India and South Africa are exploring the option of trading in local currencies — the rupee and the rand — instead of dollars.
The talks, initiated during commerce minister Anand Sharma’s visit to Johannesburg earlier this month, are being carried forward by the negotiators of both sides, senior finance ministry officials said.
Trade between the two Brics nations stands at $14 billion. If the deal is struck, India can replicate it with other African nations. India’s combined trade with all African countries is around $70 billion. The Brics group includes Brazil, Russia, India, China and South Africa.
Both the rupee and the rand, South Africa’s currency, have depreciated about 12 per cent since the middle of this year compared with April.
The central banks of both the countries fear their currencies may be under strain when the US starts rolling back its bond buying programme sometime next year.
The Brics members have consequently been talking among themselves on arrangements to protect their trade and currencies.
By trading in local currencies, India and South Africa will protect themselves from exchange risks as well as encourage the surplus holders of each other’s currency to invest in the other country.
India, increasingly turning to Africa for its energy requirements while emerging as a leading investor in that continent, could use the surplus rands, nairas, cedis, dinars and kwanzas to invest in the growing markets of South Africa and Nigeria, feel analysts.
On the other hand, African countries holding surplus rupee can seek to neutralise it by buying from India.
Last month, New Delhi had said it was exploring more rupee trade pacts as it announced tentative negotiations to pay for oil from Iraq in rupee, a deal similar to the one it has with Iran.
Under the arrangement, the Central Bank of Iran has opened rupee accounts in two Indian banks, where Indian crude oil importers pay a part of their $9.5-billion bill in rupee.
The Iranian central bank then allows Iranian importers to use this to ship goods from India.
In its latest move, the commerce ministry has said exporters importing goods and shipping them to Iran after value-addition will not be required to produce “goods of Indian origin” certificate to make rupee payments
India is targeting energy exporting countries in central Asia and Africa for rupee deals, while at the same time pushing for the export of textiles, pharmaceuticals, engineering goods and cars.
India Inc is already locked in a race with Chinese companies to tap the growing African market. The Tata group, Mahindra and Mahindra, Bharti, Essar, Godrej, ONGC and Kirloskar are among the big names flocking to the continent.
Bharti Airtel made inroads into the African market by inking an $11-billion deal with Kuwait’s Zain to buy the latter’s African assets, followed by a string of smaller buyouts to consolidate its presence in the continent.
ONGC has bought a 10 per cent stake in an offshore gasfield in Mozambique for $2.6 billion. Besides, Indian firms are looking for buyouts in Mozambique and other African coalfields.
Energy accounts for around 60 per cent of the trade with Africa, while gold makes up for 10 per cent.
