The India-Africa Trade Connection - Kenya Open for Business

– Impressions from Asim Goyal Reports from Mombasa Port on Visit to Cover the Nairobi WTO Ministerial –

14 December: The East Coast of Africa especially coastal port of Mombasa and its sister port at Dar-es-Salaam serve as the mouths for all trade with the eastern world and also serve as the landing point for India on the other side of the Arabian Sea. The migrants from the Gujarat Coast alighted at the Portuguese Fort to build the railway to Nairobi 150 years ago. Now clothing and steel are unloaded from Bombay at the busy ports.

The port is the exit for both Kenya and other East Africans, namely, Uganda, South Sudan, Rwanda and Burundi which are otherwise bound in a tenuous economic union under East Africa Union (Kenya, Uganda, Tanzania, Rwanda, and Burundi).

The erstwhile migrant workers from Kathiawar are now into their 5th to 6th generation. I talked to couple of them, they appear affluent, speak very fluent Swahili and call themselves Kenyans. They blend into the local communities and have a significant impact on the local economic and even social and political scene. Popular Indian words such as “Dukaan”, “Dawa”, “Bajar”, “Sarkar” are part of daily discourse, Indian foods such as “Chapati” and “Samosa” are staple in fast food vends.

The original Indian migrants in the East Africa region are traders with small businesses. Some recent migrants head specialized function business units. A handful of Indian conglomerates also find are also significant in the eastern part of Africa, such as the Reliance, Tata, Essar and Bharti-Airtel is specially significant as the number 2 player with a hefty market share in low price segment. It is also big in money transfer and insurance.

Kenya and the eastern region of Africa is, even today, not industrialised. It is major export destination for India, Pakistan and China. Japan sends refurbished second hand card to the region in large numbers. It is also seen by some as an excellent investment destination especially for Indians. There are great opportunities in Steel, Paper, cloth and trading. The East African countries are very welcoming to investment from all over the world. China is specially welcome with special resident permit for its labour.

An interview with a leading banker reveals that there is much to be done. Many large Government projects are stuck with allegations and investigation of under the table deals. Even the tender giving out for second container terminal at Mombasa port to a private operator is stuck in litigation. Interest rates are 20 percent plus. Currency fluctuations are wild. Extortion and ransom cases are recounted in dinner table conversations. The Mombasa – Nairobi line is being rebuilt by the East Asia giant, 60% of the work is over. There is a stern effort by the government to curb corruption and bring down as barriers to free movement.

The Bustling Mombasa port with a draft of 15m plus shows the interest in the East- Asian region. Once the rail connection to Nairobi is modernised by China, inland container depot will connect East Africa to the world through Mombasa port. As the Mombasa port serves as the main port to the eastern African countries doing about 1.1million TEU every year, accounting to about 24 million DWT. The Japanese in addition to being major traders with the region have also invested heavily in the building of a second terminal at Mombasa port with an investment of 28.6 billion dollars which would lead to the doubling of the capacity at the Mombasa port. However, they are not ready to run the terminal. (and here is the catch 22 situation, the Japanese loan cannot be repaid unless the terminal is operational, and the Japanese are not ready to run it, they have supplied the equipment, erected the terminal and put in the credit.)

On a visit to the Kenyan Port authority at Mombasa we found that the authorities themselves would like very minimal government intervention to spur trade in the region.

On the other hand the stark face of ground reality can also not be ignored. An Indian origin local scrap trader based in Nairobi, who wishes not be named, claims that doing business in Kenya is fraught with danger. He himself has been robbed at gunpoint once and once his office staff was robbed at gunpoint. In addition, he claims that lawlessness is so wide that the local police too can also not be trusted. There are gangs operating in the security establishment. While doing any deal he sets aside 5-10% as “leakages” that will always be costed in all calculations.

The Eastern African region is largely Import dependent well served to by the Indian exporters. As per the data released by the Mombasa Port Authority, India is the leading the trading partner with Mombasa port both for Imports and Exports. According to the 2014 figures(in ‘000 DWT), India is the leading Export destination from Mombasa Port accounting for 295 of exports from Mombasa Port, followed by China, Pakistan and UAE doing 283, 213 and 154 respectively.

On the imports side, again India takes the lead, trading 4086 followed by UAE, China and South Africa doing 3184, 2653 and 1246 respectively, the massive trade deficit starkly visible.

Among the most commonly imported commodities:

Commodity

Imports 2014 (‘000 DWT)

P.O.L.

6286

Clinker

2065

Wheat in Bulk

1908

Iron and Steel

1367

Plastics

662

Rice

651

Paper and Paper Products

503

M/Vehicles, Lorries

463

Other Major Imported products include Chemicals and Insecticides, coal, Ceramic, Clothing, Sugar, Fertilizer, Car spares and tyres.

On the export side, we see:

Commodity

Exports 2014 (‘000 DWT)

Tea

554

Soda Ash and in Bulk

336

Titanium

363

Coffee

256

Other major exported products include Tinned Fruits and vegetables, Flourspar.

India and Kenya are at different stages of development, with Kenya being slightly behind by about 7-10 years.

Some local Africans consider India as a role model for them. There are many parallels and comparisons between the two countries, primarily being that both the economies are largely agrarian. 50-60% of the youth is engaged in primary activities for their employment. But as the figures reveal, India is big in East Africa.

India and Kenya have a long way to go, but in their stages of growth they must realize that Kenya will go through all the steps that India has gone through. Take for example the concept of a privately run port. They got the concept and idea from the Nhava Sheva port. The Head of Corporate affairs came to India as part of a trade delegation from India and saw for himself how India did it. Concepts such as FTZs, FTWZ, and SEZs are yet to be incorporated by the region, India can show them what to do (and not do).

A great boost for the East-African region came in the hosting the WTO in Nairobi. This will bring in focus to Kenya specifically and Africa generally.

The Big Picture: India has to move in a practive way to woo East Africans. Mere extending credit for specific projects will not do. There are many other competing sources for this which offer rock bottom interest rates and log credit going up to 30 years. It has to revise the norms and support its bankers and exporters by specific area based measures. India has to move away from the “one size fits all” policy. Further, it must establish consulates in all major regions besides Mombasa to support persons of Indian origin. Last, it must start taking items like tea and coffee from the region at LDC rates of duties. The balance of trade is tilted heavily in favour of India.