Strengthening Economic Ties with a Growing Giant: South Africa in India
Catherine Grant Makokera
At the end of the World Economic Forum annual meeting in Davis, President Cyril Ramaphosa will be undertaking a state visit to India where he will be accompanied by high-level ministers and a hefty business delegation. Economic diplomacy is a focal point of this important visit, and South Africa’s business community have an opportunity to broaden their engagement with this fastest growing economy in the world, which is also a pivotal player in various multilateral institutions. South Africa and India enjoy strong bilateral relations and are both members of the BRICS grouping that also includes Brazil, China, and Russia.
There are some well-known reasons for engaging India, especially, as a trade and investment partner. India is expected to be the world’s fastest growing major economy in 2019 at a rate of 7.5%, according to the International Monetary Fund. This has India outpacing China’s growth at more than 1% due to lower oil prices and a slower pace of monetary tightening. India is managing to chart a steady course in difficult global economic waters and is predicted to become a larger economy than the United Kingdom in 2019.
By 2024 India is expected to also be the world’s most populous country and it currently has over 1.3 billion people in what is often described as the ‘largest democracy’. The majority of the population is already at the prime point for achieving a demographic dividend, with a median age of 28 years.
India remains an important destination for South African exports and is its 5th largest market for goods. Both countries are members of the BRICS grouping and there are efforts underway to negotiate a preferential trade agreement between the Southern African Customs Union (SACU) and India to encourage greater levels of trade.
There is a growing investment relationship between South Africa and India, that can be deepened. There are more than 150 Indian companies now present in South Africa across a wide range of sectors. South African firms with a presence in India include Sanlam, Life Healthcare, Momentum, Airport Company of South Africa, First Rand Bank, Old Mutual, and NASPERS, among others.
The visit of President Ramaphosa to India later this week, therefore, comes at an opportune time to cement these linkages and explore possibilities for even deeper economic ties. Of symbolic importance, President Ramaphosa will be the guest of honour at the Republic Day celebrations in New Delhi.
It is worth underlining that, doing business in India is not for the faint-hearted and the President’s visit provides invited South African firms an opportunity to raise challenges they have encountered with government officials as well as share experiences with their Indian counterparts.
The size of the Indian economy may be one of its strengths, but it also means it is unwieldy and complex in some respects. It is suggested, for example, that India not necessarily is approached as one market and that South African businesses should consider regional or sectoral approaches where possible.
Different geographic areas within India have become associated with specific economic activities, such as Assam state with energy and Odisha with healthcare. States have the ability to levy taxes on the one hand and to offer incentives for investors on the other. It is therefore critical to understand not only the national business environment in India but also conditions at the state level.
South Africa and India are not dissimilar with respect to their acknowledgment of the need to attract foreign direct investment. The two countries can also share lessons on how tackling infrastructure challenges, as both have announced ambitious infrastructure revitalization plans.
Pursuing economic diplomacy has been a key objective for President Ramaphosa since he took office in 2018. Prime Minister Modi’s administration in India has also taken steps to steadily liberalise the sectors that were in the grip of regulatory controls, making over thirty positive changes to the foreign investment environment in four years. For example, India has implemented reforms to simplify the tax system and to facilitate trade. The two leaders share a predisposition towards prioritizing economic reforms. They both countenance complex socio-economic challenges at home. There is also much to explore between the leaders in simplifying trade regulations.
Tariffs on imports to India remain relatively high, especially for agricultural products, but South Africa ran a trade surplus with India in 2017 – exporting more than we imported. More importantly, economic modeling by the International Trade Centre shows there is real potential to continue to grow our exports of minerals, fruits, machinery, chemicals, and jewelry. High-level engagements, such as that taking place over the weekend of the 25 – 27 January 2019, can potentially help unlock any barriers facing South African traders on the demand side in India. This should also create an opportunity for the two countries to hone their economic diplomacy for mutual interest and to deepen trade and investment relations in beyond just the state visit.
Of course, the long-term success of any economic diplomacy engagements, like the President’s visit to India, does depend on greater cooperation between the government and private sector. Diplomatic engagements today are no longer just a matter of building state-to-state relations, but also seeking avenues for benefit creation on the economic front, especially to broaden opportunities for trade, investment, technical cooperation, and knowledge-sharing.
There are many opportunities that the South African community can, and should, take advantage of in India. As a first such high-level state visit in which the president takes a significant business delegation, this should also help to bolster SA Inc, which is about developing a shared vision and common purpose between government and the business community about promoting South Africa’s long-term prosperity.
Economic diplomacy is, under President Ramaphosa, an important cornerstone of South Africa’s external engagement, and one of the key instruments for furthering South Africa’s development priorities. A strong shared message from the President, his official delegation and business leaders can go a long way to rebuilding confidence in South Africa as a preferred investment destination, and ensuring that the country enjoys a productive partnership with the world’s fastest growing major economy such as India.
Tutwa Consulting Group has been supporting the Department of Trade and Industry in preparing for the visit to India. A short note on the Indian market is available here