Regime change

With Africa’s largest private equity market adjusting to the current downturn, the new South African president seeks to reassure businesses.

Recent presidential elections in South Africa are raising questions about what the new political and economic policies of Jacob Zuma will mean for the country’s growing private equity industry.

Zuma, who was sworn in as the country’s newest president after the ruling ANC party won 66 percent of the vote in elections on 22 April, has pledged to continue his predecessor’s conservative and fiscal monetary policies, strengthen partnerships between the government and private sector and look for new opportunities with foreign businesses.

Ngalaah Chuphi, a partner at South Africa-based Ethos Private Equity, said although the administration is still in its early days there have been some positive signs regarding choices for key ministries, including the appointment of former finance minister Trevor Manuel to run the newly created National Planning Commission, which will coordinate decision-making across the ministries. Other key appointments, including former deputy trade minister Rob Davies as new Minister of Trade and Industry, were seen as an attempt to reassure the business community.

“We think it is very positive that capable people have been brought into the ministries, as well as the sense of engagement between the various economic stakeholders,” Chuphi said. “The indications are that this will bode well for the future.”

He added that areas with increasing opportunities include retail, which has been driven by growth in the black middle class, and infrastructure-related companies. The Zuma administration has said it will create jobs by spending up to $80 billion over the next three years on infrastructure projects.

The South African Venture Capital Association and KPMG recently released a survey showing that funds under management in the country grew in 2008 past the R100 billion ($12.7 billion, €9 billion) mark for the first time ever, while R29.2bn has been committed by investors but not yet used for deals. But while the industry is better off than many other markets, South Africa has not been unaffected by the global financial downturn.

Another recent survey by Deloitte & Touche of local players showed that 64 percent of respondents said it was more difficult to raise funds, while 43 percent said they would focus most of their time on their portfolio companies. The firm also predicted that with few megadeals likely to get done, and little investment in start-ups, the mid-market space will see more activity, with investment especially focused on manufacturing, services, construction and telecom.