South Africa kisses top spot in Africa goodbye

Morocco surpassed South Africa to become the highest-ranked industrial economy in Africa in 2025, ending a 15-year streak of dominance. 

This was revealed by the African Development Bank (AfDB) in its latest Africa Industrialisation Index report for 2025, released at the end of May. 

The AfDB explained that this reflects sustained industrial upgrading, export diversification, and effective implementation of strategic industrial policies in Morocco. 

However, the story is not all about Morocco improving. It is also about South Africa’s decline as an economic powerhouse after 15 years of stagnant growth. 

South Africa became the dominant industrial economy in the build-up to WWII over 80 years ago, when investment flooded into the country’s fledgling economy. 

This boom was sustained throughout the 1950s and 1960s, with the country developing major heavy industries from steelmaking to automobile manufacturing and fuel refining. 

“While South Africa remains a continental industrial powerhouse, it continues to experience a steady decline in industrial competitiveness,” the AfDB said in the report. 

This decline is more stark considering that Africa’s combined consumer and labour markets have made it increasingly attractive for manufacturing investment.

The emergence of a middle class in many African economies has strengthened demand for manufactured goods across the continent. 

This is something that South Africa was expected to capitalise on, with it being Africa’s most developed and industrialised economy for decades. 

However, it has failed to do so, with repeated policy missteps from the government, collapsing state-owned enterprises, and increasingly onerous regulations making local manufacturing uncompetitive. 

The AfDB compiles the industrialisation index around nineteen indicators, which have been updated in the 2025 edition to give greater weight to regulatory burdens and the rule of law. 

For example, the updated index includes a Business & Labour Environment indicator, which measures the quality of regulations, financial access, and labour conditions that enable industrial development. 

There is also a revised safety and rule of law indicator that is based on the Index of African Governance, which focuses on the rule of law, transparency, accountability, and personal safety. 

Standard Bank estimates that the rule of law is responsible for around two-thirds of all economic growth in a country, making it more important than tax regimes and industrial policy. 

Under the updated index, and along with continued decline, South Africa’s rating slipped from 0.8401 to 0.8396 in 2025, while Morocco’s continued to improve. 

This is the first time since 2010 that South Africa did not take top spot in Africa, with its rating steadily declining from 0.8819 in 2010. This can be seen in the table below. 

South Africa’s lost 15 years

South Africa’s industrial decline did not happen in a single year, with the AfDB saying that this year’s index confirmed a longer-term trend. 

While the country’s score is 0.8396 in 2024 was its highest since the lows of Covid, the resumption of decline in 2025 affirmed the 15-year trend. 

South Africa’s decline is dragging the rest of Southern Africa with it, as it is by far the largest economy in the region and a hub for consumption and production. 

The country accounts for 14.3% of all value-added manufacturing in Africa, and two-thirds of that from Southern Africa. 

“South Africa functions as both a production base and ‘headquarter economy’, providing technology, management, and R&D while also sustaining large-scale manufacturing,” the AfDB said. 

“The region has been driven down by the underperformance of South Africa since 2010, whose market value-added per capita has dropped from $1,105 to $800 over the period.”

This is a negative compound annual growth rate of 2.3%, which shows no sign of slowing despite significant reform efforts. 

South Africa continues to lose out on valuable investment to its African peers, with it slipping to fourth in the RMB Invest in Africa rankings. 

Behind the Seychelles, Mauritius, and Egypt, South Africa only ranks first in one category – forex stability and liquidity. 

Worryingly for the future, it also came in last place on the continent regarding GDP growth forecasts, income inequality and unemployment. 

South Africa’s economy has been relatively stagnant over the past decade, hovering around 1% GDP growth annually.

Business leaders have warned of the dire consequences of continued economic underperformance, with Standard Bank CEO Sim Tshabalala saying capital will flow elsewhere. 

“The world competes for capital. We compete for the money we need to finance our nation’s budget deficit and compete globally for the money to finance infrastructure investment, fund Eskom and Transnet, and finance corporate projects,” Tshabalal said. 

“We are competing on the continent and with emerging markets for this capital. So if they have decreased the risk of investing in their country and generated greater returns, the money will then rather go to those places than South Africa.”

Business Leadership South Africa (BLSA) CEO Busi Mavuso said that global companies are increasingly looking to expand manufacturing outside of the country. 

Mavuso said this was due to political uncertainty and onerous regulations, such as the Black Economic Empowerment framework, drive investment away.