South Africa
Answer ... With parts of the world, including South Africa, still experiencing the threats of the COVID-19 pandemic or further waves, the future investment landscape looks uncertain. The trend is for businesses and investors to reflect on the market, products and opportunities of the future. We are seeing businesses rethink how they operate and find ways to adapt to stay relevant.
Social, environmental and political awareness have increased in 2020. Impact investing and ESG (environmental, social and governance) factors are emerging trends. Family offices are increasingly playing a role in private equity in South Africa. As the younger generations come through the ranks, they will influence the types of investments that their offices make and are likely to shift the focus to include impact investing and ESG factors.
The increased revenues of those businesses that have thrived during the COVID-19 pandemic will not necessarily be sustained. Many of the businesses that have been negatively affected by the pandemic will recover, but some will take longer than others. In identifying potential targets, investors will have to test viability and sustainability and perform careful projections in anomalistic conditions.
In the current climate, given the low GDP growth environment facing the South African economy, investors will find value in businesses that have focussed on managing financial risks and return on capital, as opposed to simply growth in earnings. Ultimately, businesses will be assessed more holistically and those that are offering deep value, low business and financial risks, clear strategy, good governance and long-term prospects will stand out.
Given the macro environment in South Africa, foreign investors are often questioning whether to invest capital in South Africa, especially where returns may be impacted by a deteriorating local currency over the long-term. This has resulted in a reduction of capital into the local private equity market.