Capitec and Pick n Pay eyeing South Africa’s hidden gem

However, with major companies like Pick n Pay and Capitec now moving into the space, opportunities are increasing for these businesses.

According to the Banking Association of South Africa (BASA), small, medium and micro-enterprises (SMMEs) make up an estimated 91% of formalised businesses in South Africa.

They employ about 60% of the labour force and have a total economic output that accounts for roughly 34% of the GDP.

However, despite how important these businesses are to the country’s economy, they face many challenges, particularly related to funding and scaling.,

Vantage Advisory’s AGA(SA), Managing Director, Luncedo Mtwentwe, said that only 25% of SMEs raise enough capital to scale. That means three out of four businesses are locked out of the funding they need to launch, hire or expand.

“Capital isn’t scarce in South Africa. Fundability is,” Mtwentwe said. “The truth is, most businesses aren’t investor-ready, and by the time they realise this, it’s often too late.”

While the recent repo rate cut by the South African Reserve Bank may offer marginal relief, Mtwentwe explained that it also signals a much-needed moment of reflection.

“We need to stop thinking of capital raising as a last resort. It’s not a lifeline but a leadership skill that must be developed early, long before cash flow runs out.”

According to Mtwentwe, one of the most common pitfalls is a reactive approach to funding. Often, entrepreneurs seek capital in a crisis.

This weakens their negotiating position and erodes investor confidence. “By then, it’s no longer about potential but about patchwork.”

Insights from the broader entrepreneurial ecosystem echo this concern. Key gaps continue to hinder SME investability.

Many businesses lack basic governance structures, financial clarity, and strong leadership teams. Others simply don’t know how to present a compelling investment case.

Access remains uneven, too, with geography and networks continuing to shape which businesses gets funded and which don’t.

Mtwentwe noted that he’s come across several founders who have resorted to raising capital abroad because they lack the connections or co-founders with the right credibility in South Africa.

For small businesses that aren’t located in the “right province”, they can pretty much forget about raising funding.

Pick n Pay and Capitec opening the taps

The problem is that, although there is capital flowing into Africa, a lot of it is skipping over South African start-ups.

According to investment professional Zama Khanyile CA(SA), who spoke on the SAICA Biz Impact podcast, investors favour more mature ventures in countries like Kenya and Nigeria.

“If we want to attract that capital, we need to get better at telling our impact story, not just our profit potential,” she said.

However, there are opportunities for small businesses in South Africa. There’s growing recognition that fundability isn’t about being perfect but about being prepared.

Even with limited resources, startups can lay essential groundwork by building lean systems, documenting growth plans, and using limited capital smartly.

“Too many businesses are still hoping to get funded on the fly without adequate preparation, with a last-minute pitch deck and a vague idea,” Mtwentwe said.

“But funders aren’t just buying your product; they’re investing in your team, your traction, your tech, your discipline, and your vision.”

Increasingly, large corporations and financial institutions have started recognising the importance of small businesses for the local economy.

This includes Pick n Pay’s Enterprise and Supplier Development (ESD) strategy, which supported over 150 SMMEs directly and nearly 1,000 through procurement and services in 2024.

“When you give small businesses access to market and meaningful support, they don’t just survive, they thrive and uplift communities,” said Vaughan Pierce, Head of ESG at Pick n Pay.

“They become innovators, job creators, and long-term partners in building a more resilient economy.” He pointed to Comessa Food Services, a local family-run bakery that joined Pick n Pay’s supplier programme in 2010.

“What started as a small husband-and-wife operation has grown into a thriving business employing over 100 people,” Pierce said.

The business now supplies hundreds of Pick n Pay stores with tortilla wraps, naan breads, rotis, pizza bases, and pita breads, including products under the PnP private label range.

“This is just one of many success stories. With the right mentorship and access to market through our shelves, small suppliers are not only able to innovate but also scale significantly.”

Capitec also plans to target its business services towards small, micro, and medium-sized enterprises (SMEs), specifically focusing on the informal market.

At a recent media day event, the bank revealed that 82% of its business banking clients are also personal banking clients.

The bank has 218,207 business banking clients. Of these, 43,727 are new business accounts opened within the past three months. Capitec said its services could fit the needs of over 3 million SME’s, of which 72% are informal.

South Africa’s informal market primarily comprises small and medium-sized businesses, typically owned by individuals, and is largely overlooked in the country’s banking sector.

Even though the market is valued at over R900 billion, it is incredibly difficult to penetrate. This is largely due to how little data is available to give larger corporations insight into the size and needs of businesses in the informal market.

Issued on Daily Investor by Kristen Minnaar | https://dailyinvestor.com/business/92012/capitec-and-pick-n-pay-eyeing-south-africas-hidden-gem/