SA’s construction mafia and how they can be stopped: Corrigan - Biznews

In South Africa, the insidious grip of the construction mafia tightens, threatening not only businesses but the very fabric of society. A World Bank report reveals the staggering toll of crime, accounting for 9.6% of GDP. Extortion schemes, rooted in political corruption, stifle growth and innovation, echoing Sicily’s historic struggles. Amid calls for decisive action, echoes of Palermo’s rebirth offer hope for a nation grappling with the systemic crisis of crime, politics, and business.

Terence Corrigan

In any environment, crime is a burden on business. The operative question is whether that burden is a small or large one, and whether it ranks as a high or low priority for the enterprises subject to it. In South Africa, that burden has long been a dire one, and there are disturbing indications that it is growing. 

Last year, the World Bank released a report that estimated the cost of crime in South Africa at the equivalent of some 9.6% of GDP. This includes direct losses of around 2.6% of GDP, 4.2% in expenditures such as security and insurance, and an additional 2.8% in opportunity costs. The opportunity costs – tourist shortfalls, the redirection of resources to security and the failure of investments to materialise – represent a dreadful might-have-been, and the report estimates that if spending committed or lost to crime could be productively invested, South Africa’s growth rate could be elevated by at least a percentage point. 

The World Bank’s report accords with a number of other studies and estimates – in relation to small business, agriculture, mining and retail – all of which point to the economic damage that crime is doing. The economy is smaller and weaker as a result. Criminal activity also undermines South Africa’s prospects for sustaining and upgrading the sophistication of its economy, since it gnaws away at the willingness to invest and innovate (except, perhaps, in relation to security) and drives the skills and entrepreneurial talent abroad. 

Part of the data the World Bank used for its calculation was an estimate of the impact of criminal extortion of business projects. Basing its estimate on a 2022 analysis by Jenni Irish-Qhobosheane, the World Bank put this at some 0.7% of GDP. It commented: ‘The construction sector faces specific extortion problems linked to well-organized mafias, dubbed “local business forums,” that invade construction sites and demand a ransom or a stake in development projects, often violently.’ 

Irish-Qhobosheane’s work on the subject (entitled Extortion or Transformation? The Construction Mafia in South Africa) made for fascinating and chilling reading when it was released and does so now. 

Pathology 
Rather like ‘tenderpreneur’ or ‘load-shedding’, ‘construction mafia’ is one of those South Africanisms that give the country’s pathology a rhetorical flourish that outsiders would struggle to understand. On Irish-Qhobosheane’s account, it has its origins in the Durban area in 2015, where local ‘business fora’ organised invasions of construction sites, threatening violence unless their demands for money or jobs were acceded to. From there, these operations spread to Gauteng and to the Western and Eastern Cape. 

There was a clear attempt to give these activities a political flavour; the early iterations of the phenomenon came together in the Federation for Radical Economic Transformation (FFRET), drawing on a concept that was being invoked to justify extractive economic policies and the corruption that attended them – call this the counterpart of White Monopoly Capital. Members associated with the ‘business fora’ would claim the patronage of members of the political establishment, such as the controversy-ridden erstwhile mayor of eThekwini, Zandile Gumede (though she denied this). 

As rapidly became evident, these strategies were effective. While some in government denounced it, and while aggrieved companies sought the protection of the legal system, this was to little avail. Interdicts were routinely ignored, and the police failed effectively to deal the threats. Indeed, the brazenness with which demands were made and the insecurity they cause led some foreign firms to remark that doing business in South Africa was more trying than doing so in Iraq or Afghanistan. 

In frustration, the CEO of the South African Forum of Civil Engineering Contractors, Webster Mfebe, complained: ‘Violence begets violence. When people have seen that extortion methods yield results, they mimic the same tactics and strategies.’ 

Illegitimate legitimacy 
Nothing signifies the insidiousness of this so well as the attempts by the mafia to legitimate itself. The FFRET, for example, rebranded itself the Black Business Federation (BBF) in 2020, at an event attended (and addressed) by the KwaZulu-Natal MEC for Economic Development. More importantly, the demands of the mafia groups were increasingly phrased in terms of state policy. This was the idea of a 30% demand. 

The origin of this was the 2017 Preferential Procurement Policy Framework Act. This provided that 30% of state contracts values at over R50 million should be reserved for particular ‘designated’ groups. This has no application to private developments, but was used as the prompt for demands on private firms. The 30% was often if not typically demanded as a cash payment to specific beneficiaries. It was irrelevant whether or not there had been significant contracting to local businesses or to those owned by members of the ‘designated’ groups.  

With little option, firms faced with these demands were inclined to give in. There is evidence now that actual incidents of violence have declined – and this is a distinctly mixed blessing. Extortion had, simply put, become normalised. As an article in Engineering News trenchantly asked in a headline: ‘Is SA Inc fighting the construction mafia, or adapting to incorporate it?’ 

Irish-Qhobosheane has recently reiterated her concerns about the construction mafia, noting that the model appears to be growing in reach and intensity and moving into other sectors of the economy. The mining industry is facing similar pressures from ‘procurement mafias’, while even families building their own homes, she notes, have not been entirely spared.   

As noted above, this has a clear economic cost: extrapolating the 0.7% estimate to last year’s GDP, the cost amounted to close to R49 billion. More than this, the threat of violence hovering over construction projects is a constant strain on those who work on them, the fear that they may be physically harmed, or that their employment may be terminated. For others, it is a decisive incentive to quit South Africa and offer their talents to countries where engineering and building are not potentially life-threatening occupations.  

And since construction provides the base of an economy, the hard infrastructure, it has adverse multiplier effects on the economy as a whole. In a very real sense, it is undermining South Africa’s foundations. Given also that South Africa’s infrastructure is dilapidated and inadequate even for to manage its current load, and will therefore need to be upgraded and expanded (to which successive governments have committed themselves already), monumental opportunities stand present themselves to the country’s mafias. 

What starts on a construction site doesn’t end there. Its costs are counted in a stultified economy and the start-ups and growth-oriented firms that don’t exist. It means an economy that stuck on a low-growth path, that struggles to innovate and diversity its workings. The ‘business fora’ are in reality anti-business fora.  

A systemic crisis 
So what can be done? 

The obvious solution is in law enforcement. The entire phenomenon is a case study of the failure to apply the law. When court interdicts are not enforced, where illegal weapons are easily accessed and openly wielded, and where arrests are rare and prosecutions few, extortion makes for good (criminal) business.  

Disincentivising this would demand cops on the street to confront gangs directly, as well as top class detective and crime intelligence work that can produce airtight prosecutions and see the crime bosses evicted locked up and their proceeds of crime seized. This is hardly original thinking, merely a standard approach to dealing with organised crime. It’s not even alien to South Africa, since it calls to mind the start-to-finish model that the erstwhile Scorpions provided. 

Unfortunately, the tools to do this just don’t exist, at least not to the extent that the crisis demands. The police service is simply not up to the task – the good intentions of many honourable officers notwithstanding – and is particularly lacking in its intelligence and investigative capacities. Law enforcement in South Africa has suffered a toxic cocktail of mediocrity, corruption, patronage staffing and politicisation. 

The regrettable reality is that the construction mafia is a visible expression of a systemic crisis in the country: the interplay between politics, business and crime. The mafias cannot be dealt with without capable law enforcement, which is unlikely without proper political commitment, which is at present compromised by the criminal bent of a substantial part of South Africa’s political elite.  

And as the mafias place ever greater pressure on business, investment stays away and the economy suffers. And criminals seek to extort an ever-higher proportion of a shrinking resource base. In broader terms, the construction mafias have thrived because it has positioned itself as a response to economic exclusion. Cynical though this is, it has resonance. But the only durable solution to exclusion is growth and development, which the mafias are sabotaging. 

A trip to Palermo 
A possible model for a response is to be found in Palermo in Sicily over the past four decades. Palermo was a centre of the original mafia, the Cosa Nostra, a criminal society whose reach extended into politics and business. Even more so that South Africa’s construction mafia it was able to influence business and state contracts, so much so that it altered the character of Palermo, having historic buildings ripped down so that formless tenements could be constructed with the mafia taking a sizeable cut.  

Rubble would be dumped along the coast, creating an eyesore on the island’s beaches. Politicians and officials on the take gave the mafia a relatively free hand, and it was willing to employ extreme violence – exceeding that of its South African counterpart – when it perceived its interests threatened. 

A turning point came in the 1998s, with an Italian government crackdown on organised crime. This was long a problem across the country, though it was particularly severe in Sicily, and this demanded a local response too. This came in the person of Leoluca Orlando, a long-time anti-mafia activist, who was supported by a growing public sentiment against the organisation, and a changing political climate that recognised the mafia as a danger to be confronted rather than an inevitability to be accommodated (or a source of personal lucre).  

Orlando took over as Palermo mayor in 1985 and launched an ambitious agenda to challenge the mafia on its own turf. Senior appointments to the city administration were made from outside the party to bring in officials who would disrupt the mafia influence on Palermo. Concurrently, he instituted a programme to stimulate civic pride: schools and public amenities were constructed in areas known to be under mafia influence. to broadcast that the authorities were present and were making a better offering to the public. 

In 1990, Orlando had a falling out with his party, in part over the latter’s reluctance to support his mayoral candidacy as he wished to continue to make appointments from outside its ranks. Launching his own movement, La Rete – with a strong focus on combating the mafia – he was able to appeal to a heterogenous community and was retuned to the mayoralty in 1993. By this time legal action against the mafia was having an effect, but Orlando realised that it needed to be challenged comprehensively. 

This included revising city plans that had contributed (often intentionally) to Palermo’s decline; rehabilitating public spaces; reviving cultural life; ensure more young people remained in schools so as to deprive the mafia of a source of recruits; and getting the economy moving again. The overall thrust was to develop a sense of civic pride and to make Palermo an attractive place to live and to invest.  

Orlando proceeded to hire a team of respected figures, all known opponents of the mafia, who embarked on ambitious plans to restore Palermo. Contracts were concluded on the basis of clear and careful procedure and enforced; staff were employed on merit and qualification through carefully managed processes. Business permits were issued on the basis of proper application and compliance. There was a stalwart drive to break with old habits rooted personal connections and patronage that the mafia had been able to manipulate. 

Leadership 
Perhaps above all, the leadership led by example. Orlando had no interest in negotiating with the mafia; he also said that it wasn’t enough to cut ties with the mafia boss, one also needed to cut ties with the friend of the mafia boss. This often came at great personal cost. Not only was the threat of assassination real (constant protection by bodyguards was necessary, and Orlando seldom appeared in public with his family), but it meant the loss of some relationships and blowback from many ordinary Palermitani who lost employment and income as the mafia’s influence declined. 

Palermo today is a changed city. Not without its problems, the mafia threat has been greatly reduced. The silence that shrouded it once has been broken. Orlando and his team understood that they would probably not be able to eliminate the mafia, but that they could make it a manageable problem. One problem among several, rather than the defining problem, as one of his associates said.  

Or as Salvatore Lupo, a historian remarked: ‘Mafia dominated Sicilian identity. This was especially true in a city like Palermo. Orlando’s identity projects aimed to rebuild the city’s identity; to remind people of the Palermo of the past, the 17th century, when a lot of the city’s buildings were built; and to remind them that in the 17th century, Palermo was one of the greatest cities in Europe.’ 

This remains an ongoing project, but one that is at least ongoing. 

Looking forward 
The lessons, such as they are – since no two sets of circumstances would be identical – are clear. This is a whole-of-state and whole-of-society initiative. There needs to be far more than a pro forma denunciation of the construction mafia; it needs to be combated so that the costs to those perpetrating violence and intimidation become daunting, and the consequences become imminent. 

For that, neither the private sector nor the state – indeed, particularly not the state – should countenance the criminality involved. Doing so only encouraged it in Palermo, and it has done likewise in South Africa (not only in respect of construction, think about the taxi industry). Proper leadership, from the cabinet and police commissioner on down, is essential. A clerk in a municipal planning office or a constable on the beat cannot be expected to face the dangers if their superiors are disengaged or complicit. 

This will have no chance of success unless the institutions tasked with facing this threat are themselves strong and resilient. Committed, meritocratic, skilled and honest. Needless to say, political and racial appointments have no place here. 

Finally, the broader community needs to understand the threat to their own wellbeing and their prospects that the construction mafia and its imitators pose. Where people feel hopeless and frustrated, this may be a tough point to make – tougher still where young people can find a sense of authority and a rudimentary income by providing muscle to these operations.  

Unfortunately, a progression of bad choices and destructive ideology has created fertile ground for organised crime – and some in the country’s elite have been enthusiastic enablers and participants in that phenomenon. The longer this entrenches itself, the more resilient it will be to any efforts to dislodge it. Not only the construction industry will pay a steep price for this.  

Terence Corrigan is the Project Manager at the Institute, where he specialises in work on property rights, as well as land and mining policy.

https://www.biznews.com/rational-perspective/2024/04/15/sas-construction-mafia-corrigan

This article was first published on the Daily Friend.