As well as accounting for 65 percent of Southern African PE deal volume over 2014-19, the country of South Africa represented a substantial 17 percent of PE deal share across the continent. The rest of Southern Africa, excluding South Africa, accounted for 9 percent of Africa’s deal share over the same period.
In 2019, South Africa’s share of PE deal volume in Southern Africa stood at 73 percent. Yet the country is facing some headwinds. Alexia Alexandropoulou, research manager at the African Private Equity and Venture Capital Association, says: “The covid-19 outbreak and its impact on the country’s economic activity are likely to weigh heavily on the economy in the medium term. However, the government is trying to limit the effects of the pandemic on the economy by implementing various stimulus packages.”
Beyond covid-19, EMPEA manager of research Sabrina Katz points to regulation that might hamper local capital participation. “South Africa’s Regulation 28 would create an exposure ceiling for pension funds investing in alternative assets,” she says.
Regulation 28 of the Pension Fund Act specifies exposure caps for different asset classes, with PE currently grouped in the same bucket as hedge funds. In June, the Southern African Venture Capital and Private Equity Association called for amendments to the regulation, including separating PE into a specific asset class with its own cap, and gradually increasing this cap from 10 percent to 15 percent of assets.
While South Africa is the dominant PE market in Southern Africa, Alexandropoulou notes that investment patterns are diversifying as other countries in the region begin to attract investors’ interest. “There has been increasing interest in countries like Namibia, Mauritius and Madagascar, as South African PE firms set their sights beyond their borders and consider investment opportunities in neighbouring countries,” she says.
Mozambique’s share of Southern African PE deals grew from 3 percent to 6 percent between 2014-16 and 2017-19, while Namibia’s increased from 2 percent to 5 percent, according to AVCA data.