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Private equity in Africa is set to present significant opportunities, says CEO of the Southern African Venture Capital and Private Equity Association (SAVCA), Erika van der Merwe.
According to van der Merwe, sub-Saharan African is experiencing strong economic growth and generating robust returns. Private equity is under-represented in the region and is something that should be explored. This is backed up by the Search for Returns survey, which states that 80% of investors expect African private equity to outperform African-listed equity over the next decade.
South Africa has done well with private equity investments by delivering healthy returns. She believes the industry’s 30-year track record of exits and fundraising should play an important role in other African markets.
By mid-year 2015, the South African private equity industry delivered an internal return (IRR) of 21.7%, up from March 20.5% in March 2015. This is according to the latest RisCura-SAVCA South African Private Equity Performance Report. It compares to the 17.1% return from the FTSE/JSE All Share Total Return Index (ALSI) over the equivalent ten-year period.
“This is demonstrated by the emergence of specialist funds, dedicated to focused sectors, as well as by the trend towards the establishment of funds with a multi-country focus, with many new South African-managed funds now having a mandate to invest outside South Africa. Both of these factors are characteristics of a more developed industry,” van der Merwe adds.
Van der Merwe says South Africa’s track record with attracting funds in international investors means it is playing a larger players in drawing capital to the Sub-Saharan African region.
She goes on to say that by partnering with capital-rich projects, such as power plants, private equity is helping to boost productive capacity and economic potential. “Further, on a continent where capital markets are still in the early stages of development, private equity is an important source of capital and of strategic guidance to small, medium-sized as well as large businesses, across industry sectors.”
African private equity receiving further development should benefit economics on the continent and business from a governance perspective. “The SAVCA-DBSA Economic Impact Study (2014) — a survey conducted amongst companies into which private equity funds are invested — revealed that private equity drives good corporate governance (70% of respondents indicated that this was a key value add from their private equity partners) and is valued for its strategic guidance (62% of respondents). The survey also revealed that businesses reported notable employment gains during the private equity partnership (on average, up 40%),” concludes van der Merwe.