Current News

THE SOUTH AFRICAN STORY

PUBLISHED: Insight Special Edition, Private Equity in Sub-Saharan Africa.  EMPEA.  November 2010

BY: Ngalaah Chuphi, Partner, Ethos Private Equity

Click here to download pdf version of The South African Story

Since 1994, South African government policies, fostering the creation of a more diversified economy and the introduction of black people into the mainstream of the economy have assisted in the creation of an emerging black consumer.

Rarely has an economy experienced changes as significant as those felt in South Africa in the past two decades. Since democratization in 1994, domestic growth in South Africa has been driven by the development of a well diversified economy and government policies that foster introduction of black people into the mainstream of the economy. As a result, marketers in South Africa and beyond are contending with seismic shifts in spending power, and increased participation by the black consumer segment has supported growth in several industries, including retail, manufacturing, services and housing. Furthermore, private equity fund managers with proven experience in these sectors are seeing increased deal activity and value creation opportunities.

Interestingly, these dynamic consumer trends are not restricted to South Africa only. Many South African retailers and manufacturers are looking to replicate, or have already replicated their local successes beyond our borders—using South Africa as a platform to capitalize on the broader Sub-Saharan Africa growth opportunity which is being driven by better macroeconomic management of those economies.

Investors in South Africa and further afield are well positioned to take advantage of this momentum but are pursuing investment strategies based on more than market growth alone. Rather, private equity managers are seeking opportunities for value creation underpinned by active ownership: identifying growth, optimization and efficiency improvements and defining and implementing strategies in partnership with management that deliver returns predominantly derived from revenue and earnings outperformance. In addition, active ownership entails entrenchment of best practice governance and compliance to meet maturing regulatory environments.

Despite the developments of the past two decades, Africa’s positively changing circumstances are, on the whole, not fully appreciated outside the region. The combined GDP of African countries reached nearly US$1.5 trillion in 2008, surpassing either India or Brazil, and certainly presenting attractive and compelling opportunities. Investors stand to gain from the “virtuous circle” in South Africa and beyond: robust consumer demand driven by a general increase in living standards stemming from the growing role new black consumers play in the broader economy.