Southern African Venture Capital and Private Equity Association (Savca) says South Africa’s private capital market has demonstrated remarkable resilience despite global economic challenges.

The industry body adds that 2024 marked a transformative year for the region’s private capital landscape, with exciting developments in the energy, financial technology and impact investing sectors.

Impact investing has gained significant prominence this past year, as investors increasingly seek to balance social and environmental impact, with achieving financial returns.

General partners have demonstrated their commitment in this regard by embedding environmental, social and governance (ESG) into their firms and portfolio companies.

In terms of venture capital activity, co-investments emerged as a significant feature, highlighting the collaborative nature of the sector.

Savca says Southern African private equity managers also attracted considerable foreign capital, particularly from European development finance institutions.

Moreover, private debt has continued to gain traction as an asset class, reflecting a divergence in investment strategies across the continent.

CHALLENGES & OPPORTUNITIES

Savca explains that persistent global challenges weighed on investor sentiment this year, resulting in noticeable hesitation to make substantial commitments on the continent.

While the full impact on the Southern African region remains to be seen, this cautious approach has undeniably influenced investment flows.

Exits remained a challenge, despite reaching their highest levels in five years during 2023 at R21.3-billion.

South Africa’s muted economic growth, compounded by systemic issues such as loadshedding, transport constraints, and the lingering effects of State capture, has placed significant pressure on the growth of businesses. These challenges have contributed to subdued private equity performance, with pooled internal rates of return yet to recover to pre-2016 levels.

To unlock the potential of private capital in Southern Africa, sustained political stability and effective policy implementation are critical, Savca emphasises.

The momentum introduced by the Government of National Unity offers a valuable opportunity to build investor confidence, but execution will be key to maintaining this optimism.

An enabling regulatory environment for startups is equally important, Savca motivates. High-growth businesses hold the potential to drive economic recovery, but they require supportive policies to attract capital and achieve scale.

Further, the introduction of the two-pot system in South Africa this year marked a significant shift in the financial landscape.

With citizens withdrawing about R22-billion from retirement funds, this system provided a much-needed lifeline for households struggling with rising costs, while preserving long-term savings.

Looking ahead, the two-pot system has the potential to streamline capital allocation, particularly for institutional investors.

By ensuring liquidity needs are met through dedicated short-term provisions, this framework may facilitate greater investments in longer-term asset classes.

As mentioned, the energy sector remained a focal point for private equity investment this year, driven by structural reforms and the region’s transition to sustainable energy solutions.

On the venture capital front, financial technology, software and e-commerce continued to attract significant investment.

Globally, emerging areas such as cleantech and biotech have started to gain traction, signalling potential opportunities for local adaptation.

AI is also set to disrupt traditional industries in Southern Africa.

While its growth may be constrained by the availability of capital, the technology’s transformative potential cannot be overlooked.

Similarly, green hydrogen production and infrastructure development present promising opportunities for institutional capital to drive sustainable growth.

Savca says Southern Africa has all the building blocks for substantial growth: a growing middle-income population, good Internet connectivity, rich natural resources, and trillions worth of institutional capital seeking financially sound and impactful investment.

“Realising this potential, however, will require intentionality in investment strategies.

“As we look towards 2025, the resilience demonstrated in 2024 provides a strong foundation. With collaboration, innovation and a commitment to reform, the private capital sector is poised to play a pivotal role in shaping a more sustainable and prosperous future for Southern Africa,” Savca concludes.