Crime drains South Africa’s economy by 10% of GDP: Report

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A new World Bank report released on Wednesday estimates that crime costs South Africa at least 10% of its Gross Domestic Product (GDP) annually, encompassing transfer, protection, and opportunity costs.

The World Bank has compiled a comprehensive 59-page report that delves into the economic repercussions of crime in South Africa. This research report, authored by a team of experts, aims to inform policy discussions and decision-making through analysis.

The report comes less than a week after Police Minister Bheki Cele presented the second quarter crime statistics for 2023/2024 period.

Among others, Cele said that almost 7 000 murders took place between July and September 2023, which is an average of about 2 315 murders per month or 77 murders a day.

There has been a decline in sexual offences, murder of women and children and certain aggravated robberies and trio crimes. During the three-month period, Operation Shanela saw the arrest of 226 000 suspects, including some of most wanted and dangerous criminals.

Violent crimes

The report acknowledges that South Africa is considered one of the countries in the world with the highest rate of violent crimes.

South Africa is consistently among the five countries in the world with the highest murder rates, 41.9 intentional murders per 100 000 people in 2021. This is six times the average for upper-middle-income countries and more than 16 times for high-income countries.

In 2023 South Africa ranked seventh out of 193 countries on the Global Initiative Against Transnational Organised Crime’s (GI-TOC) Global Organised Crime Index, up from 19th out of 193 countries in 2021.

The report notes that the government has been at pains to ensure that macroeconomic policies remain prudent with the aim of providing stability.

Since October 2021, the Reserve Bank has raised the interest rates from a low 3.5% to 8.25% by May 2023.

Inflation is averaging 6% and the fiscal deficit declined to 3.7% in 2022/2023.

But despite these efforts, both economic and social outcomes have deteriorated due to growing local constraints and global economic developments such as the COVID-19 pandemic.

The ongoing electricity crisis is also putting a damper on the economy.

The violent nature of crime in the country and perceptions around it are severely affecting the economy.

Various sectors of society are bearing the brunt.

Businesses affected 

Businesses, especially micro, small and medium enterprises, are severely affected by crime due to higher operating costs which include security and insurance.

Combining the direct losses in income and assets and the cost of prevention, the annual impact of crime on firms is estimated at around 6.5% of GDP.

The situation is compounded by a relatively newer form of crime, the theft of key public and private infrastructure networks, which greatly damages the country by reducing service delivery and constraining economic activity in many areas. This reduces South Africa’s competitiveness, job creation, and economic activity.

Crime also 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.

The public sector is wavering under the impact of crime as it requires higher public spending on policing and security, along with significant transfers to SOEs whose operations and financial soundness are damaged by infrastructure theft.

Foreign Direct Investment

Crime affects foreign direct investment and while there are no studies specifically to assess the impact of crime on FDI in South Africa, the 2017 Executive Opinions Survey of the World Economic Forum shows that crime is deemed the second most problematic factor for doing business in South Africa, after corruption.

Over the last few years, the tourism sector has also been affected. In 2019, the potential shortfall of visitors because of safety concerns was estimated at 5–10 million a year.

Based on official statistics on tourists’ spending, this could represent a loss of 0.7–1.5 % of GDP and of 80 000–300 000 jobs.

All major infrastructure networks, including transport, electricity, and communication, are increasingly affected by theft.

Transnet Freight Rail estimates that the length of cable stolen from its infrastructure increased more than ninefold between fiscal years 2017/18 and 2022/23, from 120 to over 1,100 km.

For three SOEs (Eskom, the Passenger Rail Agency of South Africa, and Telkom), the financial losses solely from copper theft could reach R7 billion per year, or about 0.1% of GDP.

The report makes a number of recommendations on ways to address crime, which it says should be a multidimensional and integrated approach. This includes more effective detection and sanctions to increase the cost of committing crime.

It says regulatory reforms are needed to decrease the benefits of crime and that the quality of police services with more accountability, better investigative capacity and professionalising the force will go a long way to turn the situation around.

There is also a need to address the root causes of crime which also lies within the country’s apartheid history and exclusion of some.

Interventions include evidence-based violence prevention, cognitive behavioural therapy and restorative justice practices involving the police.

Doing away with the legacy of state capture and restoring the rule of law is critical in the fight against organised crime.