US tariffs: A new reality for Indian exporters
The United States, India’s largest export market, has imposed sharply higher tariffs on a range of Indian goods. Textile tariffs alone now reach 50% for Indian products, compared with 10% for countries such as Kenya and Ethiopia. Faced with this asymmetrical disadvantage, some Indian companies are shifting production for US-bound orders to African plants and alternative low-tariff jurisdictions.
This trend builds on an existing foundation: the African continent is already familiar territory for Indian business. There are more than 150 Indian companies operating in South Africa, 450 in Egypt, 650 in Ethiopia, while Indian firms have invested in 820 projects in Ghana across manufacturing, textiles, agriculture and healthcare. Factory expansions in Kenya and Ethiopia are already underway, with US buyers actively encouraging supply chain relocation to reduce tariff costs.
Interviews with Indian manufacturers operating in Africa during previous research projects revealed key drivers for setting up shop on the continent. Beyond the headline appeal of lower labour, operational costs and access to neighbouring African markets under regional trade agreements, firms emphasised their familiarity with African regulatory environments and their ability to navigate the complexities of operating in developing country contexts, skills honed through decades of business experience in India.
Additionally, the presence of well-established Indian diasporas in countries such as Kenya, Tanzania, South Africa and Uganda provided critical local networks for suppliers, labour and market insight, making African investment less daunting for Indian businesses. However, these advantages aside, the primary incentive remained the duty-free access to major Western markets. This could be through the Economic Partnership Agreements or the Everything But Arms schemes with the EU and the US market under the African Growth and Opportunity Act (Agoa).
Agoa’s looming uncertainty and AfCFTA’s continental opportunity
However, Agoa, a US law introduced in 2000 that grants duty-free access for eligible African exports, is set to expire on 30 September 2025, and the prospects for its renewal look increasingly slim.
This is already unsettling investors. Apparel firms, which plan 12-18 months ahead, warn they may cut sourcing from Africa without timely clarity. For Indian investors, this threatens the core incentive, duty-free US access, just as new investments take shape, risking exposure to both African and US tariffs.
Enter the African Continental Free Trade Area (AfCFTA), the world’s largest free trade area, and Africa’s ambitious bid for economic integration. It aims to create a single market of 1.4 billion people through phased tariff removal, harmonised rules of origin and streamlined customs across 54 countries. If fully implemented, it could boost intra-African trade by nearly 50% and greatly improve regional supply chains.
For Indian firms, AfCFTA offers a hedge: even if Agoa lapses and US tariffs rise, Africa’s growing market could absorb investment, not only for US-bound exports but for regional demand and Africa-focused value chains. African countries are already key export destinations in sectors such as pharmaceuticals, where Indian exports were valued at $3.94-billion in 2023-24, compared with $8.73-billion to the US in 2024. While the US remains the larger market, Africa’s steady growth signals long-term potential that Indian firms are increasingly positioning to tap.
However, progress on AfCFTA has been slow. Tariff phase-outs will take a decade, key rules remain unresolved, and infrastructure and bureaucratic barriers endure. According to certain experts, a fully unified market may not emerge before 2034.
The road ahead: Tactical patience, not quick fixes
Irene Sun’s book The Next Factory of the World argues that Africa stands where China once did: at the threshold of large-scale industrialisation via foreign investment, practical entrepreneurship and integration with global trade.
For Indian businesses, this means that relocation to Africa is a journey, not a stop-gap measure. Operational success will depend on resilience, partnerships and an acceptance of slow, sometimes messy, institutional change. Reliance on temporary trade privileges such as Agoa are inherently risky; competitive advantage will accrue to those that embed deeply in African economies and embrace regional integration as their primary anchor.
Indian firms and policymakers must approach the African opportunity with both ambition and caution. While the immediate lure of tariff circumvention via African bases is real, it may prove fleeting if Agoa lapses. The deeper, more sustainable, win lies in Africa’s gradual emergence as a manufacturing hub under AfCFTA.
Success will require strategic diversification, policy foresight and sustained engagement with emerging markets. As protectionism intensifies in the Global North and Trump-era tariffs loom, trade disruptions are increasingly inevitable. Strengthening ties with Africa’s expanding consumer markets and regional value chains is not merely prudent; it is vital for securing India’s long-term economic resilience and strategic independence. DM