South Africa’s manufacturing sector contributes close to 11% of the country’s gross domestic product (GDP)[1] and was one of only three industries to add jobs in the first quarter of 2026[2], yet output has contracted for two consecutive quarters[3]. The small to medium enterprises (SMEs) working to modernise out of the current slump are struggling to access the manufacturing finance they need to put smart manufacturing technology on the factory floor.
Speaking at the Industry 4.0 panel on AI, digitalisation, automation and smart manufacturing at the 2026 Manufacturing Indaba, Koreshini Pillay, Product Manager at Lula, unpacked the challenge.
“Manufacturing SMEs start conversations about smart manufacturing by focusing on the technology. Every system upgrade, sensor and traceability platform, however, comes with an upfront cost, with a return that follows months down the line. The question facing the market is what it costs to modernise, and who funds this transition. Most manufacturers are told to approach IDC for expansion or SEFA for guarantees, but neither solves it: materials and technology costs land now, while the revenue they unlock only arrives months later. Underwriting has to draw on real-time transaction data and the pattern of the SME’s inflows so that working capital can be structured around the reality of the production floor,” says Pillay.
The News24 x Lula Small Business Survey report, drawn from a survey of 1,088 SME owners[4] conducted in January 2026, found that more than two in three South African businesses are either using AI daily or they are actively experimenting with it. Manufacturing SMEs are active participants in the AI economy as they prioritise the modernisation of production lines and waste reduction while competing for contracts from clients that increasingly require digital compliance and traceability.
Timing, however, remains a persistent challenge. In July, manufacturers close off their H1 performance and start planning for H2 production runs, and for those supplying into retail, wholesale and logistics, this is when they start building the inventory that will move in September, October and November. The production cycle runs ahead of the sales cycle, which means the need for funding arrives before the revenue does.
There are multiple cost categories sitting within this modernisation gap. Sensors, monitoring systems, software licenses, integration, machinery retrofits, cybersecurity, traceability and compliance platforms are key, as is skills development. The survey findings highlighted how skills development remains a leading growth opportunity for SMEs in 2026. For many companies, access to smart manufacturing finance and Industry 4.0 funding also determines whether their transition to these solutions starts in this production cycle or moves to 2027. The delay introduces consequences that extend into contract eligibility, waste, margins and the ability to compete for the next order.
When capital is structured around these friction points, it ensures SMEs can commit to technology in July against revenue that lands in November. Working capital facilities built around predictable monthly repayments can be planned against known output, and this suits technology transitions far more than lump-sum debt instruments designed for a different kind of investment. Lula’s Cash Flow Facility provides working capital for manufacturers within 24 hours – up to R5 million, with no collateral required and no monthly fees.”
“Traditional banks love to look at last year’s spreadsheets and historical financials, but that’s just not how a factory actually runs,” says Garth Rossiter, Chief Credit and Capital Officer at Lula. “If a business owner is spending cash on raw materials in July but won’t see any revenue until November, they need funding that understands that gap. Modernising your operations isn’t optional anymore – it’s survival. The manufacturers who win are the ones finding finance partners that match the real-world rhythm of their trade.”
Lula has funded more than 3,300 manufacturing businesses to date, disbursing over R3 billion in advances. Manufacturers receive an average advance of R203,000 – 18% higher than the cross-sector average – making manufacturing the second-largest sector in Lula’s book by disbursed value and the case for backing the SME is clear. South Africa’s industrial competitiveness will only be rebuilt if the SMEs on its factory floors can fund the move to smart manufacturing deliberately. Funding designed to recognise where the business is today turns the timing constraint into a manageable cost of growth.
“When a manufacturer can get funding the exact moment an opportunity strikes, they don’t have to put their plans on ice,” Rossiter concludes. “You stop just talking about upgrading and actually do it. That quick access is the difference between having a growth plan on paper and actually scaling in the real world.”
