have established a joint venture with Medreich to manufacture pharmaceuticals in Bangalore.
• Rand Merchant Bank has obtained a banking license from RBI and has become the first African bank to establish operations in India.
• Sasol, the world's only company that uses poor quality coal to make petrol and diesel on an industrial scale has tied up with the Tata group and has opened an office in Mumbai to explore the possibility of a major CTL plant in India that could result in an investment of USD 6-8 billion.
• Mining giants like De Beers have a substantial presence in India and are looking at mining operations in the context of our new mining policy.
Despite the positive trends seen in the growing business ties over the last few years, the global economic slowdown is bound to have a strong impact. Data available for 2007-08 and for April-June 2008-09 has already begun to reveal a slowdown in India's exports of automobiles, iron and steel, machinery etc. There is also, a strong likelihood that the fall in commodity prices since June 2008 will be reflected in a slowdown in India's imports from South Africa. Negative trends in both exports and imports will inevitably show up in the total level of bilateral trade for 2008-09 and possibly continue into 2009-10.
This makes it all the more important for us to strengthen both the institutional framework of bilateral economic cooperation and to redouble our trade promotion efforts so that we can create the maximum possible opportunities for strengthening business linkages. In doing so, we have focussed on certain key sectors where we are internationally competitive and we see specific potential for our companies. We have also taken advantage of the fact that Johannesburg, in particular, is a favoured destination for specialized trade fairs and, wherever, we have tried to coincide our promotional efforts with such events. In addition, we have also tried to reach out to many of the JSE 100 companies so that we can apprise them about business opportunities in India.

Our business calendar for 2009, therefore, includes, inter alia:
Mining: South Africa is the world's largest producer of the platinum group of metals, manganese, chrome and vanadium. It is also amongst the world's top 10 producers of gold, coal, iron ore, aluminum, nickel and uranium. Equally important, it holds a large proportion of the world's known mineral resources of several of these products, viz. 88 percent of the platinum group metals, 80 percent of manganese, 72 percent of chrome, 40 percent of gold and 27 percent of vanadium. It is also the world's 5th largest producer of diamonds. The Mining Indaba that is held annually in Cape Town is one of the world's biggest events that focuses exclusively on the mining sector. Working with CII, we took the initiative to bring an Indian delegation to the Mining Indaba in February 2009 to give Indian companies an opportunity to explore the possibility of acquiring mining assets in South Africa and elsewhere in Africa and also to enter into tie-ups with some of the world's leading mining technology and services companies. Next year's Mining Indaba will again take place in Cape Town from 15-18 February, 2010 and it is a must attend event for Indian companies interested in this sector.

Apparel and Textiles: South Africa has a large and well developed retail industry that offers substantial potential for our apparel and textile industry. Over the last three years we have worked closely with Apparel Export Promotion Council (AEPC) to organize annual trade shows that focus on retailers, importers and wholesalers, dealers of garments and textiles. This year's trade show is being organized in Cape Town and Johannesburg in the 3rd week of March (www.indiaclothingmegatradeshow.co.za)

Power: South Africa's energy sector is likely to witness significant growth in the next 10 years. With an installed capacity of almost 40,000 mega watts Eskom is already the largest power utility in Africa and accounts for 60 percent of the generating capacity in Sub-Saharan Africa. Over the next 10 years Eskom will add another 20,000 mega watts at a capital expenditure of over US$ 150 billion. In addition, a number of other countries in Africa are also in the process of expanding their power generation and transmission networks. The 11th Africa Power and Electricity Congress and Exhibition (http://www.terrapinn.com/2009/powerza/), being held in Johannesburg from 20-24 April, 2009, offers an ideal platform to network with companies interested in power generation, transmission and distribution, energy services, renewable energy sources, etc.

Small and Medium Enterprises (SME): South Africa places considerable emphasis on developing a strong SME sector that can generate appropriate employment in a country where almost 30 percent of the workforce is unemployed. NSIC have made considerable efforts to promote the acceptance of its technology demonstration-cum-training centre in different provinces. Two such centres with state of the art technologies have already been set up in Kwa Zulu Natal Province at Hammersdale and Pietermartzburg. We are also working on a conference in Johannesburg in May 2009 to promote greater cooperation in the SME sector. In addition, it is also important for relevant Indian companies to look at the annual SME summit organized by the Department of Trade and Industry, usually around August each year.

Engineering Goods: There is considerable potential for enhancing the exports of engineering goods to South Africa. We worked closely with EEPC to organise their flagship INDEE 2007 event in Johannesburg in October 2007. To get maximum value we coincided INDEE with the biennial Manufacturing and Technology International (MTI) Exhibition. The next MTI Exhibition (www.mtiexpo.co.za ) will be held in Johannesburg from 27-30 October 2009 and it would be useful for our companies to participate in this event. They can also look at the South Africa Industry and Trade Exhibition SAITEX that will take place in Johannesburg from July 19-21 in conjunction with Africa Big Seven, an event that focuses exclusively on the food processing and packaging and agro industries sector.

ICT: With a total volume of over USD 35 billion, South Africa is one of the world's top 20 markets for ICT products and services and easily the largest market in Africa. Over the last two years we have partnered with the Electronics and Computer Software Export Promotion Council (ESC) to mobilise Indian delegation to participate in the annual Futurex/Computer Faire in Johannesburg. This event is now being rebranded as IP Expo Africa and should continue to offer an excellent meeting place for Indian companies interested in marketing their products and services in the ICT domain.

Doing Business with India conferences: We also focus on our relationship with major South African companies so that we can provide them information about business opportunities in India and encourage them to enter the Indian market. We worked closely with Confederation of Indian Industry in 2007 to organize a conclave on India-South Africa Business Partnership with a special focus on the infrastructure and ICT sectors. In 2008, the conclave evolved into a major “Doing Business with India Conference” that was held in Johannesburg in September 2008. In South Africa we partnered with Edward Nathan Sonnenbergs - South Africa's largest law firm; First Rand Bank the first African bank to start operations in India; the Department of Trade & Industry and PricewaterhouseCoopers to create a conference that delivered a macro economic picture of India and the nuts and bolts of doing business with India to South African CEOs at their door step. An effective media partnership with Business Day and CNBC Africa helped us in getting the message out to a much wider constituency. The next Doing Business with India Conference will be held in Johannesburg on July 23.

This is only an indicative list and does not include the host of other, smaller events in which we engage to facilitate business interaction. Nor does it cover the information and advice that we provide to individual companies on a daily basis so that they can take informed decisions about establishing or expanding business ties with South Africa. Our efforts are, of course, handsomely complemented by the parallel initiatives that South Africa's Department of Trade and Industry takes in India through road shows and participation in major trade events. We also value the active support that we receive from business organizations like CII and by professionally run export promotion councils like AEPC and ESC in our endeavours to sustain the momentum that has been built up over the last few years.