Eyeing Africa

The African Development Bank (AfDB) Group will hold its annual meetings on the Indian subcontinent for the first time on 22-26 May, in Ahmedabad, Gujarat. The choice of Gujarat is particularly poignant as most of Africa’s large Indian-origin communities are descendants of sea-faring Gujaratis who traded and laboured in colonial East Africa at the turn of the 19th century. India’s cultural influence remains strong in East and Southern African cuisine, dress and languages. Africans too have made their way to India as students and traders primarily, but also as consumers of India’s service industries, forging greater ties between the continent and sub-continent.

In March, Indian President Pranab Mukherjee, inaugurating the 12th Confederation of Indian Industry (CII)-EXIM Bank Conclave on India-Africa Project Partnership, declared that the India-Africa century had begun. This, after his first African visit, to Ghana, Côte d’Ivoire and Namibia in 2016, followed by Prime Minister Narendra Modi’s visit later in the year to Mozambique, South Africa, Tanzania and Kenya.

Following on the heels of the conclave and the India-Africa bi-annual summit held in Delhi in late 2015, the AfDB meetings will be far more ambitious, with 41 African heads of state in attendance. Alongside the bank’s official meetings and government-to-government engagement will be a range of African businesses and service providers hoping to make lasting connections with their Indian counterparts.

Despite some headlines portraying the gathering as primarily a donor conference, the agenda is clearly focused on opportunities for mutually beneficial cooperation and advancing the Africa-India conversation from the common struggle against colonialism and poverty to one of building new collaborative relationships which capitalize on trade and investment opportunities.

India’s strengths, particularly in solar power, technology, telecommunications, agribusiness, healthcare and the maritime economy are compatible with the gaps and needs posed by Africa’s infrastructure deficit as well as its abundant supply of human and natural resources. Indeed, the theme of the AfDB meetings is ‘Transforming Agriculture for Wealth Creation in Africa’.

Current trade trends

According to Africa-India: Facts & Figures, a joint publication of the UN Economic Commission for Africa and the CII, India’s trade with Africa was worth US$71 billion in 2015. Indian investments made up about 7% of total foreign direct investment in Africa, and trade between India and Africa accounted for 6.5% of Africa’s total trade in the same year. India-bound investment from Africa was approximately US$65.4 billion in 2015. Further, the International Monetary Fund estimated that India’s exports to Africa increased by over 100% from 2008 to 2013, overtaking US exports to African markets. African exports to India in the same period grew by 80%, and were also greater than Africa’s exports to the US.

With the slowdown in China’s economy and reduced Chinese trade with Africa due to a variety of reasons, India now has the opportunity to reposition itself to increase trade with the continent. Due to a shared colonial past – particularly with larger Anglophone African countries such as Nigeria, Kenya and South Africa – and the legacy of a common language and legal system, India is starting to rival China in Africa for political influence, resources and trade.

Impressive as these trends are, on closer analysis, two key issues emerge. The first is that much of this trade and investment is driven by one African country – Mauritius – whose double taxation avoidance agreement with India has made the island particularly attractive to investors, partly as a place through which to funnel their money to the rest of the continent.

Secondly, Africa’s exports to India are primarily composed of natural resources and raw agricultural products while India’s exports comprise higher value consumer goods such as vehicles, technological products and pharmaceuticals. Interestingly, the 10 fastest growing economies in Africa today are all non-fossil fuel dependent and of these, three countries – Côte d’Ivoire, Tanzania and Senegal – are among the top 10 fastest growing economies in the world. All three are developing compatible export sectors for Indian investment beyond providing the traditional natural resources.

Unlike China, whose trade is led by state-owned entities, most of India’s trade is driven by the private sector. At the 2015 India-Africa summit, Prime Minister Modi announced a US$10 billion line of credit for Indian companies to invest in Africa.

Burgeoning opportunities

Research by McKinsey & Company suggests that India could increase its trade with Africa from US$75 billion in 2015 to US$160 billion by 2025 if it focuses on expanding trade in information technology, agriculture, pharmaceuticals, consumer goods and infrastructure development. These figures tell a bigger story about a paradigm shift in trading patterns. Despite longstanding commercial ties with Europe, Africa now conducts half of its trade with developing economic regions (“South-South” trade). From 1990 to 2008, Asia’s share of African trade doubled, to 28%, while Western Europe’s portion shrank, from 51% to 28%.

Bharti Airtel is a recent and notable example of a sizeable Indian entity that has spread its wings across 18 African countries in just six years. Airtel is now the second-largest telecom operator in Africa. Other Indian companies with a significant presence in Africa include ArcelorMittal, Tata Africa, Essar Steel, Coal India, Varun Industries, New India Assurance, Godrej and Apollo Tyres.

Missing legal partnerships

But what does this trade mean for the legal services sector in India and across the African continent? More specifically, who is providing the legal support for these transactions? A quick search reveals little to suggest any direct connections between Indian and African law firms. Indeed, it appears that much of the legal support for the larger investments between India and Africa is provided primarily by large international law firms.

The much discussed second “scramble for Africa” has also manifested itself in the legal services sector where in the past couple of years, barely a month elapses without an international law firm announcing a new African office, a tie-up or a dedicated practice group to guide and steer the newly intrepid into Africa’s largely unknown markets. So far, there is no evidence to suggest that Indian or indeed Chinese law firms have considered developing their African connections despite significant evidence of their clients moving into those markets.

Lawyers play a critical role in facilitating business and cross-border trade. Guiding clients to new opportunities and helping them navigate unknown regulatory landscapes and obstacles is where lawyers add value to their clients’ businesses beyond providing legal advice. International law firms – long attuned to reaching far beyond their borders – are now the facilitators of India-Africa trade and investment. Their long and deep experience of cross-border project finance, large client-bases and global connections put them in pole position to take advantage of these new opportunities. Indian and African law firms are largely absent from the deal tables and often appear at the tail end of transactions when there is a need to sign off on a local law issue. Anecdotal evidence suggests that some international firms simply ask domestic firms to send them a copy of the local law so they can assess it themselves directly, leaving little, if anything, for these firms to contribute to the transaction.

Ironically, internationalised Indian and African lawyers are much more accustomed to flying to London, Paris or New York than to Nairobi, Lagos or Delhi for business development purposes and thus remain largely unconnected to their potential collaborators in Africa or India. Despite the growth in the legal services markets of India and some of the bigger African economies, their globalization narrative has mostly been in reaction to the efforts of international firms to provide services in those countries instead of pioneering opportunities for themselves beyond their own borders.

A 2015 Brookings Institute report exploring trends in Indo-African trade recommended that African businesses should focus on diversifying their exports to India by increasing awareness of trade preference opportunities and that India, in turn, should focus on expanding its preferred areas of investment beyond the few African countries on which it currently focuses. These efforts can be accelerated and facilitated by lawyers in Africa and India developing closer relationships, collaborating to identify opportunities and sharing information on behalf of their clients in key sectors.

As Europe commences on an introspective and existential journey for at least the two years of the Brexit negotiations and the US adjusts to a new era of nationalist protectionism, the so-called emerging markets in Africa, Latin America and Asia have an opportunity to build on recent South-South trade gains. Lawyers in those regions have an unprecedented opportunity to facilitate this trade and expand their firms by following and leading their clients if they too step outside of their comfort zone. The forthcoming AfDB meetings are a shot across the bows of Indian and African law firms that aspire to take a different view of the world. A few days in Ahmedabad might just be the beginning of a beautiful relationship.

This article first appeared in the India Business Law Journal. Original available here.