In an ESI Africa exclusive interview, Sholto Dolamo, head of resources at Public Investment Corporation, explains that venture capital in South Africa is lacking.
In order to boost long-term economic growth, investment with the right partnerships is essential to drive this type of start-up culture.
With reference to your keynote address where you spoke of the funding gap between R&D and commercialisation in South Africa – Please elaborate on this.
You will find that the majority of investment houses in SA do not have mandates that allow them to fund research investments; however, government puts a lot of money into research through universities and research institutions. The problem is that it ends there. Any start-ups must find their own way in terms of finding funds to commercialise.
Venture capital is not strong in SA. We realised one of the ways to contribute to the economy is to fund these tech-driven businesses, particularly those with strong Intellectual property, into full commercialisation and as they grow, they will be able to contribute to economic growth and job creation.
We have not invested in this space before and therefore partnerships with the right expertise are vital. These partnerships include tech companies, universities and other funders such as philanthropic and impact investors for example.
In order to make a positive impact on society as well as to generate a return, blending our capital with other types of capital is needed. Capital that perhaps does not need to generate a return or only the principle capital needs to be returned, these partnerships are important. We need to increase the pool of funds available.
How does this relate to infrastructure build in the energy space?
The idea is similar; however, there are very few investors who are willing to invest funds into project development capital, upfront risk capital. Few have this kind of risk appetite and many of these projects are not capital ready.
Someone needs to put the capital into these projects to make them investment ready, to attract different types of funders.
One of the ways we are trying to encourage growth in this sector is to encourage blended finance. Blending the capital also encourages the DFIs to invest.
Will we see more collaboration on cross-border projects?
I hope so. A few months ago, we invited many of the African DFIs to talk about a project pipeline to identify opportunities, potential partnerships and types of capital. It’s an on-going process to ensure the opportunity pipeline persists and grows.
Many African countries have signed up for the Africa inter-trade initiative and I am hoping these trade initiatives will gain popularity and open up this space.
From where we sit, most SA economists suggest growth will be less than 3% over the next three years. We are looking to expand our investments to the rest of the continent to circumvent the impact of this low growth on our portfolio returns.