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Insights into the fight against the construction mafia
17 Sep 2024
The rise of the construction mafia in South Africa is posing a significant threat to the economy. Criminal groups have increasingly been exploiting the 30% local procurement rule, which was originally intended to benefit local communities and empower small businesses, to forcefully demand a cut in construction projects. This has caused substantial disruptions to infrastructure projects across the country, negatively impacting investment, job creation, and economic growth.
Wynand Botha, associate director and construction sector lead at BDO South Africa, highlighted the severe consequences of these groups during a recent interview with Bizcommunity.
"What happens is that a project starts and usually gets to a point of at least 30-40% completion, and then the construction mafia steps in," he said.
Botha also touched on the dual challenges workers are experiencing on construction sites: "Safety is a big concern, and the financial impact is substantial."
The safety concerns have led many contractors to pull their workers from sites, leaving projects incomplete and leading to a standoff that halts further progress.
"You pull your people. So, you run away from the project," Botha explained.
This situation often leaves contracts dormant, with project owners and contractors unable to move forward.
Economic drag
From a financial perspective, Botha described how small construction companies are particularly vulnerable.
"You could have already said, listen, from a cost perspective I spent 40%, but from a billing perspective I only did 30%. Do you recover that other 10%?"
The construction mafia has not only crippled smaller contractors but also caused a ripple effect on the broader economy.
Projects are delayed, contracts are terminated or left incomplete, and businesses face severe financial strain, further exacerbating the already high unemployment rates in the sector.
Minister Dean Macpherson has acknowledged the magnitude of the issue at every opportunity.
"The 30% local procurement rule, intended to empower local communities, has unfortunately been hijacked by criminal syndicates," Macpherson said during his August progress update.
He went on to outline the steps the government is taking to tackle the problem, particularly in cooperation with law enforcement agencies.
"We are working closely with law enforcement agencies to mitigate these risks, with a special focus on reducing the influence of the construction mafia," he affirmed.
Multipronged approach
The government's approach includes addressing regulatory bottlenecks, accelerating budget reforms, and tightening oversight to ensure that legitimate contractors can operate without fear of extortion.
Additionally, Macpherson noted that the Department of Public Works and Infrastructure (DPWI) is focusing on improving the regulatory framework governing the construction industry to ensure transparency and accountability.
While these efforts are a step in the right direction, Botha stressed the need for even stronger intervention from authorities.
"It's important for the involvement of the government in this one. You can't fight the fight alone."
Daunting challenges
His remarks highlight the fact that law enforcement has often been hesitant to intervene due to the risks involved.
Despite the daunting challenges, there is a concerted push to restore stability in the construction sector.
Macpherson strives to turn South Africa into a "construction site" and ignite economic growth and is implementing the government’s reforms and increased law enforcement that is crucial to overcoming the grip of the construction mafia.
With these efforts, the hope is to rebuild investor confidence and create an environment where legitimate businesses can thrive.
