Over the past decade the formal South Africa (SA) private equity/venture capital industry boomed, growing at an astounding pace.
Cheap and easily accessible debt, such as the pre-crash boom was characterized for, not only fueled entrepeneurial spirit but literally encouraged leveraged investment behaviour. In South Africa, such as in many other countries, the average "investor"/(speculator) did not need to take on excessive risk in order to generate great returns - at least they thought so. At some stage residential property values were increasing at an astounding nominal rate of 30% yoy. This meant that even the ordinary guy on the street suddenly became a "property investor" (SPECULATOR?) which in turn further fueled the fallacy of "rational" (The price will always rise) behaviour.
We all know what happened next. To get back to the topic at hand, the role of private equity in growing any economy is crucial and can not be ignored. An interesting statistic is that since 2005, up to 35% of all private equity funding in SA came from government sources (SAVCA). This is a positive sign that at least the SA government realises the importance of entrepreneurial funding in the fight against poverty and inequality.
The question on my mind is simple. Does African and specifically SA leaders/regulators/policy makers recognise the opportunities that this industry poses? Imagine the massive socio economic benefits to be enjoyed and shared, should an investment environment be regulated (deregulated?) in a way to create incentives conducive to mutually beneficial investment outcomes.
By protecting investors and showing respect for property rights through careful and diligent economic policies, government can succeed in actually shifting a large weight off it's own shoulders. Metaphorically speaking "passing on the ball (problem) to the wide receiver" - with the wide receiver being the private sector "catching the ball (opportunity)".
Given the cost and lack of debt financing under the current economic conditions, especially the latter, it only seems logical that private financing sources will play a larger and more substantial role in providing the African entrepreneur with that all so crucial seed capital. Lets hope every role player "get with the program" - FAST!
I completely agree. In the current climate however, cheap capital is not the only issue. Banks are practically granting it at a great price (compared to 5 and 10 years ago) – given that you qualify for it! The big problem is the amount of risk that financial institutions are prepared to take on. Governments globally can bail out as many economies and businesses as they want and fund entrepreneurial initiatives by the dozen, but if financial institutions are not willing to take a chance on prospective entrepreneurs, current businesses and individuals, no economy will grow consistently. I think Government, large multi-national corporations, and the private sector must establish 25-year, 50-year and 100-year goals for South Africa, and then adapt policy to shape the investment environment towards these goals. As you mention however, it is not all bad though. Government is spending millions on education and training, which I believe is the foundation for economic prosperity in the long term. These efforts will yield results, unless the current looting in government is not contained and eradicated.
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