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Q2 2023 - (released August 2023)

SA's quarterly Private Equity & Venture Capital magazine


Navigating growth: assessing the potential of private equity investments in Southern African markets

by Thandiwe Nhlapho and Roxanna Valayathum

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Private equity is alive and well in Southern Africa. Activity in the private equity industry has grown sturdily over the past two decades, but not without challenges and risks in specific jurisdictions and sectors.

There have recently been trends to drive growth in the Southern African region which include, among others, portfolio diversification, legislative reform and environmental, social and governance (ESG) targets, and despite the challenges and numerous crises over the last couple of years, the region has proven resilient in most markets.


There is a heightened awareness of portfolio diversification, and local limited partnerships are looking to further understand private equity as an asset class as the industry grows. Among others across South Africa’s private equity market, one of the notable trends is acquiring and subsequently delisting struggling companies from the Johannesburg Stock Exchange (JSE). There have been a number of delistings from the JSE in the past 18 months, averaging about 25 delistings a year. These go-private transactions present further opportunities for the achievement of ESG targets that are not easily accessible for investors through listed or other structures. 

There is a growing focus among private equity investors on green, low-carbon, and sustainable initiatives across Africa, and the 2022 SAVCA Report found that ESG risks and opportunities are more strongly considered by private equity firms in Southern Africa than globally, as a result of strong influence by development financial institutions. A significant number of private equity firms in Southern Africa consider and recognise the importance of ESG factors when making investment decisions.

From a pension funds perspective, recent trends include increased private equity asset allocation by adopting the ceiling amendments. For instance, South Africa and Zimbabwe have increased the maximum exposure limit in private equity from 10% to 15%, while Zambia revised its threshold for the private equity asset class from 5% to 15%. Although this development alone may not necessarily translate into increased pension fund appetite for private equity, what could contribute to growth is assisting governments with the necessary experience in private equity to allow pension funds to diversify into private equity, and creating investment opportunities for private equity.  

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Some sectors have seen more growth than others. The growing sectors in the Southern African region include energy, fintech (as portfolio companies have increased their presence due to a highly tech-literate population), and e-commerce, as the general adoption of digital technologies increases. Healthcare, financial services and insurance are stronger in some parts of Southern Africa than others.

The challenges and risks associated with investing in the region include political instability and a lack of trust in government in countries such as Eswatini, South Africa and Zimbabwe, though the perceived political risk in Africa is greater than the reality. Other challenges include small markets with limited investment opportunities, such as Botswana and Mozambique. 

In some markets, these challenges and risks are being well managed. For instance, according to Deloitte’s Private Equity Review 2022, 41% of private equity firms in South Africa have prioritised risk management in portfolio companies.

The Southern African markets offer exciting opportunities for investors, and a recent AVCA survey showed that limited partnerships see opportunism in the private equity market in Africa for the medium-to long-term. 

Nhlapho is an Associate and and Valayathum a Director in CDH’s Corporate & Commercial practice.

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