South Africa’s persistently high unemployment, worsening poverty and low growth projections are spelling a bleak economic outlook that, together with elevated inequality, has seen the impact of crime creep up to 10% of gross domestic product (GDP).
From kidnappings of business leaders to organised crime and from cash heists to invasion of businesses during strike actions, crime has been spiking in South Africa over the past few years.
The World Bank said yesterday that South Africa was consistently among the five countries with the highest homicide rates, with 41.9 intentional homicides per 100 000 people.
Between July and September this year, said Police Minister Bheki Cele, as many as 6 945 people were murdered in South Africa.
This year, South Africa was ranked seventh out of 193 countries on the Global Initiative Against Transnational Organized Crime’s (GI-TOC) Global Organized Crime Index, up from 19th in 2021.
But the impact so far is already staggering, notes the World Bank in its Safety First: The Economic Cost of Crime in South Africa report. Crime is costing South Africa as much as R700 billion, or 10%, of its GDP per year after factoring in losses emanating from transfer, protection and opportunity costs.
Such high costs from the wave of crime plaguing South Africa “penalize those households and businesses who are victims of crime, and the state, which spends large amounts” of money on public order and safety.
Crime “represents a high tax on the economy that distorts the allocation of resources, constrains the country’s growth” potential. Losses arising out of direct losses in income and assets as well as the cost of prevention come up to about 6.5% of South Africa’s GDP.
“This reduces South Africa’s competitiveness, job creation, and economic activity. Similarly, crime affects the quality of life of households, especially in urban areas. The impact of economic crime on households is estimated at about 2% of GDP,” explained the World Bank in its report.
“Economic crimes are motivated by economic gain or resource acquisition or involve intentional damage to property. The nature of economic crime has evolved, shifting from individual perpetrators to more sophisticated organized crime; this contributes to the perception of worsening crime,” said the World Bank’s report.
Worryingly though, the ratio of violent economic crime in South Africa is ticking up, rising from one in five in fiscal year 2011/12 to one in four in fiscal year 2019/20. The construction sector has specifically faced “extortion problems linked to well-organized mafias that invade construction sites and demand a ransom or a stake in development projects, often violently.
The World Bank estimates losses for the construction sector from crime at about R40.7 billion while the road freight sector has faced more truck hijackings, especially in Pretoria, Johannesburg, Durban, Gqeberha, Bloemfontein, and Cape Town. The mostly targeted are fuel, electronics, and food and beverages transport businesses.
Apart from these sectors, South African export companies also view crime as a bigger constraint on doing business, with the mining sector particularly affected as it is “exposed to extortion and murder” often because of illegal mining.
Further making worse South Africa’s outlook are weak growth projections which imply that high unemployment and poverty will persist over the medium term. According to President Cyril Ramaphosa, “South Africa’s crime problem is at the root of the government’s drive for inclusive growth in an effort to address the causal factors of poverty, unemployment” and inequality.
Unemployment is projected to remain above 32%, with ongoing research by the World Bank suggesting that the pace at which growth contributes to reducing poverty depends on factors such as the provision of basic services, key basic infrastructure, and the economic and demographic structure.
South Africa had already lost 2.3 million jobs due to the pandemic in the first half of 2020, but it created only about 1.8 million jobs between 2022 and mid-2023. During this time, the working age population also grew by around 860000 people.
And when rising prices, particularly of fuel and food, are factored in as a contributory factor to the erosion of disposable incomes, more low income households will be severely affected. This comes as “poverty in South Africa remains widespread” while its inequality is among the highest in the world.
BUSINESS REPORT