Taxpayers foot the bill for construction mafias in South Africa

South African taxpayers bear the brunt of the damage caused by construction mafias in the country, as essential infrastructure projects are delayed or remain incomplete.

This is according to legal firm Cliffe Dekker Hofmeyr’s director of dispute resolution, Sentebale Makara, who said the construction mafia is a real threat to construction companies and vital infrastructure development across South Africa. 

The term ‘construction mafia’ is very broad but widely refers to the extortionist groups in the build environment sector that subvert procurement law and procurement protocols in projects to arrest subcontracts and participation in the project value chain. 

They do so on the premise that there is a legislative requirement – set out in the Preferential Procurement Regulations – that 30% of public sector projects must be subcontracted to local participants.

“In recent circumstances, the Mafia has evolved into not necessarily being bothered with actual work, but rather through extortion of demands for security contracts or even trying to elicit project protection fees from construction companies, contractors and employers,” he said.

This has led to several construction projects simply never being completed or being completed poorly, resulting in billions lost.

Makara said the industry has suffered billions in losses from construction projects halted or stopped completely due to construction mafias.

For example, as early as 2019, about R60 billion in losses were caused, with over 180 construction and infrastructure projects halted or disrupted at any given time during the assessment period. 

“This has obviously significantly escalated over the past few years, and the end user, being the taxpayer, mostly has suffered as projects become expensive and delayed indefinitely in circumstances where the infrastructure is much needed,” he said.

“Poor workmanship and unfinished projects are some of the issues that plague these targeted projects.”

A senior associate in CDH’s real estate law practice, Lulama Lobola, recently told Business Day that the impact of these groups has had a “chilling effect” on investment in the real estate sector.

He said they have seriously damaged South Africa’s real estate sector, driving up costs, delaying projects, and deterring investments.

“Both local and international investors are wary of committing funds to projects that may be subject to extortion or disruption,” Lobola told the publication.

“This hesitation affects the availability of capital for new developments and can slow down the growth of the sector.”

Other sectors affected

While the construction mafia originated in KwaZulu-Natal, it has since expanded its reach beyond the province and the construction sector. 

In particular, these groups’ practices have infiltrated the mining industry, with extortion groups demanding payments from companies in exchange for not disrupting operations. 

This practice threatens to spread to other sectors of the economy, causing significant damage to economic value. 

The construction sector itself has been severely impacted, with a 44% decline in size over the past six years due to rising crime and corruption.

The construction mafia’s expansion into the mining industry is particularly concerning due to the sector’s vital role in South Africa’s economy. 

Mining is a major source of revenue and employment, and disruptions to production can have far-reaching consequences. 

The mafia’s extortion tactics can increase mining companies’ costs, which may ultimately be passed on to consumers in the form of higher prices. In addition, it can deter investment in the sector.

WBHO chairman Louwtjie Nel said there is an urgent need for South Africa to prioritise upholding the rule of law. 

“The adverse effects of not doing so are becoming increasingly obvious,” Nel said.

“Crime and corruption function as significant deterrents to business and investor confidence, demanding swift and decisive action.”

“We strongly urge the government to combat the growing tide of criminal extortion and corruption that is affecting South African society, particularly within the construction sector.”