The Southern African Venture Capital and Private Equity Association (SAVCA) welcomes the announcement that proposed changes to Regulation 28 will be published by National Treasury later this week for public comment, as outlined by Finance Minister Tito Mboweni during the National Budget Speech on Wednesday afternoon.  SAVCA has been advocating for changes to Regulation 28 as published in our paper in June last year, in order to support the country’s economic recovery.

The current Regulation 28 asset classes and ceilings acts as a constraint on asset allocation decisions, leaving investors potentially with inefficient portfolios. This is particularly the case when asset classes with uncorrelated returns and risks, stemming from fundamentally different economic drivers, are grouped under a single threshold. Changes to Regulation 28 could provide pension funds with a higher degree of diversification, which would not only offer positive public benefits by improving the overall financial security of pension fund savers in the long run, but also provide much needed economic stimulus to the South African economy.

SAVCA is however, disappointed that the Section 12J VCC sunset clause is not being extended past 30 June 2021, essentially withdrawing the incentive in its entirety rather than amending the incentive to ensure National Treasury’s objectives are met. The Section 12J incentive has been very successful in raising funding from private individuals and corporates to invest into businesses meeting the Section 12J investment criteria as set out in the Income Tax Act.

This capital takes time to invest into qualifying companies and demonstrate the full benefits in terms of job creation and repayment of taxes to the fiscus. Following the incentive review, National Treasury missed the opportunity to refine the provisions in the Act to be narrower in scope and more targeted to high-risk investments, which aligns with their initial intention and where the funding shortfall for SME’s is the highest.  We also note the there was no alternative measures announced to support investment into SME’s in partnership with the private sector.  Investor sentiment and the impact on the SME funding ecosystem due to change in policy is likely to have lasting ramifications should National Treasury re-envisage investment into this segment of the market at a later date. 

South African technology entrepreneurs are already encouraged to set up their businesses in more start up-friendly investment jurisdictions to raise capital and advance market access. Throttling the South African venture capital asset class in the short-term may have the unintended consequence of missing out on future economic benefit when these high-growth businesses look to other ecosystems that embrace investors and start-ups alike. 

SAVCA welcomes continued engagements with National Treasury on the announcements made, as our objectives of job creation and economic growth for South Africa are aligned.

ENDS

About SAVCA                                                                                                                                             

The Southern African Venture Capital and Private Equity Association (SAVCA) is the industry body and public policy advocate for private equity and venture capital in Southern Africa. SAVCA represents in excess of R185 billion in assets under management through 170 members that form part of the private equity and venture capital ecosystem. SAVCA promotes the Southern Africa venture capital and private equity asset classes on a range of matters affecting the industry, providing relevant and insightful research, offering training on private equity and creating meaningful networking opportunities for industry players.

For more, visit our website: https://www.savca.co.za/

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