Africa’s Structural Transformation: The Untapped Potential of India’s Development Partnerships

India and most African countries have in common that the structural transformation of their economies is taking place in uncharted territory. Structural transformation is the process in which countries move up the escalator of economic development by shifting activity from lower to higher productivity sectors. Historically, the shift from agriculture to manufacturing has been the main driver of this process, notably in Western and East Asian countries. Similar to India, many African economies show a very different pattern of change. Premature de-industrialisation is dashing hopes of Africa becoming the world’s next manufacturing hub and labour is moving especially into (informal) services. African countries will have to take alternative – yet unproven – paths towards structural transformation. Together, Africa and India are the main arenas in which new 21^st-century models of development will be put to the test. This shared challenge opens up new prospects for India as a development partner.

Finding alternative paths towards structural transformation is primarily a task for African governments. At the same time, the role of external actors has come to the fore in major initiatives such as the G20’s “Compact with Africa”. Especially the significance of rising powers stands out in a context in which traditional donors, notably European countries, tend to neglect the broader picture of economic development in Africa in favour of narrow, short-term perspectives dominated by concerns over migration.

China’s and India’s growing global footprint is a major factor in Africa’s structural transformation. The emergence of the two Asian giants has been shaping the global context in which African countries are restructuring their economies. Moreover, they are active players on the continent as providers of South-South cooperation. China’s and India’s increasing trade, investment and development cooperation ties contribute important building blocks for Africa’s structural transformation: China is the main source of infrastructure finance; India has been promoting capacity for skills development across the continent. Chinese and Indian investments have gone beyond the traditional focus on energy and resources and are increasingly contributing to the diversification of African economies and job creation across key sectors, including agriculture, light manufacturing and tradeable services (e.g. agribusiness and pharmaceuticals in the case of private companies from India).

Comparisons between China’s and India’s growing presence in Africa highlight similarities and differences in their engagement, especially China’s overwhelming lead in terms of financial clout. Another element of comparison, which could inform the analysis of how rising powers might contribute to Africa’s structural transformation, is the difference in development models that China and India embody based on their respective domestic experience. From this perspective, China and India fit quite differently into Africa’s quest for new, alternative avenues towards structural transformation.

China’s offer in terms of structural transformation could be described as a “follow-in-our-footsteps” approach. According to this view, China’s rise presents a window of opportunity for late industrialisers to take over low-skilled manufacturing with labour costs in China increasing. “Offshoring” some of its low-end manufacturing is indeed part of China’s strategy towards Africa. For instance, China has been backing the development of Special Economic Zones in African countries, such as Ethiopia, Rwanda and Tanzania, and the Chinese private sector has been increasingly investing in manufacturing in Africa. With a few exceptions such as Ethiopia, however, labour costs appear to be too high for African economies to substantially increase their share in manufacturing exports and to follow the Chinese model.

Given Africa’s unusual pattern of structural transformation, India could be a more natural partner as far as the search for new development models is concerned. India’s emergence as the fastest growing major economy has so far omitted a major expansion of manufacturing despite high-level political initiatives such as “Make in India”. In the absence of a major take-off in manufacturing, India’s ambition is to “leapfrog” to a modern service economy based on frugal innovation and new technologies. The experience that India is gaining in that process could yield valuable insights for structural transformation in Africa. Capitalising on its potential relevance as a development model could strengthen India’s role in Africa far more than any attempt to catch up with China in financial terms.

At the same time, several reasons might limit India’s ability to turn the shared challenge of structural transformation into an asset of its partnerships with African countries. First of all, India is so far not perceived as a model to follow. According to Afrobarometer, Africans look mostly towards the United States and China as examples of economic development, although these might be less practicable models for African economies. India might also be wary of being seen as championing a specific model for the internal development of other countries given its attachment to the principles of South-South cooperation, such as non-interference. Finally, the demand-driven, project-based and sector-specific nature of India’s development cooperation tends to be geared towards the case-by-case provision of single “ingredients” to address specific development needs. Dealing with the overarching, complex challenge of structural transformation as part of India’s development partnerships would require a more strategic and comprehensive approach.

A more systematic alignment of its development partnerships with the challenge of structural transformation could give India a competitive edge compared to other external actors in Africa. However, the credibility of India’s guidance in the search for new 21^st-century development models ultimately depends on its own domestic performance, on which the jury is still out. The centrality of India’s domestic experience for its role as a development partner also calls for a more integrated perspective on internal and external development, which is often prevented by traditional divisions between foreign and domestic policy. To be sure, India’s own development experience is already informing its development partnerships. Domestic achievements such as the green revolution or the provision of affordable drugs have defined India as a development partner. Knowledge sharing based on systematic, real-time analysis of the process of structural transformation in India and Africa could strengthen this role even further.

The India-Africa partnership provides fertile ground for this type of enhanced knowledge-sharing framework. The Delhi Declaration of the third India-Africa Forum Summit in 2015 highlights relevant issue areas and embodies a strong commitment to address shared challenges. In addition, partnerships with other development actors can serve India to overcome constraints in its bilateral development cooperation. Triangular partnerships, for instance, could supply the larger programming frameworks necessary to tackle comprehensive, cross-sectoral challenges of structural transformation with inputs and expertise from a diversity of Indian partners. Programmes such as the United Kingdom-backed “Supporting Indian Trade and Investment for Africa” (SITA), which has the objective to upgrade trade patterns between African economies, India and other countries, illustrate how such cooperation formats could work. Similarly, the planned Indo-Japanese Asia-Africa Growth Corridor could serve as a broader framework for cooperation.