In finalising the data for this annual industry review, we were pleasantly surprised at the outcome of the research.
Though in 2008 the rest of the world fell into a financial tailspin, it appears the SA private equity and venture capital industry remained in a relatively healthy position. Though deal value and flow during the period under review were lower than the previous year, the industry still reported more than R20bn of investment activity.
The SA economy, in spite of facing tough times, is one of the few worldwide to be marginally shielded from the financial meltdown. This level of protection comes from our nominal foreign exposure but also some good policy decisions and a little luck.
On a macroeconomic level, we are also fairly well-off. Our banking industry remains robust; our banks are well regulated and their balance sheets are sufficiently capitalised. Inflation is forecast to start falling, allowing the Reserve Bank greater leeway with its monetary policy. Infrastructure spending also continues to be robust, as government is ploughing billions into improving the country's infrastructure and social services.
The tourism and service industries also face a year of good fortune, with SA hosting the Indian Premier League cricket and the Confederations Cup. Also, the British Lions will be touring the country. From these SA will get a chance to market itself as a place to not only play sport but also invest in.
However, in 2009 the drop in activity will continue. Though the economic outlook is uncertain, opportunities exist, especially for forward-looking managers who are not averse to risks.
As an industry, we have worked hard to make ourselves more accessible. Though equity remains cheaper than debt, private equity will continue to remain a popular asset class, despite the lengthy investment cycle.
Once we get through this economic crisis, of course, the world will look different. Investors are already demanding intelligent, lean and value-based opportunities. We foresee this driving a change in how the industry views investment opportunities, with greater interest in businesses that invest in research and development and ongoing innovation - good prospects for venture capitalists.
The time of mega-deals is also passed but the industry's greatest opportunity in 2009 lies in the midmarket.
Funding for seed and start-up capital will remain at current levels. Despite the negative media attention in the past year investments into BEE grew, and we expect this to continue in 2009.
Regardless of SA's economic "good fortune", the rules of our game have changed. The global financial meltdown has cast a dark cloud over the investment community. Now our industry needs, more than ever, to demonstrate relevance and value. With this in mind Savca, in conjunction with the DBSA, is conducting an economic impact assessment of the industry. The results, due for release in August, will assist Savca members to define the value they add to the SA economy.
Regulation will also change the face of our industry. But the industry will benefit from King 3 and the new Companies Act, which will entrench transparency and enhance perceptions of our industry. What we cannot anticipate is how the change of guard within the ruling party will affect economic policy.
JP Fourie is the SA Venture Capital & Private Equity Association executive officer
