Policies that boost growth are needed – study

Achieving stronger inclusive job growth is dependent on the creation of a policy environment in which private investment and private equity (PE) flourishes at higher levels, according to a leading economist.

Commenting on the latest survey by the Southern African Venture Capital and Private Equity Association (Savca) on the country’s economic prospects, Prof Raymond Parsons of the NorthWest University Business School, said the government of national unity has recognised the imperative of creating a conducive environment for growth.

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Policy needs to drive growth

“Levels of private capital involvement and economic growth are intertwined.

“According to National Development Plan, if SA wants economic growth rates well in excess of 3% per year, a total fixed investment, as a major engine of growth, needs to be closer to 30% of the GDP [gross national product]. It is presently only about 15% of GDP.

“In addition, private fixed investment has now declined for four successive quarters,” said Parsons.

According to a Savca study, SA’s economic growth “has been slow for a protracted period”. “This prolonged downturn has seen the country’s investment rate remain persistently weak, with government investment being in sharp decline since 2014 and 2015,” said the study.

“Banks and traditional finance providers tend to offer funding to relatively low-risk businesses.

“But in a socioeconomic climate in which the majority of ventures need funding at an early stage, intervention from venture capital investors who recognise growth potential and are willing to take on higher risk is imperative,” it said.

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‘Tried and tested models’ of promoting growth

Savca CEO Tshepiso Kobile said the phenomenon was “indicative of the role venture capital and private equity play in filling a gap in the investor mix, going beyond provision of capital and offering active ownership, mentorship, market access, growth and expansion opportunities”.

“They are tried and tested models to provide aspiring entrepreneurs a foot in the door and local businesses growth capital, thus supporting high-growth firms crucial for economic activity, job creation and innovation.”