Rand and dollar notes

24 May 2024

Investors wait on South Africa’s sidelines

While there’s a lot of uncertainty in the short term for the private equity market, a medium to longer-term view suggests that there’s a great deal of promise for the sector.


Any discussion on the outlook for private equity usually centres on the economic and interest rate cycle. Uncertainty about the cycle has certainly been top of mind for the global private equity industry this year, with global fundraising down 10% in the first quarter of 2024 in the face of interest rate uncertainty, according to Private Equity International.

But it’s not just the economic cycle that’s weighing on the private equity market this year. A series of global conflicts with the threat of escalation is also blurring the outlook, and if that weren’t enough, more than 40 countries around the world (roughly half the world by population) have gone or are going to go to the polls this year. This includes major countries such as India, the UK, the US, and, of course, South Africa. All of these have the potential for the kinds of policy changes that make investors nervous.

Listen to podcast: Global elections - an investment perspective

In South Africa’s case, uncertainty about the elections this month, which could see the ruling ANC lose its outright majority, has added to the impact of high global interest rates and a strong US dollar to keep cash on the sidelines.

It’s no surprise then that investors, particularly foreign investors, have remained on the sidelines, waiting to see how matters unfold.

Given these uncertainties, it’s difficult to make a call on whether undeployed cash will quickly translate into committed capital once the dust settles after the elections.

An ANC majority, or a number in the high 40s that would allow the ANC to go into coalition with smaller parties, would ensure continuity, but a lower percentage (in the low 40s) would drive the ruling party to team up with larger parties, with the potential for even more uncertainty.

Rishanth Pillay
Rishanth Pillay, Head of Sponsor Leveraged Finance, Investec

Notwithstanding the outcome of the elections, the global economic and interest rate cycle, especially in the US, will continue to have an important bearing on events closer to home.


Earlier this year, expectations were that US inflation would fall sharply with the Fed forecasting three interest rate cuts across 2024.

With inflation remaining sticky these expectations have been pushed out until later in the year, with some economists only forecasting rate cuts to start towards the end of the year or early next year.

This delayed outlook for interest rates has meant that the US dollar has remained stronger and US long-term interest rates higher, thus pushing out expectations of rate cuts in South Africa as well.

What does this mean for the local private equity market? For the time being, it should mean that foreign investors will stay on the sidelines, seeking out opportunities in other markets, such as North Africa, India and South America.

The action for now is therefore likely to be limited to special situations (or ones where international houses are happy to take a view) until a positive, market-friendly catalyst emerges out of the elections.  

This means that, for now, little activity is likely to be seen in interest rate-sensitive areas such as traditional manufacturing, retailing and construction, where low multiples reflect the lack of confidence in the sectors. 


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Where opportunity lies

Nonetheless, there are some clear areas where activity should remain strong, such as in digital infrastructure, where there are clear cash flows for investors looking for consistent annuity-type income.

The recent sale by Actis of fibre business Octotel, as well as Actis’ purchase (as part of a consortium with Royal Bafokeng Holdings) of Telkom’s Swiftnet, are good examples of such transactions.

Should the good-news scenario on the political and interest rate front play out over the next 6 to 12 months, markets can look forward to a pickup in activity, most likely led by the following:


Further action taken by the government to engage the private sector in rebuilding South Africa’s power, transport and other infrastructure, should create new opportunities along the value chain.

Improved consumer and business sentiment:

As rates fall, opportunities should emerge out of interest rate-sensitive sectors such as retail, property and construction.

Growth in renewables:

Apart from direct and indirect investment opportunities in the sector and related sectors such as mining and alternative energy, the adaptation of renewables is already contributing to lower levels of loadshedding, which in turn is contributing to improved business continuity and should in time support business and consumer confidence.

Listen to podcast: South Africa's solar awakening

Private market appeal

Longer term, on the proviso that there is a cyclical improvement in South African markets and some level of certainty once the election dust has settled, the local private equity market is likely to benefit from the secular trends that have driven the market in recent years.

This includes the increasing interest shown by institutional investors in private markets as a way of diversifying portfolios, as well as a hunt for yield and a drive to fill “growth” / emerging market basket requirements. The increasing number of companies forgoing their stock market listings should support this.

South Africa has seen 18 listed companies go private over the last year but is by no means alone in this trend. The number of US-listed companies has halved this century, and the UK has lost about a quarter of its listed firms over the last 10 years.

This is a trend that we believe will continue to spark private market excitement, driving activity and interest in the South African private equity market once again.

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