Private Equity Inflow ’May Support Rand’

Thursday, October 5, 2006

PRIVATE equity investment flows into SA over the next couple of years are expected to help support the rand and partly compensate for a drop in foreign direct investment, according to experts.

Following a surge in investment over the past couple of years, driven by deals such as Barclays’ purchase of a majority stake in Absa and Vodafone’s purchase of a further stake in Vodacom, it was feared that foreign direct investment would dry up.

However, this could be supplemented by private equity flows, which will help to fund SA’s large current account deficit.

Rod Evison, Africa portfolio director for CDC, said an estimated R30bn-R40bn was available for private equity investment in SA. Research showed about 60%-70% of that would come from foreign investors, he said. However, due to the nature of the industry, the money would not be invested immediately but over the course of the next two to three years.

CDC is a development finance institution owned by the UK government. It invests in private equity funds in developing markets and poor countries.

Unlike portfolio flows into equity and bond markets, which can be short term in nature, private equity investments are generally longer term as investors exit their investments after five to 10 years. “That is a vote of confidence given that it is a long-term commitment,” Evison said.

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Source: Business Day (Johannesburg) (link opens in a new window)