This is the second of three posts exploring the business resilience challenges multinational corporations are likely to face when operating in South Africa over the next five years.
The continued rise of organised and violent crime is driving increased risks for the employees, assets, and reputations of large businesses.
A fallout of the COVID-19 pandemic has been an increase in the risk posed by serious and organised crime. South Africa’s ban on tobacco and alcohol, which was implemented to make coronavirus treatment easier, has resulted in the growth of the black market. Even before the pandemic, organised crime was central to the illicit trade of tobacco and alcohol; however, since the introduction of the ban, organised crime has monopolised these industries and consequently received enormous injections of cash.
The increased prevalence of organised crime will have direct and indirect effects on businesses. It is widely acknowledged that under Jacob Zuma’s presidency, South Africa’s criminal justice agencies were manipulated for political gain and organised crime flourished. Many of these criminal groups likely still benefit from political patronage and exist in symbiotic relationships where they lend power to those they serve, in return for benefits such as taxi and security contracts, or a shareholding made possible under Broad-Based Black Economic Empowerment (BB-BEE) laws. The subsequent high levels of commercial crime and corruption pose a serious reputational risk to businesses, necessitating enhanced due diligence on vulnerable contracts.
These risks would be amplified if political stability were to be further undermined. For example, in municipalities where local government lacks power, and where law enforcement is corrupt or impotent, there would be pressure upon multinationals to deal directly with organised criminal groups in the form of protection rackets. This would present significant security risks to employees, as well as major reputational concerns.
Moreover, acquisitive crime, such as copper theft, vehicle hijackings, and fraud, is commonplace and exacerbated by prominent levels of poverty, inequality, and high commodity prices. This poses further concerns for businesses. Cable theft, for instance, can lead to power outages and a loss of productivity, whilst spending to secure assets can be hugely costly. These threats, among the many others which acquisitive crime poses for large businesses, will remain prevalent so long as the forces of inequality and poverty persist.
Violent crime is already at high levels and there is no indication that there will be improvements to the risks presented to personal safety. Rather, the number of murders in South Africa has risen every year since 2013, highlighting how the police are struggling to get a grip on violent crime. All indicators reveal a similar trend: the elevated levels of risk to personal safety will continue over the next five years and may even worsen subsequently. The safety of employees will therefore remain the most pressing concern for many businesses.
The risks posed by organised and violent crime to foreign-owned businesses outlined in this post are by no means exhaustive. However, what is clear, is that the threat of organised and violent crime is likely to endure. This is in large part because the socioeconomic factors which underpin South Africa’s high crime rates are unlikely to be substantially tackled within the next five years.
The final post in our business resilience in South Africa series explores the challenges posed by the risk of civil unrest. You can see our previous post on political stability in South Africa here.
Complexas provides bespoke advisory services and ESG assurance to global clients. Contact us if you are interested in learning more about how we can help you make informed and effective decisions in complex environments.