Manohar Parrikar Institute for Defence Studies and Analyses
मनोहर पर्रिकर रक्षा अध्ययन एवं विश्लेषण संस्थान

India’s Economic Diplomacy with Ethiopia

Chithra Purushothaman
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Commentary

Indian President Ram Nath Kovind visited Ethiopia from October 4-6, 2017, marking a new era in India-Ethiopia bilateral relations. This visit is important considering India’s long historic and cultural ties, as well as the rising economic and commercial linkages with this strategically important country in the Horn of Africa. Interestingly, Ethiopia also qualifies as the largest recipient of India’s Lines of Credit (LOC) in Africa, which points to the importance of the country in India’s foreign policy calculus.

Growing Development Partnership

Newly independent India initiated its diplomatic ties with Ethiopia in the early 1950s. Over the last seven decades, India has cemented its relations with Ethiopia as a development partner from the Global South. Even though India has a long-standing diplomatic relationship with Ethiopia, the past one decade has seen renewed interest and enhanced efforts on the part of the two countries in strengthening ties through continuous economic partnerships and diplomacy.

New Delhi has contributed to Ethiopia’s development through its EXIM Bank lines of credit (LOC), grants and Indian Technical and Economic Cooperation (ITEC) programme, which are provided in areas ranging from infrastructure development to agriculture, education, capacity-building, and energy generation and supply. In Ethiopia, ITEC programmes started in 1969, and these capacity-building programmes have helped India build immense goodwill among both the civilians and the defence personnel in the country. In the last one decade, there has been a ten-fold increase in the number of ITEC slots offered to Ethiopia, rising from 25 slots in 2007-08 to 250 slots in 2016-17 (see Figure.1).

Furthermore, after New Delhi committed USD1 billion to Addis Ababa in 2015, it has become the largest recipient of India’s LOCs in Africa. The LOCs are provided mainly for the development of energy transmission projects, sugar industry, and railways.1 Also, the EXIM Bank’s branch office for Eastern Africa is located in Addis Ababa, and Government of India’s flagship initiative for sharing India’s expertise in healthcare and education with African countries, namely the Pan African e-Network Project, first started working in Ethiopia in 2007. This project is focused on providing tele-education and tele-medicine services to African partners and has proved to be a great support for Ethiopia in its efforts for socio-economic development.

Figure-1

A major platform for New Delhi’s efforts in engaging with Africa has been the India-Africa Forum Summit (IAFS). The Second India-Africa Forum Summit was held in Addis Ababa in 2011, which marked the first visit of an Indian Prime Minister to Ethiopia. During the third IAFS in 2015, Prime Minister Modi announced USD10 billion for Africa for the next five years. Ethiopia would be a key beneficiary of this assistance.

Even though India’s development cooperation with Ethiopia has largely been mutually beneficial and much appreciated by the government, it is not without some minor setbacks. The development of Tehndaho integrated sugar project which was supported by India saw severe delays in completion; the dispute between the contractors escalated to the level of Indian companies suing each other, which led to further delays.2 The aim was to make Ethiopia self-sufficient in sugar production. However, the country still imports sugar which shows the slow progress in India’s development cooperation projects in Ethiopia’s sugar industry and raises questions about the efficiency and effectiveness of India’s development cooperation.

Another major setback for India was the Ethiopia-Djibouti Railway line, for which New Delhi had announced a credit line of US$ 300 million, which remained unutilized. Later, it was understood that the government of Ethiopia received funding for the same project from China, which it preferred against Indian funding.3 This has made New Delhi slightly uncomfortable, realising that China has a better grip over its preferred partner in East Africa. However, Ethiopia has recently requested for re-purposing this LoC and utilising it for power transmission lines and infrastructure projects instead.

Ethiopia has been successfully using foreign aid or development cooperation from both the emerging powers and the traditional donors to push its development initiatives.4 Even when India is becoming an important actor in Ethiopia’s development sector, it has to develop adequate mechanisms for monitoring and evaluating projects that could help fill the information gaps and avoid project delays that are common challenges in Indian funded projects in the country.5

Aiming for Greater Trade and Investments

Apart from development cooperation, India and Ethiopia are keen on greater cooperation in trade and investment front. Even though the two countries had aimed at increasing the bilateral trade to USD1 billion by 2015, it has not yet been achieved. During his visit, President Kovind addressed the India-Africa Business Dialogue and signed a trade pact, which has got ex-post facto Cabinet approval. This trade pact is supposed to boost bilateral trade between the two countries that had declined to USD840.5 million from the previous fiscal year’s USD854.6 million.6 Even when both the countries are pushing for greater trade relations, the volume of India-Ethiopia trade is much smaller when compared to Ethiopia’s trade with its largest trading partner China, which was USD6 billion in 2015.7

Ethiopia is also the largest recipient of Foreign Direct Investment (FDI) in Africa, attracting USD3.2 billion which has seen a 46 per cent increase from the previous year.8 It is highly appreciable that the country could sustain double-digit economic growth throughout the past decade when the broad-based growth averaged 10.3 per cent a year from 2005-06 to 2015-16.9 However, to sustain the economic growth and accelerate poverty reduction, Addis Ababa has to boost its investments in infrastructure, manufacturing sector and focus on socio-economic reforms.

Indian Business Forum has been pushing Indian investments in Ethiopia and striving to boost trade between the two countries. Indian investments in Ethiopia are estimated to be around $4 billion with 540 Indian companies present in the country.10 India is also one of the three largest investors in Ethiopia.11 While Indian public and private sector companies are encouraged to invest in Ethiopia, certain private sector companies are under the radar for striking land deals. While other major countries, including the United States, China, Netherlands, and Saudi Arabia are also investing heavily in Ethiopia’s agricultural land, India is among the top ten investors.12 These land deals have come in for severe criticism as in most cases, the land so aquired is not used for agricultural purposes which renders it as an instance of land grabbing.

Conclusion

The current high-level visit demonstrates the priority India attaches to Ethiopia. The President has chosen Africa for his maiden visit abroad and has clubbed Djibouti and Ethiopia, pointing to the rising importance of the Horn of Africa in India’s foreign policy and economic diplomacy. The current high-level visit is the first visit by an Indian president to Addis Ababa in 45 years since President V.V. Giri’s visit in 1972.13 During the visit, President Kovind announced New Delhi’s decision to provide fresh line of credit of USD 195 million for Ethiopia’s power transmission and also provided medicines worth USD2 million.14

India is also supporting Ethiopia in its energy security, by helping to achieve the desired electrification targets and improve its energy infrastructure. Ethiopia is also one of the first countries to join the International Solar Alliance (ISA), where India is a founding member. India can share their experiences as major player in developing and utilising solar energy and can push for more solar energy projects in Ethiopia under the ISA umbrella.

Asia-Africa Growth Corridor (AAGC) is another critical platform where India could partner with Ethiopia that can prove to be a win-win partnership for both the countries. The presence of Indian diaspora in Ethiopia also makes India’s engagement with Ethiopia significant.

Several international players are competing to finance projects in African countries, and New Delhi will be at a disadvantage if it does not proactively engage in strengthening development partnerships. As an emerging power that is actively pushing South-South Cooperation (SSC), India has to convince its partners the advantage of Indian development assistance, which adheres to principles of horizontal cooperation and mutual benefit. However, the lack of deep pockets and delays in project implementation is making India lag behind in its development cooperation efforts in many regions around the world, including Africa. While it is essential for India to be a reliable partner for Ethiopia, it has to weigh its role carefully so as to be a responsible Southern partner.

President Kovind’s visit reiterates the significance of Ethiopia in India’s foreign policy. However, India has to proactively pursue its economic diplomacy with Addis Ababa to build lasting ties and keep up the momentum in the bilateral relationship. There is immense scope for cooperation that has to be tapped by both the countries for mutual benefit.

Keywords: Ethiopia, India, Economic Relations
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