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Events of the last few months expose the vulnerability of manufacturers to external shocks such as the Gulf war crisis. Within a week of hostilities breaking out in February 2026, oil prices had breached the $100 a barrel mark and briefly touched $120.
Few manufacturers, let alone medium-sized ones, can absorb these costs. For them it is a matter of life or death. Many are now left with an existential dilemma: try to absorb these costs in the hope the crisis will quickly pass, or attempt to pass on the cost increases to customers and hope for the best.
Tens of thousands of businesses across South Africa are now confronted with this cruel choice.
Then there’s the currency volatility that inevitably accompanies such crises. The ZAR lost nearly 7% against the USD at the start of the Gulf war crisis, sufficient to wipe out the profit margin of many manufacturers. Currency hedging helps, but this comes at a cost, and many mid-sized manufacturers have little experience of this.
While managers are concerned with day-to-day operations, few spend much time planning for shocks such as we have just witnessed. There is an assumption embedded within management that life will continue as normal. But what if it doesn’t? What if we are now confronted by persistently higher inflation, lower sales and reducing margins? What if the assumptions of yesterday no longer apply? This could mean the difference between success and failure.
The most serious risks facing any manufacturer lie outside the factory gate: energy costs, currency fluctuations, logistics reliability, disrupted supply chains, policy uncertainty.
It’s no wonder that large businesses have well-resourced risk and compliance teams to pore over these imponderables. Large businesses must plan for any eventuality. The same is not true of mid-sized manufacturers, which lack the resources to engage in the luxury of risk planning.
Consider just a few examples of businesses forced to either close or scale back due to “unforeseen” events:
- In 2025, at least 14 automotive component companies (mostly medium-sized suppliers producing tyres, seatbelts, airbags, and other parts) closed entirely, resulting in around 4,500 skilled job losses. Car manufacturers claim cheap Chinese imports were to blame.
- Extended Stage 6 load shedding in 2022 and 2023 forced dozens of firms involved in electronics and metal stamping to scale-back operations – with some closing permanently.
- The shutdown of ArcelorMittal South Africa's long steel operations at the Newcastle and Vereeniging plants has created threats to downstream producers who must purchase imported steel at higher tariffs or find new markets.
- Clover relocated its cheese production to Kwazulu-Natal after Ditsobotla Local Municipality in North West province suffered a near total collapse in services, including disrupted water and electricity supply, sewage failure and impassable roads.
This is just a sampling of the external events that can – and have – had profound impacts on business survival.
South Africa’s manufacturing sector has, out of sheer necessity, demonstrated a remarkable ability to adapt to these shocks. For example, the Load 6 loadshedding crisis of 2022 and 2023 was answered with massive investment in alternative energy sources, such as solar and diesel generators. Those who anticipated the loadshedding crisis were better able to ride it out.
Here are some other threats looming just over the horizon:
AI displacement of the workforce: This is a potentially massive challenge that could see robotics take over the factory floor within the next 10 years, not to mention the automation of back office functions such as payroll and accounting. This poses labour relations issues in the foreseeable future. Those late to AI will be forced down this path by competitors.
Labour relations: Companies in financial distress will be forced to trim their head count, and this will become an even bigger issue as robotics is forced on them by competition. Few companies escape the pressures of a highly regulated labour market – from labour stoppages to wage negotiations. This is a risk that will increase in the coming years.
Policy shifts: Businesses hate uncertainty and will delay investment until there is policy clarity. For example, the higher tariffs imposed by the US government on imports from South Africa has forced many companies to abandon the US market, while car makers such as Ford, BMW and Toyota are under pressure to absorb higher costs and reconsider future investments. This, in turn, affects mid-sized manufacturers dependent on the vehicle sector.
ESG and climate risks: the World Bank classifies South Africa as a highly water-stressed country which in turn impacts food security. One of the reasons cited by Clover for relocating from North West to Kwazulu-Natal was its inability to secure reliable, high quality water.
Municipal breakdown: We are entering the era of municipal arbitrage, where companies relocate operations to better run areas with more reliable services in terms of water and electricity. For example, companies are relocating to the best run municipalities such as Midvaal in Gauteng, and Mossel Bay and Hermanus in the Western Cape. Margin pressure: Given the risks outlined above, companies are forced into continuous efficiency improvement to inoculate themselves against currency volatility, rising energy costs and unreliable logistics. This requires investment, which may in turn require taking on additional debt.
How to build advantage during times of crisis and uncertainty
The risks are multiplying and mid-sized manufacturers are often ill-equipped to deal with them. They tend to be reactive and caught off guard when crisis strikes. Few take ESG seriously, leaving them vulnerable to the kind of shocks we have seen in the Gulf war.
Success in this environment is defined not only by efficiency, but by an ability to anticipate shocks, plan for them, adapt decisively and recover with speed.
Mid-sized manufacturers demonstrated a remarkable ability to adapt and overcome the loadshedding crisis of recent years. But this was an after-thought, rather than part of a routine planning. We have highlighted above some of the risks that confront businesses today. The challenge now is to build resilience through proactive measures and planning, rather than respond to crises as they erupt.
RSM South Africa has a deep understanding of the risks facing mid-sized manufacturers and a strong track record in helping them build resilience in times of adversity. Talk to us.
Views from our regional leaders
South Africa
“Energy self-sufficiency, supply-chain diversification, skills development, automation and strategic stakeholder engagement are no longer optional; they are defining capabilities for the next phase of South African manufacturing. There are vulnerabilities among mid-sized manufacturers that are often poorly understood, let alone embedded into risk management. That is our speciality.” - Dinesh Munu, Head of Assurance, RSM South Africa.
“Middle market manufacturers are becoming more complex due to high capital costs, globalised supply chains, labour constraints and rising technological competition. To stay competitive, leaders must invest selectively in advanced technologies such as digital twins, AI and smart manufacturing to improve forecasting, efficiency and enterprise value despite ongoing economic uncertainty.” - Portia Singo, Director: Audit at RSM South Africa.
“Today’s leaders are required to manage not only traditional operational risks, but systemic risks that sit well beyond the factory floor. Responding actively to these risks is no longer optional; it is central to competitiveness, resilience and long-term sustainability.” - Liz Pinnock, MD of RSM South Africa Consulting.
Tanzania
“Tanzania’s manufacturing sector is part of the country’s growth narrative, with real GDP of about 6% in 2025 expected to support momentum into 2026. Among the risks we are flagging are forex and input costs, particularly among import-dependent manufacturers such as machinery spares, chemicals, packaging, fuel and certain foods. Power reliability and energy costs are another risk factor that cannot be ignored. Manufacturers must plan for resilience and not assume this is a problem that will go away. There’s also the ongoing issue of congestion at the port of Dar es Salaam, requiring better planning and scheduling.” - Lina Ratansi, Managing Partner, RSM Tanzania.
Zambia
"Zambia's growth outlook is encouraging, with projections of 6.4% for 2026, but mid-sized manufacturers cannot afford to be lulled into complacency. The risks are real and in many cases uniquely Zambian: a currency mismatch that erodes margins when the Kwacha weakens, a power sector that remains hostage to rainfall patterns, transport corridors that concentrate risk, and a financing gap that leaves many businesses unable to invest in the resilience they need. What Zambia's manufacturers need now is not just awareness of these risks. They need practical, hands-on support to navigate them." - Prasitha Prasad, Associate Director Assurance RSM Zambia.
Mozambique
“Mozambique’s manufacturing sector continues to operate within a complex and evolving risk environment, consistent with broader regional dynamics. Key structural constraints include uneven electricity supply, logistics bottlenecks across the Maputo, Beira and Nacala corridors, and ongoing security considerations in the northern region. The acceleration of LNG developments and continued expansion in the coal sector particularly in Tete are reinforcing Mozambique’s position as a strategic energy supplier. Climate-related disruptions, including floods and cyclones, remain a recurring risk, with direct implications for transport corridors, supply chains and input costs. Against this backdrop, manufacturers are required to adopt more structured and forward-looking approaches to risk management, operational resilience and financial planning”. – Luis Mhula, partner – Head of Audit - RSM Mozambique.
Saudi Arabia
In Saudi Arabia, sustainability disclosure has become a strategic imperative rather than a compliance exercise. With the Capital Market Authority and Tadawul introducing ESG disclosure guidelines, organisations that move early reduce regulatory risk and clearly signal leadership. ESG alignment also supports Vision 2030 by demonstrating commitment to economic diversification, environmental stewardship, and social development, while in many cases strengthening eligibility to participate in large national megaprojects.”
“Beyond regulation, ESG transparency is increasingly tied to access to capital, investor confidence, and long-term competitiveness. Robust sustainability disclosures enhance enterprise risk management, improve brand reputation, and support access to green financing and international markets. For Saudi entities, ESG leadership is fast becoming a differentiator — enabling stronger supply chain integration, operational efficiencies, lower cost of capital, and positioning organisations alongside global best practices and sustainability benchmarks.” - Sachin Trivedi, Director RSM Saudi Arabia.
