Emerging Markets category

Changes in legislation make South Africa an attractive base for foreign Private Equity funds

November 15, 2020

An article by J-P Fourie, Executive Officer, SAVCA

J-P Fourie, Executive Officer SAVCA will be speaking at SuperReturn South Africa 2010

South Africa can be seen as a gateway for private equity funds looking to harness the potential of the African continent.  To enhance the attractiveness of the country as an investment hub for local and foreign managed funds, the South African government is creating a more competitive legislative environment for private equity funds.

The South African industry is already a vibrant one with more than US$14 billion of funds under management and a large proportion of locally based fund managers are actively shifting focus to the continent, and in particular sub-Saharan Africa, for deal activity.

At the Southern African Private Equity and Venture Capital Association (SAVCA) we are working closely with the government to ensure that South Africa can provide foreign investors with an appealing base for pan-African investment.

Exchange control regulations have been relaxed for local private equity funds.  The need for Reserve Bank approval on a deal by deal basis for transactions outside of the common monetary area of South Africa, Namibia, Lesotho and Swaziland has been eradicated.  Now, private equity funds are only required to gain upfront approval for foreign investment and thereafter provide annual reports on the fund’s draw downs and realisations.

As it stands now, South African firms must set up dual fund structures (with local and offshore entities for each fund) to avoid subjecting their international investors to local taxation. This arrangement hikes administrative costs and forces the offshore entities to obtain exchange control approval for every investment made by the dual fund.  New legislation will now allow non-residents to invest directly in South Africa-based funds without establishing a taxable local presence, and make room for private equity firms to locate more senior staff in South Africa. This kind of safe harbour tax environment will make South Africa a more attractive private equity hub for the growing number of investors and fund managers interested in Africa.

The local private equity industry has weathered the financial crisis well with very little distressed debt in comparison to other markets; due predominantly to the lower levels of gearing in our local deals. On a macro level, the economy is recovering well and is expected to grow more than 2.3% in 2010 thanks to sustainable fiscal and macro-economic policies, a robust and well regulated financial services sector and a central bank that acted swiftly to avert complete melt down. Of course the infrastructure spend for, and foreign currency in-flows from the Fifa Soccer World Cup haven’t done the country any harm either.

As an investment destination, South Africa offers foreign fund managers a favourable environment based in the continent’s largest and most vital economy.

J-P Fourie will speak Superreturn Africa on Wednesday 1st December at 14:30 on ‘An Evaluation of Private Equity in South Africa: Valuations, Deal Flow and Exits - Where can you find value in this market now?’

About J-P Fourie

J-P Fourie joined the Southern African Venture Capital and Private Equity Association (SAVCA) in 2006. Previously, Fourie was a member of SAVCA executive in his capacity as a representative of the Johannesburg Stock Exchange, where he managed the strategy team. J-P is responsible for the management of all the affairs of the association, and delivery on various strategic initiatives which include access to capital and the promotion of the asset class. He is responsible for the promotion of the South African industry on a larger scale, and positioning SAVCA as the authoritative and representative body for the private equity and venture capital industry in South Africa.

 

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