Development finance investments (DFI) are meant for countries that are largely underdeveloped. South Africa is however facing a dilemma as it is also not attracting enough foreign direct investment flows.
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"Private equity foreign direct investment in South Africa is fairly invisible. South Africa which is the industry body for private equity has started doing a good job about building a public profile of private equity and highlighting achievements by companies in this space,” John Bellew, a partner and co-heads Webber Wentzel's Private Equity, told CNBC Africa.
“What we see are first time fund managers with a pan African mandate being able to attract development finance investment money.”
South African private equity funds with a local base are forced to work harder because DFI money is not accessible to them.
“A lot of money has been raised in the private equity space over the last five years. It is good foreign investment because when deployed the money generated helps in job creation compared to money deployed in the markets,” Bellew added.
Foreign direct investment flows to Africa increased nearly seven per cent to an estimated 56 billion US dollars last year. A fifth of that is reported to have gone to South Africa.
(READ MORE: Africa still an attractive FDI investment destination)
Hendrik Snyman, a private equity expert noted in the past that private equity money injects stimulus to economic growth.
“According to empirical evidence an increase in private equity investments of 0.1 per cent of the gross domestic product is associated with an increase in real economic growth of 0.2 per cent for buy-outs, 0.3 per cent for Venture Capital and more-so 0.96 per cent for early-stage investments in a sample of 15 countries over the period 1989 to 2009,” noted Snyman.
“South Africa’s formal private equity industry is focused on later stage investments with the increased competition forcing fund managers to return uncommitted capital. Consequently the industry is not aiding South Africa’s economic development.”
BY TRUST MATSILELE