South Africa has one of the largest economies in Africa, however, the recent underperformance of the economy has undermined its financial potential for economic growt

The recent emergency Budget presentation report that forecast no more than 2% annual growth for the SA economy in 2021/22 after falling over 7% in 2020/2021, investing prospects looks less than impressive. Despite this, the SA private equity sector provides high growth opportunities for investors.

The private equity market has proven in the past few years to be a good hedge against the listed SA market, as well as a good entry point to access the growth market. The SA private equity market has outperformed the listed market consecutively between the first quarter of 2014 and the first quarter of 2019.

The SA private equity market dominates in Africa. In 2019 it was reported that SA closed the largest share of private equity deals on the continent. Based on historical data, the SA private equity market shows prospects for continuous growth. There are three main investment vehicles that can be used to provide investors with exposure to the SA private equity market.

Section 12J vehicles were introduced in 2009 with the objective of using a tax to incentivise investors to finance venture capital in SA. Venture capital is a subset of the private equity sector. What characterises venture capital from other categories of private equity is that it is specifically intended to finance small and medium-sized enterprises and start-ups.

Section 12J venture capital companies (VCCs) operate under restricted restraints because they are heavily regulated. For example, the amount of capital that can be invested in a Section 12J VCC is capped. These compliance burdens have contributed to there being a limited rollout of section 12J vehicles. However, when compliance is attained under section 12J, there is a substantial tax benefit.

The benefit for investors with regard to a section 12J investment is the tax deduction that becomes redeemable. The investor is able to claim a return on their full investment and a tax deduction on the amount invested. This translates to an investor being able to receive a return of 100% of their investment but only having exposure on 55% of their original investment amount, this however decreases for taxpayers with marginal tax rates below 45%.

As the SA private equity market continues to grow and proves to be lucrative, it can be expected that we will continue to see developments in investment instruments that broaden access to invest directly or indirectly in the private equity market. Olive Venture Capital Company Limited is a registered S12J VCC targeting 17% per annum over 5 years with focus on a diversified portfolio that meets Islamic shariah compliance. Launched in February 2020, the company is offering investors an opportunity to subscribe to fresh issue of shares commencing on 3 July 2020, visit www.olivevcc.co.za to review the Prospectus and other relevant information