Private capital markets are quietly transforming South Africa’s economic landscape, fostering growth and innovation where traditional finance and the public sector have struggled. From venture capital funding start-ups to private equity and credit supporting large-scale renewable energy projects, private capital has emerged as a driving force behind some of the country’s most promising ventures. But what exactly constitutes private capital, and how does it contribute to the broader economy?
Private capital markets refer to financial markets where companies raise funds through private channels rather than through public stock exchanges. These markets typically involve investments from venture capital, private equity, and hedge funds, targeting institutional investors, high-net-worth individuals, and accredited investors. Unlike public markets, private capital allows businesses to access financing without the regulatory demands of going public, making it particularly valuable for growing companies that are not yet ready to list. This flexibility is critical in driving entrepreneurship, innovation, and economic expansion, especially in emerging markets like South Africa, where many companies seek growth capital but are not ready for the scrutiny and costs of public markets.
The question then arises: Is private capital truly a viable engine of growth, and can it reshape economies in meaningful ways? South Africa provides a compelling case for how private capital can indeed be a catalyst for change. In a country facing persistent challenges—such as state-owned enterprises in decline, widespread corruption, and a fractured economy—private capital has shone through as a source of resilience and innovation.
One of the most visible areas where private capital has had a significant impact is in South Africa’s energy sector. The country’s energy challenges, most notably rolling blackouts due to Eskom’s inability to meet demand, have been a recurring issue. However, private capital has played a pivotal role in reducing the severity of the crisis. South Africa recently went over 150 consecutive days without load shedding, a stark contrast to previous years. This achievement is partly due to the rapid expansion of private sector investment in renewable energy projects. In 2023, South Africa installed nearly 3 GW of new solar capacity, far exceeding initial expectations. Much of this growth was driven by private sector investment, as mines, factories, and even households turned to solar power to mitigate the effects of load shedding. The surge in behind-the-meter solar power installations, alongside wind energy projects, has created surplus generation capacity at certain times of the day, relieving strain on the national grid.
This shift highlights how private capital can address critical national challenges in real time. By reducing reliance on Eskom’s aging coal-fired power stations, private investments in renewable energy are helping to build a more sustainable and reliable energy infrastructure. While state-owned enterprises like Eskom have struggled due to years of mismanagement and corruption, private capital has stepped in to fill the gap.
However, the success of private capital in this arena would not have been possible without public-private partnerships (PPPs). James McKay, CEO of the Energy Council of South Africa, emphasised the crucial role that business played in stabilising the energy sector through the Business for South Africa (B4SA) partnership. This collaboration, initiated in response to the country’s worsening energy crisis, was born out of necessity, as the government faced mounting economic and societal pressure following the July 2021 riots in KwaZulu-Natal and the escalating collapse of Eskom.
The partnership between business and government through B4SA was formalised as both sectors recognised the need for collective action to tackle the energy crisis. As Eskom’s performance continued to decline, business leaders worked alongside government officials to devise and implement strategies to rapidly mobilise capital, ensure accountability, and create transparency around energy plans. This cooperation extended beyond energy generation to encompass broader issues like infrastructure, logistics, and reducing corruption—factors that are all interconnected with the country’s overall economic recovery.
One of the key outcomes of this collaboration was the passage of the Electricity Regulation Amendment Bill, which is expected to further open the energy market to private investment. The bill is a legislative milestone in the ongoing unbundling of Eskom and aims to create a more competitive and diversified energy market. By fostering a regulatory environment conducive to private investment, the bill represents a significant step toward securing South Africa’s energy future.
Furthermore, the role of the Treasury in facilitating private capital investments should not be overlooked. The introduction of the Section 12BA tax incentive, which offers investors a 125% tax deduction on investments in renewable energy-generating assets, has significantly increased private sector interest in the energy market. This incentive has not only attracted capital but also spurred innovation among fund managers. Grovest, through its Twelve B Green Energy Fund, pioneered Section 12BA investments, making this tax benefit accessible to retail investors. This approach allows everyday investors to participate in and contribute to the much-needed transformation of South Africa’s energy sector.
The broader impact of private capital in this space goes beyond financing infrastructure; it is also driving policy reforms and improving governance. While business leaders may not be physically repairing power stations, their influence ensures that the government follows through on its commitments to economic recovery. By contributing capital, expertise, and oversight, the private sector has been crucial in steering South Africa toward a more stable energy future.
While significant challenges remain, the role of private capital in addressing the energy crisis demonstrates its potential to solve complex national problems. As South Africa continues to navigate its path to recovery, the partnership between business and government will be essential in tackling other critical issues such as transportation, logistics, and crime reduction. Private capital markets, through their ability to mobilise resources and drive innovation, have proven to be an indispensable force in reshaping South Africa’s economy.
In conclusion, private capital markets are playing an increasingly vital role in South Africa’s economic recovery. By enabling companies to access flexible financing, driving critical infrastructure projects, and fostering collaboration between the public and private sectors, private capital is not only helping solve today’s challenges but also laying the groundwork for a more sustainable and prosperous future.