Construction mafia weakens the foundations of South African economy

Last year, the World Bank published a report estimating the cost of crime in South Africa to be equivalent to about 9.6% of the country’s gross domestic product (GDP). This includes direct losses of 2.6% of GDP, 4.2% in expenses such as security and insurance, and 2.8% in opportunity costs.

According to the report, these resources could boost South Africa’s growth rates by at least one percentage point if invested productively.

Some of the data used for this calculation was an estimate of the impact of criminal extortion on businesses. Based on a 2022 analysis by Jenni Irish-Qhobosheane, the World Bank estimated this at 0.7% of South Africa’s GDP.

The comment said: ‘The construction sector faces particular extortion problems linked to well-organised mafias, sometimes called local ‘business forums’, who raid construction sites and demand ransom or a stake in development projects, often through violent means.’

The term ‘business forum’ has been adopted by networks of small, emerging and usually township-based businesses. These sometimes have legitimate links with the state and others, but in some cases they have taken on aggressive rent-seeking roles.

The so-called construction mafia emerged in 2015 around Durban. Local ‘business forums’ descended on construction sites and threatened violence unless their demands for money or jobs were met. The operations expanded to Gauteng and the Western and Eastern Cape.

The term ‘business forum’ has been adopted by networks of small, emerging and usually township-based businesses

There have been clear attempts to politicalize these activities. Early iterations coalesced into the Federation for Radical Economic Transformation (FFRET), which drew on a concept then invoked to justify extractive economic policies and the corruption that accompanied them.

Greg Ardé argues in an investigation for amaBhungane that the criminal economy of the ‘business forums’ would claim to have the protection of members of the political establishment – ​​for example, former eThekwini mayor Zandile Gumede (she denied this) – creating a symbiotic relationship between the two.

Beginning with these early attempts to associate themselves with political agendas and power brokers, the ‘business forums’ have gone on to acquire a veneer of social respectability. The FFRET, for example, renamed itself the Black Business Federation in 2020, at an event addressed by the KwaZulu-Natal MEC for Economic Development, Tourism and Environmental Affairs.

The mafias have increasingly framed their demands in reference to state policy. This is the idea behind the ‘30% requirement’ originally enshrined in the 2017 Preferential Procurement Regulations, which stipulated that 30% of state contracts worth more than R30 million (‘where feasible’) should be reserved for contractors covered by the empowerment policy (usually small businesses owned by black people or women).

Although it did not apply to private projects, it provided a pretext for exorbitant demands on private developers – the pattern was that ‘30%’ of the contract value had to be paid in cash or subcontracted to specific beneficiaries. Whether contracts were made with local companies other than those associated with the mafias was irrelevant.

Companies faced with these demands were inclined to give in. Attempts to seek legal or police protection proved largely fruitless, as interdicts were ignored and police action was ineffective.

South Africa needs to turn around its political and administrative culture, which has long tolerated the interplay between politics and crime

There are indications that the number of actual cases of violence has decreased, although this may also indicate that extortion has become the norm.

Chris Hattingh, head of the Centre for Risk Analysis, summarised the drivers of the construction mafia as follows: ‘Malicious actors recognise that there are opportunities to exploit weaknesses in governance and policing, and the decline in the capabilities, skills and work of local government, police and intelligence services.’

This has a clear economic cost: if we extrapolate the 0.7% estimate to last year’s GDP, it amounted to almost R49 billion. Furthermore, the threat of violence on construction projects is a constant pressure on those working on them – the fear of physical harm or their livelihood being destroyed.

For others, it’s an incentive to leave South Africa and offer their talents to countries where engineering and construction are safer. For those who can’t, with law enforcement ineffective in providing protection, it leaves an unattractive set of options: pay extortion fees, hire extensive private security, or take revenge.

Meanwhile, the mafias’ success in extorting one contract encourages it elsewhere. “Violence breeds violence,” says CEO Webster Mfebe of the South African Forum of Civil Engineering Contractors. “Once people have seen extortion methods produce results, they imitate the same tactics and strategies.”

Because construction provides the hard infrastructure that an economy depends on, crime targeting this has a negative multiplier effect. Since much of South Africa’s infrastructure needs upgrading, there are many opportunities for the country’s mafias.

What begins on the construction site does not end there; its costs are calculated and opportunities missed in a low-growth economy

The construction mafia represents a fusion of the worst impulses in South Africa’s political economy: acquisitive rent-seeking, the use of political connections, the bribing of governing institutions and the use of violence. Dealing with this requires both law enforcement and political will.

The failure of the state to exercise its authority is a deep-seated crisis, and this has fueled impunity. South Africa needs high-quality crime intelligence, a police service capable of enforcing interdicts, and a National Prosecuting Authority capable of swiftly and successfully prosecuting.

As an immediate measure, companies should be given incentives to hire private security in high-risk locations and work closely with the police to counter extortion attempts. A joint investigation and prosecution team should be established to bring a range of cases, both to disrupt existing mafias and to demonstrate the state’s resolve in the future.

This will need to be coupled with political leadership – mayors, MECs and ministers – making themselves visible and accountable in the face of extortion. Politicians involved should not only be prosecuted but also excluded from their colleagues.

South Africa also needs to turn around its political and administrative culture, which has long tolerated the interface between politics and criminality. It is unlikely that the construction mafia would have gained popularity if elements of the political elite had not implicitly or explicitly endorsed their demands. Or if individual politicians had not cooperated with them, others had appeased them and the general public had tolerated them.

The whole society has to respond. ‘There has to be support from local communities to work against these mafias – to make them understand that working with them is not in their interest,’ says Hattingh.

What begins on construction sites does not end there. The costs are being counted in an economy with low growth, missed opportunities and South Africa’s ongoing development malaise.

Terence Corrigan, Project Manager, Institute of Race Relations

Image: Arne Hoel / World Bank