South Africa’s manufacturing small and medium enterprises (SMEs) are increasingly embracing artificial intelligence (AI) and other Industry 4.0 technologies, but access to finance remains a significant barrier to modernising production, according to fintech lender Lula.
The manufacturing sector contributes nearly 11% to South Africa’s gross domestic product (GDP) and was one of only three industries to create jobs during the first quarter of 2026. However, output has declined for two consecutive quarters, placing additional pressure on manufacturers to improve efficiency and remain competitive.
Speaking during a panel discussion on AI, digitalisation, automation and smart manufacturing at the 2026 Manufacturing Indaba, Lula product manager Koreshini Pillay said many SMEs struggle to finance the upfront costs associated with adopting new technologies.
These costs include software, sensors, machinery upgrades, cybersecurity, traceability systems and employee training, while the financial benefits of these investments often take months to materialise.
According to the News24 x Lula Small Business Survey, conducted among 1,088 SME owners in January 2026, more than two-thirds of South African businesses are either using AI daily or actively experimenting with the technology.
For manufacturers, AI adoption is increasingly linked to improving production efficiency, reducing waste and meeting growing customer requirements around digital compliance and product traceability.
However, the timing of investment presents a challenge. Manufacturers typically begin building inventory for peak trading periods several months before revenue from those sales is realised, creating a gap between expenditure and income.
Pillay said this production cycle often makes it difficult for businesses to rely on conventional lending models, which typically assess historical financial performance rather than current cash flow requirements.
Skills development also remains a key consideration. The survey identified workforce development as one of the leading growth opportunities for SMEs in 2026, highlighting that successful digital transformation depends on both technology investment and employee capabilities.
Lula said it has provided funding to more than 3,300 manufacturing businesses, disbursing over R3bn in finance to the sector. According to the company, manufacturing represents its second-largest sector by value of funding provided.
The company argues that financing products aligned to manufacturers’ production and cash flow cycles could help SMEs adopt Industry 4.0 technologies without delaying investment, although broader access to appropriate funding remains a challenge across the sector.
As manufacturers look to improve productivity and competitiveness in a subdued operating environment, access to finance is expected to remain a key factor influencing the pace of AI and smart manufacturing adoption.