Why does India not join the RCEP (Regional Comprehensive Economic Partnership Agreement)? In November this year, after the signing of the RCEP, which was negotiated for over eight years, this huge question mark continues to loom large. From the Prime Minister, Foreign Ministers and other politicians to major trade and industry associations, India almost unanimously emphasized that joining RCEP at this time is “harmful and unprofitable” for India. An article in the “Indian Express” even referred to China, arguing that in the context of current tensions in India-China relations, “India should not join a multilateral trade agreement dominated by China”. However, the “Nihon Keizai Shimbun” recently provided another perspective. According to its report, India believes that even if it signs RCEP, it will be difficult to compete with China, Japan, South Korea, ASEAN and other Asian countries. It is better to rely on its geographical advantages to increase exports to Africa to offset the “lost” markets in East and Southeast Asia. So, is this Indian idea realistic?
“Huge potential, great prospects”
“According to Indian outward direct investment data from the RBI, India’s direct investment in Africa accounted for 21% of its total global investment between 2008 and 2016. But in reality, the vast majority of that “21%” went to Mauritius in Africa – Mauritius alone accounted for 19% of all Indian OFDI. In other words, the rest of Africa accounts for only 2 percent of India’s global outward investment. Of course, this has been interpreted by many Indian experts as “a huge potential and a great prospect”. According to Bloomberg, African economies are likely to outperform the rest of the world during the epidemic. Africa’s 54 countries now include seven of the world’s 10 fastest-growing economies, in part because the new corona epidemic may have accelerated Africa’s decade-long transition from natural resource export to wireless remote trading hubs.
The Indian government’s calculation is that by 2030, India will surpass China with a population of 1.5 billion and become the world’s largest market. All industries can be fostered through domestic demand and it will naturally have export competitiveness. From the perspective of geographical location and shipping convenience, Africa is not only close to India, but also has a huge market with a population of over 1.2 billion, which is enough to become a new destination for Indian commodity exports. Many companies, including the Indian car giant Mahindra, have begun to deploy in Africa in advance. They are mainly concentrated in the fields of agriculture, education, healthcare, information technology, mining, and energy. It is not difficult to see that India’s current companies involved in African business are still dominated by large multinational groups, and their investment destinations are relatively single.
This is what Indian venture capitalists say
Indian venture capitalist Vivek had led a private company energy partnership in East Africa in 2018, which he ended up losing due to multiple reasons such as a temporary change in investment policy by the local government. This is his first and last African project up to now. He told the Huan Qiu Shi Bao that China has been deeply involved in the African market for a longer period of time than India, and its cooperation in various fields is basically mature, and it is well aware of all the written and “unwritten” local regulations. If India aggressively enters the African market, it may not be easy to achieve an equal share with China. “There is still a long way to go, and one of the most difficult things is to build real mutual trust with local African governments and businesses.
Vivek said, “Frankly speaking, how can India be expected to beat China in the African market with such a commodity advantage when similar Indian products are not as good as China in terms of value for money and as Japan and South Korea in terms of performance and quality?” Vivek also mentioned that African countries such as Egypt, Morocco and Algeria are Islamic countries, while India’s domestic policy towards religious minorities such as Muslims tends to be tougher. In this context, India may also need to face a greater risk of religious antagonism than China in the process of developing markets in Africa.
“Unless China voluntarily vacates the African market”
India’s former National Security Adviser Menon once told the Huan Qiu Shi Bao that India has always attached importance to developing relations with Africa, and started hosting the triennial “India-Africa Summit” as early as 2008, with more than 3 million Indian expatriates in Africa. He quoted former Indian Prime Minister Manmohan Singh as saying that “Africa has all the prerequisites to become a major global growth area in the 21st century and India is determined to cooperate fully with Africa so that its potential can be realized.”
However, while the ideal is very rich, the reality is rather skeletal. An anonymous former government official who participated in the formulation of India’s Africa policy stated that India’s trade with Africa is currently only about 62.6 billion U.S. dollars, less than 1/3 of China’s. “Unless China’s policy has a disruptive change and take the initiative to vacate the African market, the speed at which India can catch up may be very long, and the process may also be very difficult”. Moreover, the political situation in African countries is turbulent, the government’s ruling power is weak, and the interest entanglements and conflicts of various local forces have brought great risks of uncertainty to investment and trade. Whether India can adapt to the rapid “political changes” in Africa, the “you sing, I’m on stage” dynamic will also be a difficult test.
He said that Indian Foreign Minister S. Jaishankar’s recent visit to the Seychelles Islands in the Indian Ocean before his birthday reflects the new diplomatic thinking in India’s Africa policy of “economic cooperation first”, rather than rushing to promote “geo-strategic and defense cooperation, which will be put on the back burner, and Seychelles may become the new focus of China-India tug-of-war in Africa in the ‘post-epidemic era'”.