Jan 24

Overview of the Construction Mafia Crisis in South Africa

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Inclusive Society Institute

PO Box 12609

Mill Street

Cape Town, 8010

South Africa

235-515 NPO

DISCLAIMER

Views expressed in this report do not necessarily represent the views of the Inclusive Society Institute or those of their respective Board or Council members. All records and findings included in this report, originate from a panel discussion on developing a new economic blueprint for South Africa, which took place in August 2022

December 2023

Author: Mariaan Webb, Creamer Media Writer

Editor: Daryl Swanepoel

Content

Abbreviations & acronyms
Overview
Construction mafia tactics
Root causes & perspectives
Law enforcement initiatives
Recommended interventions & actions
Conclusion
References

Abbreviations & acronyms

DPP: Director of Public Prosecutions
HDI: historically disadvantaged person
ISI: Inclusive Society Institute
PPPFA: Preferential Procurement Policy Framework Act
SAPS: South African Police Services

Overview

South Africa’s construction industry, traditionally a key driver of economic growth and development, has been grappling with a significant challenge in recent years – the encroachment of criminal elements. Known as construction mafias, these illicit networks initially surfaced in KwaZulu-Natal about a decade ago. Their influence has since expanded across all provinces, resulting in significant losses to the economy.

Construction sites, ranging from small-business driven to large-scale projects, serve as prime targets for these decentralised syndicates. Leveraging local connections, they employ tactics such as extortion, violence, intimidation and disruption to advance their objectives. Extortion has seeped into the fabric of the business landscape and is now considered an unfortunate cost of doing business (Venter, 2023).

This report encapsulates key insights from a seminar conducted by Inclusive Society Institute (ISI), centred on the repercussions of construction mafias on the construction industry. The seminar served as a follow-up to a previous construction summit, during which the profound impact of these illegal activities on the industry was highlighted as a major concern.

Addressing the challenges posed by construction mafias is imperative to revitalise this vital sector of the economy. Over the past 15 years, the once-thriving construction industry has experienced a sharp decline, in large part owing to the government’s failure to deliver on promised infrastructure projects. Re-establishing the industry on a solid foundation is crucial, given the powerful role that construction can play in poverty reduction. Construction has an inherent capacity to generate additional economic output and jobs, particularly for low-skilled and semi-skilled workers.

Construction mafia tactics

Construction mafias, often labelled ‘business forums’, are networks that employ violence and other illegal means of controlling access to public sector procurement opportunities. These groups typically invade construction sites, demanding money or a stake in development projects. In 2019, at least 183 infrastructure and construction projects worth more than R63-billion had been affected by the construction mafia. Since then, invasions have continued at construction sites across South Africa (Organised Crime and Corruption Reporting Project, 2022).

The interpretation of the Preferential Procurement Policy Framework Act (PPPFA) plays a key role in the activities of construction mafias. The PPPFA, aimed at promoting economic transformation and empowering historically disadvantaged individuals (HDIs), designates that 30% of public procurement contracts should be allocated to designated groups. Construction mafias misuse this provision, demanding that 30% share of the contract value accrue directly to forum members or the forum itself. Despite portraying their actions as aligned with transformation goals, the National Treasury condemned this practice as illegal. Such exploitation undermines the intended objectives of the PPPFA, hindering uplifting of HDIs and small businesses (National Treasury, 2018).

Often intertwined with this deliberate misinterpretation of the PPPFA are other causes that escalate violence on construction sites, including unreasonable community expectations, gangsterism, and the exploitation of high unemployment levels during community protests against infrastructure projects.

According to the South African Police Services (SAPS), construction mafias employ a range of tactics, including threatening projects with violence and heavy weaponry, demanding a share without genuine interest in the job itself. Their criminal activities extend to terrorising, intimidating, assaulting, and in some cases, even killing employees or managers on site. The use of such disruptive tactics aimed at hindering progress on construction projects is also often accompanied by theft. In gang-infested areas, like Cape Town, in the Western Cape, gang leaders go further by registering companies. If their demands for the 30% share are not met, they employ mafia tactics to intimidate construction projects. Additionally, they may coerce constructors into paying protection fees to avoid rival gang interference. This tactic further underscores the complex intertwining of criminal elements with legitimate business activities in these regions.

The construction mafia has progressively established political connections, aligning with specific factions within the governing party. This association provides protection and facilitates access to state procurement opportunities.

The external interference has led to increased uncertainty in fulfilling contract obligation. Contractors must now navigate not only legal and contractual requirements, but also an environment fraught with demands and threats imposed by criminal elements. This interference has created a challenging environment for contractors, impacting their ability to meet project milestones and completion deadlines. Moreover, the interest in heading off the activity of such mafias has seen the selection of subcontractors and suppliers becoming a precarious process, resulting in compromised quality and delayed project timelines. Contractors are caught between honouring legitimate contractual commitments and addressing illicit pressures from the construction mafia.

The criminal justice cluster is tasked with addressing this issue as per the National Development Plan Vision 2030.

Root causes & perspectives

Keynote speakers at the ISI’s Construction Mafia Summit shared their insights on the factors contributing to the emergence of the construction mafia, shedding light on the dynamics that fuelled its rise.

Construction sites as symbols of economic freedom

The discussion highlighted the symbolic importance of construction sites as potential catalysts for economic freedom. Unemployed youth and disenfranchised communities see these sites as avenues for brighter prospects. Emphasising the democratic route, this discourse rejected violence as a means to attain economic freedom and stressed adherence to democratic principles.

Blurring public and private project lines

The conventional distinction between public and private projects based on where the funding for projects is coming from, was challenged. Participants highlighted a shift in perceiving both public and private endeavours as entities to further broader public interest. This departure from the traditional dichotomy necessitates a renewed emphasis on transparency and accountability within the private sector. Communities are expressing a growing demand for active involvement in decision-making processes related to construction projects. This involvement extends to critical aspects such as land acquisition and the issuance of development permits. The call for transparency and accountability resonated as a means to ensure that both public and private initiatives align with the needs and aspirations of the communities they impact.

Addressing economic inequality

Persistent economic inequality in South Africa took centre stage in the discussions. According to World Bank statistics, the top 10% in South Africa earn more than 65% of the total national income and the bottom 50% just 5.3% of the total (Chancer et al, 2022). Historical legacies and insufficient addressing of social justice were identified as root causes. Businesses, especially within the construction sector, have been urged to embrace transparency, accountability and inclusive practices as means to address the widening wealth gap.

The construction industry is consequently perceived as a battleground for economic inclusion and the addressing of racial discrimination, amid what is felt, by many, historically, to be a corruption-prone sector. A unified stance against economic disenfranchisement is needed, emphasising the need for the private sector to recognise transparency and accountability principles.

Organised crime on the rise

Organised crime, specifically within the construction sector, has witnessed a noticeable upswing since 2014/15. The rise in crime in general is attributed to a broader decline in State capacity, notably during a period of State capture. This era witnessed compromised integrity and capabilities in key State-owned enterprises, fostering corruption and diminishing law enforcement effectiveness. The decline in State capacity and inefficiencies within the law enforcement sector created an environment conducive to the flourishing of organised crime. Weak governance structures, including oversight mechanisms, contribute to a lack of accountability within law enforcement agencies.

Criminal networks exploit this vulnerability in accountability and law enforcement, strategically targeting construction sites for financial gain. This trend has permeated throughout the country, resulting in significant economic repercussions.

Organised crime is now an existential threat to South Africa’s democratic institutions, states the Global Initiative Against Transnational Organised Crime. It argues in a September 2022 report that a more strategic response is needed to organised crime to ensure a more stable future for South Africa. Left unchecked, organised crime and its associated illicit markets will continue to inflict serious harms (Global Initiative Against Transnational Organised Crime, 2022).

Solutions to address the crisis in the SAPS, as identified in government policies and documents, are not being implemented, which cannot be blamed on a lack of resources as is often cited as the reason for the country’s crime crisis.

The police budget has increased substantially over the last decade, yet its ability to solve crimes has significantly diminished. The Institute for Security Studies states that, over the last 11 years, the police budget has increased by 86%, but that its ability to solve murders has decreased by 55% and the ability to solve armed robbery has dropped by 53%. Addressing the crisis requires leadership reform within the police, reinforced governance structures, and the establishment of robust independent oversight mechanisms.

A failure to share information and resources among government, civil society and the private sector also hinders efforts to combat organised crime.

Law enforcement initiatives

Law enforcement agencies have implemented targeted plans to combat the pervasive influence of the construction mafia. This operational approach is aligned with the national competence strategy, which is under the guidance of the national commissioner. This strategy is divided into two key components: the geographical approach and the organised crime approach.

Under the geographical approach, intelligence operations are strategically positioned to gather information, identify hotspots and pinpoint problematic provinces. Police teams are deployed to these hotspots, with a clear mission to stabilise and normalise affected areas. Essential infrastructure teams are mobilised to address challenges in specific regions.

The organised crime approach focuses on identifying individuals, syndicates and criminal entities involved in extortion within the construction mafia. Employing unconventional methods, law enforcement collaborates with the National Prosecuting Authority, engaging in prosecutor tutorial guided investigations. This collaborative effort extends to institutions like asset forfeiture and financial investigations, differentiating between major and project investigations. Cases are categorised as criminal groupings when individuals are not linked as syndicates.

Since 2019, 712 cases have been reported, with 93 currently in court. A total of 722 suspects have been arrested and 96 cases are fully completed and referred to the Director of Public Prosecutions (DPP) for decision. The DPP has issued nonprosecution certificates in 34 cases. Moreover, 165 case dockets were closed due to a lack of further information. Of the completed cases, 50 were finalised after being received from court, leading to 52 convictions with a combined sentence of 89 years and seven months.

The police’s multi-dimensional and multi-operational approach includes monthly stakeholder engagements in all provinces. These forums are co-chaired by the SAPS and the business sector.

Recommended interventions & actions

Promoting transparent project engagement	Encourage transparent and inclusive engagement practices in both public and private construction projects. Emphasise the importance of involving communities in decision-making processes, particularly regarding land acquisition and development permits. Foster a culture of openness and collaboration to build trust between project developers and communities.
Tackling economic inequality	Implement policies that address economic inequality, drawing insights from the World Bank’s 2022 Inequality report. Advocate for businesses, especially in the construction sector, to adopt transparent, accountable and inclusive practices to bridge the wealth gap. Create initiatives that empower HDIs, ensuring equal access to economic opportunities.
Addressing racial equality	Develop a unified stance against economic disenfranchisement within the construction sector. Prioritise racial equality, diversity and inclusion initiatives to eradicate discrimination in workplaces.
Rooting out corruption	Implement stringent measures against companies involved in corrupt practices, holding them accountable for unethical conduct. Task the Minister of Infrastructure and Public Works with leading a cleanup process and ensuring consequences for companies involved in corrupt practices, to the extent of suspending or blacklisting such companies from accessing public procurement.
Tackling organised crime	Advocate for the nonclassification of the national security strategy. This crucial document should be made public and updated every year to align efforts effectively across various sectors. Transparency is vital for informed collaboration between the government, civil society and the private sector, especially concerning public safety challenges associated with organised crime. Fix crime intelligence.
Implementing police reforms	Address the South African Police Service’s declining capabilities by eliminating automatic promotions without performance assessments, rectifying dysfunctional disciplinary systems, and curbing compromised officers collaborating with criminal networks. Advocate for recruitment, training, supervision and accountability reforms to empower law enforcement in the fight against organised crime. Emphasise the importance of accountability for officers involved in criminal activities, calling for the removal of compromised individuals who undermine public safety through corruption and brutality. Stress the importance of establishing an effective accountability system to counteract officers working against the public’s interests and to restore confidence in law enforcement.
Government-led initiatives	Initiate public hearings to address issues of racism, gender discrimination and bullying within the construction sector. Consider a firearms amnesty, in accordance with the Firearms Control Act, to reduce the proliferation of illicit guns contributing to site disruptions.
Infrastructure development for inclusive growth	Prioritise infrastructure development as a key strategy for poverty reduction. Recognise the critical role of engineering skills in economic recovery and competitiveness, emphasising the need to retain and develop these skills. Encourage collaborative efforts among social partners, including government, business, labour and communities, to ensure uninterrupted infrastructure delivery.
Community and business forum collaboration	Encourage construction contractors to cease paying bribes to business forums and instead focus on providing community members access to employment and local business opportunities. Implement a District Development System to ensure collaborative efforts between communities, businesses and government in the delivery of infrastructure. Foster constructive engagement between affected communities, business forums and construction companies to address concerns and ensure compliance with the rule of law.
Leadership and accountability	Promote leadership accountability at all levels, both in the public and private sectors, to foster an environment of responsible and ethical practices. Establish mechanisms to monitor and enforce adherence to principles of transparency and accountability within the construction industry. Address alleged police collaboration with criminal syndicates, ensuring serious consequences for those involved.

Conclusion

The challenges presented by construction mafias constitute a complex and multifaceted issue, carrying far-reaching implications for South Africa. The urgent task of dismantling the construction extortion economy, especially in regions where it has entrenched itself, is formidable. Yet, overlooking the issue will have repercussions for both the construction sector and the nation at large.

The repercussions transcend projects delays and associated costs. The overall toll includes lost investment, as the high-risk environment acts as a deterrent for foreign companies considering large-scale projects in the country. This, in turn, hinders economic growth and development. The emigration of skilled technical personnel further exacerbates the issue, depleting the pool of expertise available for crucial infrastructure projects. The South African Forum of Civil Engineering Contractors of South Africa made a plea for urgent government action in 2019. Directed to then Finance Minister Tito Mboweni, the plea highlighted the urgency in addressing the construction mafia. It specifically noted that 110 engineers and other highly skilled technical personnel had either left the country, or were on the verge of doing so, owing to personal risk to their lives and the lack of work because of projects being disrupted at gunpoint (Mfebe, 2019).

In summary, the construction mafia is not merely a challenge of criminality; it is a complex issue which increasingly overshadows legitimate concerns about inequality and significantly impacts on the country’s economic landscape. Urgent and comprehensive collaboration is imperative to mitigate the immediate and long-term consequences of this phenomenon, ensuring the stability and growth of the construction sector, and by extension, the economy.

References

Chancel et al. 2022. World Inequality Report 2022. [Online]. Available at: https://wir2022.wid.world/www-site/uploads/2021/12/WorldInequalityReport2022_Full_Report.pdf [accessed November 22, 2023].

Global Initiative Against Transnational Organised Crime. 2022. Strategic Organised Crime Risk Assessment: South Africa. [Online]. Available at: https://globalinitiative.net/wp-content/uploads/2022/09/GI-TOC-Strategic-Organized-Crime-Risk-Assessment-South-Africa.pdf [accessed November 22, 2023].

Mfebe W. 2019. Construction industry up in flames: Urgent action required. [Online]. Available at: https://cdn.ymaws.com/www.safcec.org.za/resource/resmgr/press_releases/SAFCEC_Letter_to_Minister_of.pdf [accessed November 22, 2023].

National Treasury. 2018. Media statement: Alleged abuse of the 30% subcontracting requirements provided for the Preferential Procurement Regulations, 2017. [Online]. Available at: https://www.treasury.gov.za/comm_media/press/2018/2018080701%20Alleged%20abuse%20of%20preferential%20procurement%20regulations.pdf [accessed November 22,2023].

Organised Crime and Corruption Reporting Project. 2022. Extortion or transformation: The construction mafia in South Africa. [Online]. Available at: https://globalinitiative.net/analysis/extortion-construction-mafia-south-africa/ [accessed November 22,2023].

Venter, I. 2023. Is SA Inc fighting the construction mafia, or adapting to incorporate it?, Engineering News, June 27, 2023. [Online]. Available at: https://www.engineeringnews.co.za/article/is-sa-inc-fighting-the-construction-mafia-or-adapting-to-incorporate-it-2023-06-27#:~:text=The%20construction%20mafia%2C%20or%20so,employ%20specific%20people%20or%20subcontractors [accessed November 22, 2023].

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This report has been published by the Inclusive Society Institute

The Inclusive Society Institute (ISI) is an autonomous and independent institution that functions independently from any other entity. It is founded for the purpose of supporting and further deepening multi-party democracy. The ISI’s work is motivated by its desire to achieve non-racialism, non-sexism, social justice and cohesion, economic development and equality in South Africa, through a value system that embodies the social and national democratic principles associated with a developmental state. It recognises that a well-functioning democracy requires well-functioning political formations that are suitably equipped and capacitated. It further acknowledges that South Africa is inextricably linked to the ever transforming and interdependent global world, which necessitates international and multilateral cooperation. As such, the ISI also seeks to achieve its ideals at a global level through cooperation with like-minded parties and organs of civil society who share its basic values. In South Africa, ISI’s ideological positioning is aligned with that of the current ruling party and others in broader society with similar ideals.

Email: info@inclusivesociety.org.za

Phone: +27 (0) 21 201 1589

Web: www.inclusivesociety.org.za