India must accelerate exports to Middle East & Africa via trade agreements & industry cooperation.

Accelerating India's export growth to the Middle East and Africa (MEA) provides an opportunity to add 1-2 percentage points of GDP growth to our economy. India's exports to MEA went up seven times over the 2004 level to about $60 billion in 2010.

This was significantly faster than India's overall exports, which went up about five times to $250 billion at the same time. The share of this region in India's total exports has gone up from about 18% to almost 25%.

We still have barely scratched the surface of MEA's true potential. In years when retaining the 8%+ GDP growth is such a challenge, focusing on MEA exports makes a whole lot of sense.

Currently, our exports to MEA are lopsided, with about half our exports going to a single country, the UAE.

This fact seems odd, considering the UAE is one of the smallest countries in MEA in terms of population, till we understand that the UAE plays a role as a trade conduit to other countries in the region.

However, it also shows the enormous potential we have if we market our products and services directly to these countries.

Iran, which is one of the largest markets in the region, contributes a tiny $2 billion, or 3%, to our exports to the region. Iran has exceptional potential and it is a culture Indian businesses can intuitively relate to and thrive in.

It is critical that our industry and government make a concerted effort to export more to this country, regardless of political issues. There is no reason why Iran itself cannot import another $7-10 billion per year.

Iraq and Sudan deserve specific focus: they are recovering from years of strife, but have the potential for consuming high levels of products and services. Indian businesses need to enter quickly and boldly to service their market requirements.

In North Africa, besides obvious markets like Egypt, we have new emerging markets like Tunisia and Algeria, all with tremendous potential. Sub-Saharan Africa is also a high potential cluster of markets.

In terms of products, while cotton and yarn still have a significant share of the pie, now India's exports to these markets are more diversified and go well beyond primary goods: gems and jewellery to the UAE or pharmaceuticals to Africa, India has definitely moved up the ladder in terms of exporting products that are more value-added.

But we need to move further up to increase our value added per transaction. Gems and jewellery, machinery, pharmaceuticals, etc, must continue to expand swiftly. But IT services must play a very large role. So too must branded consumer products, education services, entertainment and middle-to-higher-level consultancy.

A longer-term strategic approach is necessary, not an opportunistic one, for Indian companies to enter and grow in MEA markets. The first few recommendations essentially involve grouping the markets into workable clusters, else they appear too small and are lost in the search for bigger scales. Now, one can argue that for accelerating growth, some sectors and industries have to go deeper into clusters and take a country/intensive approach.

It is akin to companies operating in India who earlier broadly divided the country into a few regions for market analysis but have now detailed strategies for states and districts. A company should also approach two or three clusters or markets at a time mainly to balance risk.

Going forward, we would also need to understand markets and consumers in depth far more than we do now. There is tremendous scope for good market research to allow companies to find the sweet spots and adapt their product offering, pricing as well as their marketing and communication strategy to what consumers really want.

Leveraging our ability to understand and market to a diverse country like India is a huge strength to establishing competitive advantage in MEA. In that context, the MEA opportunity might not really be one for our existing export giants - the IT service providers, apparel manufacturers and others - who are so focused and reliant on the developed economies for their growth.

MEA would be an interesting distraction for them, not a life-and-death passion. Alternatively, they should create separate subsidiaries to focus on these markets if they want to capitalise on their potential. The role is also open for our strong domestic players as well as new entrants who can leverage our strengths but are free to focus on MEA as a region without the baggage of other markets.

Finally, we need to ensure that the growth of exports is accompanied with an approach of contributing to the countries we are exporting to, so the relationship that is built is a win-win for them as well. Trade agreements, etc, at the government level as well as closer cooperation at the industry level and great sensitivity at the operating level would be key to making these initiatives work sustainably.

India's exports to MEA are already more than India's total global exports just 10 years ago! It shows the enormous potential of this region and why it should be top priority.

Source : economictimes.indiatimes.com