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Q2 2023 - (released August 2023)

SA's quarterly Private Equity & Venture Capital magazine

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Unlocking opportunities: exploring the evolving landscape of private equity in Southern Africa

by Makole Mupita

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Private equity, previously seen as a specialised investment approach, has experienced remarkable growth in recent years, particularly in emerging economies like Southern Africa. The region has become an attractive destination for global investors, leading to the unlocking of new opportunities and a transformative shift in the private equity landscape. While the private equity space has historically been male dominated, lately, the landscape is changing to include women, and there is a noticeable shift towards greater gender diversity and inclusion within the sector.

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Southern African countries have become a highly appealing investment destination for private equity funds. The region’s attractiveness stems from a combination of factors, including its diverse range of sectors and favourable investment climate. Additionally, the region’s energy sector presents opportunities for investment in renewable energy projects, as there is a growing demand for sustainable energy solutions. Abundant natural resources, a growing middle class, and improving political stability have fuelled investor interest, making Southern Africa an attractive proposition for private equity funds. 

Private equity firms are recognising the untapped potential of the region’s markets beyond South Africa. Neighbouring countries offer significant growth prospects, due to factors such as an expanding consumer base, improving infrastructure, and favourable regulatory frameworks. By identifying and partnering with local companies with strong growth prospects, private equity funds are unlocking value and driving expansion in these untapped markets.

Private equity in Southern Africa is not solely focused on financial returns; it also plays a crucial role in addressing development challenges. By investing in sectors such as healthcare, education and renewable energy, private equity firms contribute to the region’s sustainable development goals. This impact investment approach is gaining traction among investors, who see the potential for both financial returns and positive social impact. The Mahlako Energy Fund, part of Mahlako Financial Services, aims to bring transformation to South Africa’s energy sector by promoting black economic participation and socio-economic development. The Fund’s primary focus is investments in gas, green hydrogen, renewable energy and energy services.

By investing in these areas, the Mahlako Energy Fund aims to contribute to the transformation of South Africa’s energy sector, ensuring energy security for the country. These investments will help to diversify the energy mix, reduce reliance on fossil fuels, and promote the use of cleaner and more sustainable energy sources. The projects funded through Mahlako ensure energy security for the country, while creating employment and advancing South Africa’s ‘Just Transition’ plan.

Technological advancements and innovation are reshaping the private equity landscape in Southern Africa. The region has witnessed a surge in tech startups and entrepreneurial ventures, particularly in sectors like fintech,   e-commerce and agritech. Private equity funds are actively seeking out innovative companies, providing not only capital, but also strategic guidance and operational expertise to fuel their growth. One of the projects under the Fund is the Prieska Power Reserve project, which has the goal of producing competitively priced green hydrogen and ammonia. The project recognises South Africa’s competitive advantage in the renewable energy market, and seeks to leverage it by positioning the country as a significant player in the global green hydrogen and ammonia markets.

 

Green hydrogen and ammonia are renewable energy carriers that can be used in various industries, such as agriculture, transportation, chemicals, and electrical backup generation. Prieska will also develop black and female industrialists within the green industry, create employment and develop small businesses, with the majority being black-owned. The project is an example of how rich the region is with opportunities for innovation, investment and sustainable development.

 

The integration of technology and innovation into private equity investments enables companies to scale rapidly and access new markets. Fintech startups are revolutionising financial services, providing innovative solutions for banking, payments and lending. E-commerce platforms are driving digital trade and transforming the retail sector, while agritech companies leverage technology to enhance agricultural productivity and food security. Private equity firms are capitalising on these opportunities, supporting the growth of technology-driven businesses, and positioning themselves at the forefront of industry disruption.

Successful private equity investments in Southern Africa often rely on strong local partnerships and collaborations. Recognising the importance of local knowledge and networks, many private equity firms are teaming up with local players to navigate the complex business environment and identify promising investment opportunities. These partnerships bring together global expertise and local insights, creating a powerful synergy that enhances investment outcomes.

 

Environmental, Social and Governance (ESG) factors are increasingly influencing private equity investment decisions in Southern Africa. Investors are placing greater emphasis on responsible investing practices, seeking opportunities that align with sustainable development goals and promote good governance, so private equity firms are incorporating ESG considerations into their investment strategies, driving positive change and long-term value creation in the region. At Mahlako, ESG principles are embedded in the investment philosophy of the Fund.

The Fund’s stringent investment decision-making process is followed with an intentional focus on ESG. As a 100% female-owned organisation with 65% of employees at executive level, Mahlako is ahead with transformation and promoting historically disadvantaged individuals through equity and board membership.

 

The organisation believes that transparency and accountability are essential to building trust with stakeholders, including investors, portfolio companies, and the communities which are impacted by the various investments. The Fund is committed to advancing economic transformation and meaningful economic participation of black people, particularly women and the youth in South Africa. By focusing on creating opportunities and promoting equity, the Fund actively contributes to the empowerment and development of marginalised groups in the country, and demonstrates a comprehensive approach to sustainable and inclusive investment practices.

 

By investing in companies that prioritise sustainability and social responsibility, private equity firms contribute to a more resilient and equitable future for Southern Africa. This approach not only benefits local communities, but also enhances the long-term performance and reputation of private equity investments.

 

Mupita is an Executive Director and Fund Principal for Mahlako Financial Services.

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