Q1 2020 - (released May 2020)

SA's quarterly Private Equity & Venture Capital magazine

Local and international news

After experiencing accelerated growth for the last three years, sub-Saharan Africa is expected to go deep into contractionary territory in 2020. Highlights from the SAVCA 2020 Private Equity Industry Survey, however, indicate that the private equity industry remained resilient in the face of weak macroeconomic circumstances during the 2019 calendar year, which bodes well for the industry’s ability to navigate the COVID-19 crisis.


This is according to Tanya van Lill, CEO of the Southern African Venture Capital and Private Equity Association (SAVCA), who was speaking at the survey launch. “There’s no denying that the first half of 2020 has been a total whirlwind, but this latest survey – albeit based on 2019 data – provides useful insight into industry trends and signals the valuable role that private equity will play in the region’s economic recovery.”


Notably, van Lill highlights a significant increase in funds under management. “The private equity industry had R184,4bn in funds under management (FUM) at 31 December 2019, up from R171bn in 2018, representing a compound annual growth rate (CAGR) of 9.2% since 1999 when the survey first began.


“This increase in FUM is a positive indicator for the industry, as it should lead to increased investment into the region,” she explains, adding that despite Southern Africa’s tough economic conditions over the past few years, the industry was still able to raise R21,7bn in 2019 – an impressive 69.5% more than the R12,8bn raised in 2018. 


“This strong fundraising activity is indicative of the fortitude exhibited by the private equity industry,” van Lill comments, adding that of the funds raised, R7,7bn (35.3%) stemmed from South African sources, with R3,7bn of total funds earmarked specifically for investment in South Africa. 


“The cost of investments in 2019 totalled R25.4bn – with the top sectors invested in being infrastructure and energy, followed by telecommunications, retail and real estate. Also interesting to note is that – as a proportion of investments made by cost – over 50% of the investments made were to support portfolio companies with expansion and development.”


Highlighting the significant surge in infrastructure investment, from 6.1% in 2018 to 34.7% in 2019, van Lill notes the positive knock-on effects this offers. “Private equity investment in African infrastructure has been an emerging theme over the past decade, with funds from various regions investing actively in infrastructure projects in the energy, transport and ICT sub-categories. 

The Section 12J Association of South Africa released a report to Parliament and National Treasury, outlining the results of the inaugural survey of its members which details the impact which the s12J incentive has had on the SA economy.


Dino Zuccollo, chairman of the 12J Association of South Africa says, “The 2020 s12J industry report demonstrates that the incentive has not only managed to create jobs, but it has done so more economically to the fiscus than other government-backed job creation incentives Through s12J, SMMEs are being meaningfully supported at a time when funding for these businesses has all but dried up. In the Association’s view, the survey findings make a clear case that the June 2021 s12J sunset clause should be extended until at least 2027.”


“In only five years, this tax incentive has grown into a mature and successful incentive. At February 2020, s12J has total assets under management exceeding R9bn, the bulk of which has been invested by SA’s high net worth individuals (57% of total investment) for a minimum of five years. This is particularly significant in the wake of the devastation caused by the COVID-19 pandemic, at a time when the majority of high net worth investor capital is being invested offshore.”


Of the R9bn raised, an approximate R5.5bn (or 59%) has been invested into more than 360 SMMEs, implying an average investment size of R15m per business. These businesses in turn support an approximate 10,500 jobs across a variety of industries including education, agriculture, renewable energy, hospitality and tourism, student accommodation and many others. 

International

AVCA launches inaugural report on venture capital in Africa  


The Venture Capital (VC) landscape in Africa has gradually evolved over the last two decades to become a recognised and definable investment theme, simultaneously attracting international investment to the continent while also encouraging the development of local venture capital firms and home-grown financing solutions. That’s the headline finding from the inaugural report on venture capital in Africa  released by the African Private Equity and VC Association AVCA.


The growth of PE and VC investment in Africa reflects the changing nature and scope of external flows to the continent, where foreign direct investment (FDI) has come to eclipse official development assistance (ODA). 


In 2012, 17 African countries recorded receiving more FDI than ODA, climbing to 26 countries in 2017 as investment activity on the continent continued to rise2. Africa’s robust macroeconomic growth, averaging 4.6% between 2000 and 2016, was a crucial driver of the continent’s VC industry; creating a positive economic environment that catalysed innovation, entrepreneurship and investment. Although Africa’s more recent economic growth has been lower than predicted, Africa’s GDP growth was above the world average in 2019 and it remained the world’s second fastest growing region. PE and VC funding in Africa has developed progressively, buoyed by this favourable economic outlook, the magnitude of the market, the growing middle-class consumer base and the fact that Africa is home to the world’s largest free trade areas.