In recent years, there has been a growing interest in venture capital investments in startups in South Africa, particularly in the fintech industry. However, there has been a slowdown in the private equity sector since 2018, with a decrease in both the value and number of investments, as well as falling returns. This trend is likely to continue in 2023 due to the challenging global and local economy, as well as South Africa’s grey listing and ratings downgrades.
In an effort to stimulate investment and address this slowdown, amendments to the Pension Funds Act were introduced in January 2023. These amendments have the potential to increase investment in venture capital and infrastructure, which could provide a significant boost to the South African economy.
The new regulations allow pension funds to allocate up to 45% of their investments in South African infrastructure projects, up from the previous limit of 30%. Additionally, the amount of assets that pension funds can allocate to private equity has increased from 10% to 15%.
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These amendments are expected to have a positive impact on the venture capital industry, as well as on infrastructure development in South Africa. With increased access to funding, startups and other innovative businesses can grow and expand, creating new jobs and driving economic growth.
Furthermore, the expansion of infrastructure projects will help to improve the country’s physical and digital infrastructure, making it easier for businesses to operate and increasing connectivity and access to services for all South Africans.
Overall, the Pension Funds Act amendments are an important step towards improving access to funding for startups and infrastructure development in South Africa, and could have a significant impact on the country’s economic growth in the years to come.
Eskom Already Taking The Lead
The recent amendments to South Africa’s pension legislation have also impacted the Eskom Pension and Provident Fund, which is looking to diversify its investment portfolio and seek better returns by allocating $100 million to venture capital. The fund, which has assets under management of R185 billion ($10 billion), currently allocates two-thirds of its funds to South African stocks, property, nominal bonds, and inflation-linked debt.
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Despite this move towards offshore investments, the fund’s exposure to private equity currently stands at only 5 to 6% of its net asset value.
With the recent closure of South Africa’s largest venture capital fund, the Naspers Foundry, there is an increasing need for alternative funding sources for startups in the country.
African pension fund startups African pension fund startups
Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based lawyer, who has several years of experience working in Africa’s burgeoning tech startup industry. He has closed multi-million dollar deals bordering on venture capital, private equity, intellectual property (trademark, patent or design, etc.), mergers and acquisitions, in countries such as in the Delaware, New York, UK, Singapore, British Virgin Islands, South Africa, Nigeria etc. He’s also a corporate governance and cross-border data privacy and tax expert.
As an award-winning writer and researcher, he is passionate about telling the African startup story, and is one of the continent’s pioneers in this regard