The global private equity (PE) and venture capital (VC) landscape continues to face significant challenges, with lower levels of fundraising and subdued deal activity in 2024 compared to 2023.

Despite these macro headwinds, the Southern African private capital market demonstrated resilience, buoyed by record levels of fundraising by PE firms in 2023, sizeable investments across sectors, and opportunities in high-growth sectors such as energy and fintech.

Impact investing has gained significant prominence this past year, as investors increasingly seek to balance social and environmental impact with achieving financial returns. General partners have demonstrated their commitment in this regard by embedding ESG into their firms and portfolio companies.

In terms of VC activity, co-investments emerged as a significant feature, highlighting the collaborative nature of the sector. Southern African PE managers also attracted considerable foreign capital, particularly from European development finance institutions. Furthermore, private debt has continued to gain traction as an asset class, reflecting a divergence in investment strategies seen across the continent.

Challenges in 2024

Persistent global challenges weighed on investor sentiment, resulting in noticeable hesitation to make substantial commitments on the continent. While the full impact on the Southern African region remains to be seen, this cautious approach has undeniably influenced investment flows.

Exits remained a challenge, despite reaching their highest levels in five years during 2023 (R21.3-billion). South Africa’s muted economic growth, compounded by systemic issues such as load shedding, transport constraints and the lingering effects of state capture, has placed significant pressure on the growth of businesses. These challenges have contributed to subdued PE performance, with pooled internal rates of return (IRR) yet to recover to pre-2016 levels.

To unlock the potential of private capital in Southern Africa, sustained political stability and effective policy implementation are critical. The momentum introduced by the recent government of national unity (GNU) offers a valuable opportunity to build investor confidence, but execution will be key to maintaining this optimism.

An enabling regulatory environment for start-ups is equally important. High-growth businesses hold the potential to drive economic recovery, but they require supportive policies to attract capital and achieve scale.

The introduction of the two-pot system in South Africa this year marked a significant shift in the financial landscape. Allowing citizens to withdraw approximately R22-billion from retirement funds, this system provided a much-needed lifeline for households struggling with rising costs, while preserving long-term savings.

Looking ahead, the two-pot system has the potential to streamline capital allocation, particularly for institutional investors. By ensuring liquidity needs are met through dedicated short-term provisions, this framework may facilitate greater investments in longer-term asset classes.

Energy, tech and beyond

As mentioned, the energy sector remained a focal point for PE investment in 2024, driven by structural reforms and the region’s transition to sustainable energy solutions. On the VC front, fintech, software and e-commerce continued to attract significant investment. Globally, emerging areas such as cleantech and biotech have started to gain traction, signalling potential opportunities for local adaptation.

Artificial intelligence is also set to disrupt traditional industries in Southern Africa. While its growth may be constrained by the availability of capital, the technology’s transformative potential cannot be overlooked. Similarly, green hydrogen production and infrastructure development present promising opportunities for institutional capital to drive sustainable growth.

Southern Africa has all the building blocks for substantial growth: a growing middle-income population, good internet connectivity, rich natural resources and trillions of rand worth of institutional capital seeking financially sound and impactful investment. Realising this potential, however, will require intentionality in investment strategies.

As we look towards 2025, the resilience demonstrated in 2024 provides a strong foundation. With collaboration, innovation and a commitment to reform, the private capital sector is poised to play a pivotal role in shaping a more sustainable and prosperous future for Southern Africa.