Green goods could be the game changer for India-Africa trade

India mostly exports petroleum products to Africa and imports crude oil, implying the importance of fossil fuel in the India-Africa trade. However, global trade patterns are increasingly being shaped by climate change considerations and therefore will take into account the adverse impacts of the carbon emissions embedded in traded goods. One such instance is the European Union’s Carbon Border Adjustment Mechanism (CBAM) which will come into force in its transitional phase on October 1, 2023. The CBAM is being introduced by the EU to prevent “carbon leakage” or less stringent carbon emission norms prevalent in trading partners, or the EU companies investing in companies abroad to evade the emission norms applicable in the EU. Such policies would require developing countries like India and those in Africa to diversify their exports towards more efficient and cleaner technologies, away from fossil fuels and carbon-intensive manufactures.

Vulnerable To Climate Change

India and Africa remain vulnerable to climate change despite accounting for much lower per capita carbon dioxide emissions compared to the global average. India emitted 1.93 tonnes per capita of carbon dioxide in 2021 compared to 8.05 tonnes emitted by China and 14.86 tonnes by the US. In the case of Africa, it was just 1.04 tonne per capita with only Libya and South Africa breaching the world average of 4.69 tonne per capita. Despite these, Notre Dame Global Adaptation Initiative Country Index ranked African countries as the top 10 countries vulnerable to climate change globally.

The option for developing countries to grow in a carbon-intensive way initially and later decarbonise is no longer feasible, coinciding with the fact that developed countries are falling short of the promised $100 billion climate finance support to developing countries. .

According to the International Monetary Fund, environmental goods are those that are related to environmental protection such as pollution control and resource management, and goods that have been specifically adapted to be more environmentally friendly, or cleaner. These include industrial air filters, wastewater treatment products and renewable energy technologies such as solar panels or wind turbines, among others. In 2021, China was the largest exporter of environmental goods, accounting for a global share of 21.9 percent, followed by Germany (15.6 percent) and the US (9.3 percent). India’s share in comparison to the global giants remained modest at 1.1 percent like its overall merchandise exports share (1.8 percent). Environmental goods as a share of India’s total exports stood at just 4.4 percent as compared to 10.5 percent in the case of China.

Green Goods Exports

India’s exports of environmental goods to Africa stood at $1.7 billion in 2021 as against the country’s global exports of environmental goods at $17.3 billion, implying that Africa accounted for 10 percent of India’s environmental exports. Among the African countries, Nigeria was the largest destination for India’s environmental goods exports, accounting for a share of 1.8 percent in India’s global environmental goods exports, followed by South Africa at 1.2 percent in 2021. In fact, Nigeria, South Africa, Algeria, Kenya and Egypt accounted for more than 56 percent of India’s environmental exports to Africa. When it comes to the intensity of environmental exports (environmental goods exports as a share of India’s total exports to the country), Algeria accounted for the highest share at 24 percent, followed by Burundi (12.6 percent), Seychelles (11.5 percent) and Ghana (11.1 percent).

The basket of India’s environmental goods exports to Africa mainly comprises acrylic polymers (5.7 percent), heat exchange units (5.4 percent), polypropylene sheet (4.5 percent), iron and steel structures of towers and lattice mast (4.2 percent), machines and mechanical appliances (4.1 percent), and board panel, consoles and desks and other bases for electric control or distribution of electricity and electrical accumulators (3.8 percent each).

India’s annual average growth rate of environmental goods exports from 2012 to 2021 was 8.3 percent, whereas, in the case of Africa, it was 4.7 percent thus implying further scope for growth. Particularly, exports of products like photosensitive semiconductor devices including solar cells stood at $20.9 million, with a 12.9 percent share in Africa’s global imports in 2021.

Over the years, India has emerged as a trusted development partner for Africa supporting its sustainable development through concessional finance as well as private sector initiatives. Currently, 33 African countries are members of the International Solar Alliance, a brainchild of India. The dynamics of solar sector exchanges between India and Africa are shaped by the fact that African countries possess abundant solar resources but lack the necessary technology. India, therefore, can play a vital role in establishing a collaborative platform by providing technology transfer and capacity building.

Besides renewable energy, other areas of collaboration between India and Africa include climate-smart agriculture, water supply and wastewater management, strategic collaboration in critical minerals used in the electric vehicle ecosystem, green hydrogen and mainstreaming the circular economy through recycling across consumer goods, lithium batteries and energy sectors. This can help in India-Africa relations catapult to a new level and emerge as a beacon of South-South cooperation in the arena of climate change.

Sara Joy and Srejita Nandy are economists with India Exim Bank.  Views are personal views and based on a recent Exim Bank publication, ‘Forging a Sustainable India-Africa Partnership through Green Transition’.