The mafia that cost South Africa over R63 billion

Over the last five years, the construction mafia has cost South Africa a reported R63 billion. However, the true cost could be even higher.

South Africa’s construction industry is a critical part of the economy, contributing significantly to the country’s GDP and employing over 1.3 million people.

Unfortunately, the industry faces increasing threats from the construction mafia, which has disrupted over 180 projects worth R63 billion since 2019.

Ashor Nick Sarupen, second Deputy Minister of Finance, told The Money Show with Stephen Grootes that the real financial impact is “much bigger” than R63 billion.

Last year, the World Bank released a report estimating that the cost of crime in South Africa is equivalent to 9.6% of the country’s GDP.

This includes direct losses of 2.6% of GDP, 4.2% in expenditures such as security and insurance, and 2.8% in opportunity costs.

Many solutions have been proposed to curb this problem, such as better policing, including communities that live in the construction areas, and creating jobs.

“We certainly need to push for stronger implementation,” Sarupen said. “We need to send the right signals from the government. We need to make sure that people understand that there is zero tolerance.”

“And I think what we have seen is, because the Minister of Police and the Minister of Public Works have taken such a hard line on corruption site disruptions, we’ve seen a reduction.”

“But there is more that we need to do in terms of making sure that people understand the importance of sites.”

On the regulatory front, it’s essential to incorporate community participation and proper project planning into our systems and regulations from the start.

This would mean involving communities in the design projects themselves.

Sarupen explained that one reason the construction mafia has become so prominent is the misinterpretation of the 30% “set-aside” rule.

While the rule aimed to involve local communities in projects, it was misinterpreted and exploited during the height of state capture.

Construction mafias took advantage of it, and as such, the rule, which was meant to foster community involvement, has caused many projects to fall apart.

Although the 30% set-aside requirement was struck down by the courts under the Preferential Procurement Policy Framework Act (PPPFA), it remains a common practice,

“But it’s continued as a practice, which tells you how deeply it’s become ingrained and how the construction mafias have really put it to work for themselves,” he said.

The new Public Procurement Act has been approved by the President, but it is not yet in force, and whether it should include the 30% rule has been hotly debated.

In South Africa’s political landscape, there’s still strong support for local development. Sarupen explained that any new regulations need to clarify how construction projects will benefit local communities and gain their buy-in.

Whether this includes specific targets will depend on public participation in drafting the regulations.

There are allegations, particularly in KwaZulu-Natal, of ties between the construction mafias and political groups.

“If any kind of credible allegations can come forward, if we can have a commission of inquiry of some kind to look into them, that would be ideal because it has been swirling for a long time, but we’ve never actually, it’s never come through,” Sarupen said.

The Police Minister stressed the importance of reporting every incident related to these mafias. However, many people prefer to pay off the mafias rather than report crimes, which is further contributing to the problem.

This lack of reporting hinders efforts to address the alleged connections between politics and construction mafias, Sarupen said.