Has Africa emerged as a viable alternative for Indian firms, which have begun exploring sweeter tariff spots overseas to service the US market?

Dr MZ’ee, Economist & Investment Strategist | Diamantaire | Mining Industry Authority comments…

“Africa has emerged as a viable alternative for Indian firms seeking to service the U.S. market, primarily due to the significant tariff advantages it offers. This shift was catalyzed when the U.S. imposed steep tariffs of up to 50% on key Indian exports like textiles, gemstones, and jewelry, making them less competitive. In response, Indian companies began exploring production bases in countries with more favorable trade terms with the U.S. Unknown to most, many African nations benefit from far lower U.S. tariffs, sometimes as little as 10%, under trade frameworks like the African Growth and Opportunity Act (AGOA), providing an immediate and powerful incentive for relocation.

The attractiveness of the continent is significantly enhanced by a host of financial incentives offered by countries such as Ethiopia, Nigeria, Botswana, and Morocco. These incentives are designed to attract foreign investment and include long tax holidays that exempt companies from corporate taxes for several years, alongside customs duty and value-added tax (VAT) exemptions on the import of raw materials and capital equipment. These measures drastically lower the cost of setting up and running manufacturing operations. Furthermore, the low cost of labor in many African countries, which can be as little as one-third of the cost in India, adds another layer of competitiveness, particularly for labor-intensive industries.

Beyond general incentives, African governments are actively promoting sector-specific initiatives and building special economic zones (SEZs) to attract targeted investments. These zones, such as the Hawassa Industrial Park in Ethiopia, the Zona Económica Especial Luanda-Bengo (ZEE) in Angola or the Tema Free Zone in Ghana, provide world-class infrastructure, streamlined regulations, and relaxed foreign exchange controls, creating a plug-and-play environment for manufacturers. These SEZs have been instrumental in mobilizing billions of dollars in investments and are dedicated to fostering growth in sectors like agro-processing, textiles, manufacturing, and technology. Indian companies in textiles, gems, and pharmaceuticals have been at the forefront of this move, with major firms establishing or expanding operations in countries like Ethiopia, Kenya, and Botswana to leverage these zones and their associated benefits.

This trend is supported by broader strategic and economic partnerships between India and Africa. India is expanding its engagement through frameworks like BRICS and by supporting the African Continental Free Trade Area (AfCFTA), which integrates dozens of countries into a single market, offering immense scalability. Indian lines of credit, funding over 200 projects in infrastructure like railways and power, are also improving the logistical landscape for manufacturing. However, challenges remain, including bureaucratic delays, political instability in certain regions, and significant infrastructure gaps that require continued investment. Despite these hurdles, the combination of preferential trade access, compelling financial incentives, and a concerted push towards developing industrial zones has firmly positioned Africa as a strategic and viable alternative for Indian firms looking to maintain their competitive edge in the U.S. market.