Doing Business with South Africa

By
INVC Desk
-

Manish Desai**

South Africa was a major trade partner of India prior to 1946 and accounted for 5 percent of India’s total exports then. But, following the introduction of apartheid regime in South Africa, India became the first country to sever trade relations in 1946, and subsequently imposed a complete – diplomatic, commercial, cultural and sports- embargo on that country. It remained an outspoken critic of the apartheid era government in South Africa, a stand, which evoked goodwill for it in South Africa and other African countries.

India’s relations with South Africa were restored after a gap of over four decades with the opening of a Cultural Centre in Johannesburg in May 1993. Formal diplomatic and consular relations with South Africa were restored in November 1993. The Indian High Commission in Pretoria was opened in May 1994, followed by the opening of the Consulate General in Durban the same month. South Africa, in addition to its High Commission in NewDelhi, has a Consulate General in Mumbai.

South Africa – a gateway to the African continent

South Africa is the economic powerhouse of the African continent, with a GDP of $ 277 bn, accounting for 30 % of entire GDP of Africa. The country leads the continent in industrial output, mineral production and generates 50% electricity consumed in Africa.

The South African economy after growing consistently above 4 percent annually for the last five years shrank during 2009 due to declining business and consumer demand. Real GDP is expected to recover in 2010 – helped by the hosting of the Football World Cup in June/July, which will give a major boost to tourism and services sectors.

South Africa’s leading trade partners are mainly the OECD countries and China. US, Japan and China are the major destinations for South Africa’s exports and together account for close to 30% of its total overseas shipments.

India – South Africa bilateral trade

Since restoration of ties, bilateral trade between India and South Africa has grown exponentially from about US $ 3 billion to over US $ 7 billion during 2008-09. The two countries have now taken up a challenge to boost bilateral trade to US $ 10 billion by 2012.

Figures in
Mn.US $

2003-2004

2004-2005

2005-2006

2006-2007

2007-2008

2008-2009
(estimates)

India’s Exports

539.35

984.04

1,526.87

2,244.74

2,658.67

1,980.28

India’s Imports

1,899.19

2,197.67

2,471.80

2,469.73

3,614.86

5,513.58

Total Trade

2,438.54

3,181.70

3,998.67

4,714.47

6,273.53

7,493.87

Source: Department of Commerce, Govt. of India.

The major exports from India to South Africa are mineral fuels, automobiles and transport equipments/components, castor oil, cosmetics/toiletries, cotton yarn, fabrics, made ups and natural silk, pharmaceuticals, fine chemicals, inorganic, organic/agro chemicals including dyes & intermediates & coal-tar chemicals, electronic goods, finished leather/leather goods, gems and jewellery.

The major imports of India from South Africa are coal, coke and briquettes, diamonds, pearls, precious and semi-precious stones, gold and silver, electronic goods, fertilizer, inorganic and organic chemicals as well as artificial resins, iron, steel metal ores, non-ferrous metals, metal scrap and crude minerals.

There is substantial untapped potential for trade growth between the two countries. Potential exports from India to South Africa include vehicles and auto components, transport equipment, drugs and pharmaceuticals, computer software, engineering goods, footwear, dyes and intermediates, chemicals, textiles, rice, and gems and jewellery, etc. Potential areas of import from South Africa to India have been identified as rock phosphates, precious stones and minerals, fertilizers, steel, coal, transport equipment, pulp and pulp manufacturing, etc.

FDI

Although accurate data on Indian FDI in South Africa is not available, it is estimated that the Indian companies are currently executing projects worth over US$ 2 billion in South Africa. Major investors include Tatas (vehicles, IT, ferrochrome plant), the UB Group (beer hotels), Mahindras (utility vehicles), Apollo Tyres and a number of pharmaceutical companies including Ranbaxy, Cipla etc. .

Just as Indian investment in South Africa has been rising, there is also a growing trend of South African investments in India led by SAB Miller (breweries), ACSA (upgradation of Mumbai airport), SANLAM and Old Mutual (insurance), ALTECH (set top boxes), Adcock Ingram (pharmaceuticals), Rand Merchant Bank and Standard Bank (banking).

Boosting bilateral economic relations is a win win situation for both India and South Africa India could be a very useful trade and investment partner for S Africa as it is a major exporter of highly skilled workers in software, financial services and software engineering. India’s assistance in skills transfer would assist South Africa in the eradication of poverty and encourage economic growth.

In India, over the next seven years, US$ 50 bn is expected to be spent on roads and infrastructure and US$ 240 bn on power. South Africa with its expertise in areas such as airports and electricity production could assist India in these areas.

Trade initiatives

India –SACU Preferential Trade Agreement

An important initiative under negotiation between the two countries is the India-SACU Preferential Trade Agreement, eventually leading to a Free Trade Agreement between India, SACU and MERCOSUR (a ‘large free trade area of the South’ ). Four rounds of negotiations between SACU and India have been held so far. An Agreement for Reciprocal Promotion and Protection of Investments (BIPPA) is also waiting to be concluded. Early conclusion of these agreements could provide a real impetus to trade and investment.

Reconstituted CEO’s Forum

Commercial interaction is being boosted by the establishment of an India-South Africa CEOs’ Forum, which was reconstituted and launched in Mumbai on June 3, 2010 by the visiting South African President, Mr.Jacob Zuma and the Commerce and Industry Minister of India, Mr.Anand Sharma. The CEO’s Forum is chaired by Mr.Ratan Tata on the Indian side and Mr.Patrice Motsepe on the South African side.
India Business Forum

The India Business Forum (IBF), launched in 2007 with its headquarters in Johannesburg, brings together the heads of all Indian companies in South Africa and provides a platform for promoting brand India and for taking up issues of common concern. IBF currently includes 39 companies and is managed by the Confederation of Indian Industry (CII).

The presence of Indian banks (State Bank of India, Bank of Baroda, Bank of India, EXIM Bank and ICICI Bank) has promoted economic interaction. Resident offices of GOI Tourist Office and National Small Industries’ Corporation are also active in promoting cooperation.

Challenges

While there are opportunities galore for doing business with South Africa, there are many challenges too, that need to be addressed quickly. Most businessmen from India have complained about the painfully slow visa issuing system of South Africa, which has led to loss of business opportunities. South African Government has promised to improve upon it, but it will take time. While South Africa has favoured import of automobile and auto-components, tariff rates at 36 per cent act as a major deterrent. Some Indian businessmen have expressed concern about the crime rate being high, which makes a business proposition unsafe.

India and South Africa have a common approach on many global issues. Rooted deeply in history, relations between the two countries now cover virtually all fields and enjoy regional and international significance. Sustained efforts to strengthen, deepen and diversify them are bound to bring rich dividends in future for both the countries.

…………………………………………………………………………………………………………………………………………………………………..
(With inputs from Mr.Rajeev Jain, Director (Media), Ministry of Commerce & Industry and Mr.Mohan Gawde, Confederation of Indian Industry, Mumbai)

**Manish Desai is Director (Media), Press Information Bureau, Mumbai


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