Southern African infrastructure and energy were key investment areas for private equity (PE) firms over the past year, with a 21% increase in PE fundraising in the region.

Chief executive of the Southern African Venture Capital and Private Equity Association (Savca), Tshepiso Kobile, says PE firms have not only achieved decent exits (which grew in value and number) but also helped their investee companies to navigate the volatile environment.

“We are encouraged by the positive sentiment in the market, with a sizable number of Savca members expressing optimism that the remainder of 2023 will see a healthy amount of deal flow. 

“Interestingly, our findings were that while large funds (with funds under management of more than R5-billion) contributed the most to the increase in investment projects, PE firms with less than R500-million funds under management were also active,” she says.

According to a Savca industry survey, this year marks the return of investment into the sector to pre-pandemic levels, with 34.7% of investment having gone into infrastructure in 2019.

Typically, secular sectors such as infrastructure have proven robust and can preserve value, despite fluctuations in the broader economic landscape.

Executive director and fund principal of Mahlako Financial Services, Mitesh Pema, says the sector has and continues to present a huge opportunity for investors due to the significant gaps that exist in the region. 

“Energy, logistics, transport and telecommunications, in particular, are key infrastructure areas where capital allocation can and is making a significant difference on the ground. Investors need to be mindful that patient capital is key when it comes to infrastructure, as it does not convert as timeously as other investments. 

“However, the positive impact they will and can have on the broader economy and society is well worth the wait,” he says.

Energy supply crisis

Energy emerged as the second most prominent investment sector,  garnering more than 16% of total investment. Investment into energy and related sectors is likely to continue on an upward trajectory, as South Africa, in particular, continues to grapple with an ongoing energy supply crisis.

“While load shedding, which has undermined the path towards post-pandemic recovery, remains one of our most pressing infrastructure issues, we are acutely aware of the need for progressive policy development and funding interventions to address water and logistics sub-sectors,” Kobile says. 

“Against the backdrop of the amendments to Regulation 28 of the Pension Funds Act, which most survey respondents expect to translate into increased allocations in the next 12 to 24 months, PE has a golden window of opportunity to take up space within traditional investment portfolios, given its diversification benefits.”

Savca’s statistics tie in with a recent UN Environmental Programme (Unep) report which showed that Africa has the potential to become a trailblazer in renewable energy solutions, with abundant solar, wind, hydro, biomass and geothermal resources that could contribute to a 6.4% increase in GDP from 2021 to 2050.

Ocean renewable energy is a vast untapped resource for Africa, with the potential to generate between 100 to 400% of current global energy demand.  

Unep says businesses in the energy efficiency sector can provide products and services such as lighting systems, smart buildings and efficient industrial processes.  

Rose Mebwaza, Unep director and regional representative for Africa, says significant reserves of critical minerals like copper, graphite, lithium, molybdenum, nickel, zinc, bauxite, cobalt, manganese and platinum – handled responsibly – make Africa essential for electric vehicles, solar PV cell technology and wind turbines. DM