Early optimism for economic recovery in 2026 is giving way to renewed pressure, as rising energy costs, freight disruptions and geopolitical tensions weigh on global and South African markets. At the start of the year, expectations were anchored in potential ratings upgrades, interest rate cuts, and a stronger rand.
The World Bank projected growth improving from an estimated 0.8% in 2024 to 1.8% in 2025, with further stabilisation (2%) in the medium term. However, escalating global risks, volatile commodity prices, and persistent cost-of-living pressures are challenging that outlook.
Manufacturers are already feeling this impact. They face mounting input cost pressures driven by higher oil prices, freight inflation and supply disruptions - forcing a sharper focus on inventory discipline, supplier diversification and exchange-rate risk management.
South Africa’s manufacturing sector showed modest resilience, with output rising 0.9% year-on-year in March but despite this, manufacturing output still declined by 1.0% quarter on quarter, signalling the recovery’s fragility.
What manufacturers should consider is that margin protection now depends on how well they manage inventory, input costs, and supply continuity. Some businesses are already responding by front-loaded stock to avoid losing customers when supply is disrupted. The blockage of key shipping routes including the Strait of Hormuz, responsible for about 20% of the world's oil – has highlighted the scale of exposure. Others are reassessing their inventory costing models to absorb rising replacement costs more effectively. In this environment, preparation matters.
According to Investec, manufacturing remains highly exposed to imported raw materials, transport costs and currency volatility. Oil prices have surged over $100 per barrel during recent conflict, adding pressure on the rand, ultimately impacting local firms that rely on imported inputs. The knock-on effects however extend across the manufacturing base.
A further concern for manufacturers and retailers is fertiliser disruption. Gulf producers account for a substantial share of globally traded urea and other fertiliser inputs, raising the prospect of higher agricultural costs and, ultimately, further food price pressure if shipping disruptions persist.
There is usually a delay from when the initial shock is felt to when manufacturers fully feel the impact in factory pricing. Businesses may still be working through stock bought before the latest escalation, but once that inventory runs down, higher replacement costs start to feed through quickly. That is why we are seeing front-loading of orders and a much sharper focus on stock planning.
At the same time, from a logistics standpoint, concerns are mounting as manufacturers are contending with rising sea and air freight costs, shifting cargo capacity and higher fuel surcharges. For sectors reliant on time-sensitive imports, these logistics costs can quickly bleed margins and disrupt customer fulfilment.
In response, businesses are being urged to take proactive steps. This includes reviewing inventory policies, identifying alternative suppliers and taking advantage of periods of rand strength to lock in favourable exchange rates. Tailored treasury and working capital strategies are also becoming critical as firms navigate increasingly volatile conditions.
This market is defined by risk and uncertainty, and businesses cannot remain stagnant. Instead, they must act. Businesses that survive, protect their margins effectively by staying close to their cost base, keeping stock available for customers, and moving early when market conditions improve. In a period of uncertainty, disciplined planning is most certainly a competitive advantage.
Dr. Greg Cline, Head of Portfolio Management at Investec
