SITA: Forging new trade and investment connections between East Africa and India

21 September 2016
ITC News
The challenge

Preferential trade access and growing demand in emerging economies such as India have created new opportunities for East African countries to use international trade and investment to drive growth, poverty reduction, and diversi cation. Yet low tariffs alone are often not enough for would-be exporters to overcome weaknesses in supply side capacity, market information and domestic institutions.

ITC’s Supporting Indian Trade and Investment for Africa (SITA) project was set up to catalyse increased trade and business linkages between ve East African countries and India. A staple of diets across India, pulses emerged from the project’s initial consultations as a promising sector for connecting African producers to Indian buyers and investors. India is the world’s largest producer, consumer, and importer of pulses such as dried beans, peas and lentils.

Pulse production and trade can boost rural incomes and economic growth in East African countries, especially
if relatively smaller producers are able to connect to international markets. Existing production in the region
is well below potential, due to market uncertainties and outdated farming processes; greater export market diversi cation would make incomes more stable. Meanwhile, India, where protein-rich pulses are a critical contributor to reducing malnutrition, currently relies on industrial-scale suppliers, often from distant geographies, for imports.

Though East African producers have made limited forays into the Indian market, pulse processors in the region have a strong appetite for expanding their production and export capacities in order to enter it and other new and growing markets. To invest in raising production, the smallholders who grow the lion’s share of pulses need greater predictability about demand for their crops. Meanwhile, targeted assistance would help would-be exporters understand Indian market conditions and achieve market entry.

The response

ITC’s initial work on the project has centred on bringing together stakeholders from business and government to foster public-private sector discussions, and generate evidence-based policy options for increasing trade and investment ows across the Indian Ocean. As part of these efforts, pulses sector stakeholders have set out priority actions aimed at ultimately bolstering productivity and exports at the partnership platforms organized by the project.

In November 2014, the Indian Pulses and Grains Association, an industry group, arranged the rst meeting, in Mumbai, between SITA’s project team and prospective buyers and investors. The goal was to gauge Indian industry interest in doing business in East Africa. This gathering prompted a Mumbai-based importer, to explore new supply source opportunities in selected Eastern African countries.

Industry groups, which are key stakeholders in the project, also played a critical role on the East African side of the equation: while the Indian importer was exploring opportunities in the region, the Eastern Africa Grain Council (EAGC) worked with its members to engage with prospective Indian buyers.

Meanwhile, ITC also engaged with Indian companies that have worked with farmers in India to improve productivity and quality. The aim is to introduce successful models to farmers’ groups in East Africa, and ultimately to procure the increased production.

As part of the project, ITC will facilitate the building of ties among TISIs in East Africa and India, creating a network for sharing best practices and enabling trade and investment across the Indian Ocean.

The results

Thanks to connections facilitated by the project, some Indian rms have already struck deals to buy pulses from East Africa.

The Mumbai-based importer has entered into ve-year memoranda of understanding with farmers’ groups from Uganda and Kenya to purchase pigeon peas, a type of pulse, worth an estimated US$8.6 to 16 million (prices are only established after harvest). The rst lot of pulses is expected to ship during the second quarter of 2016. In order to operate closer to its sources of supply, the rm has registered a company in Kenya and set up a procurement of ce and warehousing facilities at Athi River in Machakos County, Kenya. It is in the process of negotiating a commitment with the county government to purchase at least 10,000 tons per year of pulses (currently worth US$8 million). This deal would potentially impact the livelihoods of over 10,000 farmers in the county. The company has already procured 500 tons of pulses, worth close to US$500,000, from Kenyan suppliers.

Among the East African entrepreneurs that built connections with Indian buyers through the project’s multi-stakeholder platform was Sabrina Meharali, managing director of Tanzania-based Quality Pulse Exporters. ‘The meetings were a fantastic opportunity to meet Indian companies that would otherwise be harder to approach due to our size,’ she said. ‘We have been able to send over 1,000 tons of pulses to Tata [an Indian conglomerate] since July 2015. We hope to build on these relationships.’

Another woman entrepreneur, Rose Mutuku, CEO of Smart Logistics, a Kenyan rm, is in advanced negotiations with Indian buyers, and expects to close its rst contracts to export Kenyan pulses to India in 2016.

The future

By 2020, SITA aims to have helped medium-sized Indian companies diversify their supplier base to include East African companies. Meanwhile East African producers will have successfully penetrated the Indian pulses market, hitherto the preserve of industrial-scale suppliers, generally from developed countries. Other objectives include improved procurement and logistics infrastructure in East Africa, alongside investments productive and value-addition capacity by Indian businesses.
On the productivity enhancement front, two Indian companies are working with ITC to design and implement interventions to bene t up to 20,000 farmers in Ethiopia and Tanzania. These public-private partnerships involving the companies, farmers’ groups, governments, and nancial institutions, are expected to progress during 2016-2017.

ITC is collaborating with the World Food Programme (WFP) to develop a pilot project to leverage the WFP’s farmer outreach to facilitate direct business linkages with Indian buyers. This project, which would pair additional capital with capacity building at the farm level to improve productivity,
is expected to reach as many as 100,000 farmers by 2020.