JAMES MAPOSA: How regional partnerships help benefit SA companies

According to the World Bank, IMF and UN, SA’s economy grew at a modest annual average rate of 0.3%-2% in 2021-23. In contrast, the Southern African Development Community’s (Sadc’s) economy expanded at a faster pace, with average growth rates of 2.5%-4%.

Leading economies within the Sadc, including Botswana, Mozambique, Zambia and Tanzania, experienced more robust growth of 3.5%-6%. Other countries worth noting are Angola (growth of 3%-4%) and Malawi (about 4%). Given these figures, the regional approach offers greater growth potential for SA businesses, particularly small and medium-sized enterprises (SMEs) looking to scale up in the next three to five years.

As the SA domestic market remains highly competitive and dominated by larger, more established enterprises, the Sadc region presents untapped opportunities for expanding businesses to grow sustainably. 

In SA’s mature and predominantly oligopolistic market, competition for limited resources is fierce, with procuring teams typically awarding opportunities to larger and more established organisations. For smaller enterprises this creates a tough environment where the odds of breaking through are slim.

The larger players are often seen as “safe bets” for procurement, meaning smaller companies will need to go the extra mile to prove themselves and avoid costly mistakes to stand a chance over the longer term. Given this context, many SMEs face barriers to growth domestically.

In contrast, the Sadc region offers a more favourable landscape for expansion. But this comes with challenges, including differing regulations, business environments, and sociocultural dynamics. Setting up in a new country involves significant costs, and mistakes in regional expansion can jeopardise not only the venture abroad but the company’s operations in its home market as well. For this reason, collaboration with local partners in target markets is crucial. 

Partnering with a local enterprise can provide an SA business with vital knowledge, networks and trust within the host market. By teaming up with a local partner SA SMEs signal their long-term commitment to the region (and host country) and create mutually beneficial relationships that support both businesses' success.

However, partnerships should be approached with care and thorough due diligence. Assessing the prospective partner’s track record and gathering referrals from trusted sources can mitigate such risks. It is also essential to carry out commercial, legal and financial checks to ensure a sound foundation for collaboration. 

Financing regional expansion is another critical challenge. While the Sadc has yet to establish itself as a cohesive trading bloc, making regional funding options limited, donor agencies now fill part of the financing gap. However, donor funding is finite and cannot support widespread growth.

SMEs seeking to scale must look to development financiers, despite most of these institutions preferring to usually lend to larger, established companies with proven financial stability. For smaller businesses, gaining access to capital for regional expansion requires presenting a compelling case for commercial viability. Companies must demonstrate solid revenues, profitability and the ability to repay loans.

In addition, securing guarantees from host markets can be complex, leading some businesses to seek funding within each country they plan to expand into. As a result, local partnerships will again be beneficial here due to them providing some of the local credibility needed to secure financing from host country banks or co-financing arrangements between regional and SA lenders. 

When expanding regionally SMEs should focus on their core strengths and adjust only where necessary. Trying to diversify too much in unfamiliar markets can lead to failure. Instead, businesses should leverage their existing success while tailoring their approach to local market nuances.

For example, a refrigerator manufacturer looking to expand into a regional market where most consumers are weekly wage earners might adjust their product mix to offer more units at affordable price points for these consumers. This adjustment ensures the company stays true to its core business model while catering to local market conditions. 

Given the Sadc’s diverse economic landscape, several sectors offer growth opportunities for SA businesses. These include: 

• Agriculture and agro-processing: Sadc countries are heavily reliant on agriculture and there is significant potential to introduce modern farming techniques, equipment and agro-processing capabilities. SA’s established agribusiness expertise can be leveraged to build scalable ventures across the region, where food security and value-addition are priority areas. 

• Renewable energy: With many Sadc countries facing energy shortages, the renewable energy sector provides the needed recourse. Scaling SA businesses can, therefore, provide solar, wind and other renewable energy solutions regionally, benefiting from lower production and import costs and favourable regulatory frameworks across some Sadc countries. 

• Light manufacturing and distribution: Manufacturing capabilities in SA can be used to produce goods that can be distributed across the region. By setting up local distribution hubs and manufacturing centres within neighbouring countries, companies can cut costs and serve regional markets more efficiently. 

• Retail and digital services: As mobile and internet penetration rises across the Sadc, digital services — particularly fintech, e-commerce and logistics — present opportunities. SA companies can offer scalable digital platforms that cater to regional consumers and businesses, expanding their reach beyond the local market.

Based on the above, focusing on regional opportunities in the Sadc presents a viable pathway for SA SMEs facing a depressed local economy. The region offers potential for growth across various sectors by leveraging SA’s strengths in agriculture, manufacturing and digital services.

Key to success will be strategic partnerships, securing adequate funding and remaining committed to core strengths while adapting to local market demands. As SMEs navigate these opportunities, learning from larger enterprises and following a carefully planned regional strategy will ensure sustained, long-term success. 

• Maposa is MD at strategic research and advisory consultancy Birguid.