Collapse of one of South Africa’s biggest employers

[Nat Quinn]

South Africa’s construction sector has seen its contribution to the country’s economy decline by 33.7% over the past eight years.

This decline has primarily been driven by the rise of the construction mafia in the key economic hubs of Gauteng and KwaZulu-Natal, as well as limited government spending on infrastructure.

South Africa’s construction industry’s fortunes are also closely tied to those of the country’s mining industry, which has experienced steadily declining output.

Stanlib chief economist Kevin Lings revealed this in a recent research note on the impact of the trade war between the United States and China.

Lings explained that there are very few winners in a global trade war between the world’s two largest economies, with trade likely to decline.

Crucially for South Africa, this is likely to result in declining demand for its exports as the economic growth of its largest trading partners slows.

This negative impact is coming at a time when the South African economy is extremely vulnerable to external shocks due to its lacklustre growth and deteriorating public finances.

South Africa’s economy grew by a paltry 0.6% in 2024, well below the country’s population growth of 1.3%. This means South Africans got poorer on average throughout the year.

This continued the trend of the past decade, where the country’s economy had an average annual growth rate of 0.8%.

A breakdown of South Africa’s economic performance revealed that only three sectors made a positive contribution over the past year: agriculture, finance, and retail.

The finance and retail sectors were boosted by the two-pot retirement funds withdrawal scheme that started in September 2024.

On the other hand, South Africa’s crucial employment sectors of mining, construction, and manufacturing continued to languish.

These sectors are vital for employment in South Africa, as they are labour-intensive and can relatively easily absorb low-skilled workers, who make up the majority of the country’s unemployed population.

Lings said the performance of these sectors, particularly construction, was dismal considering the need for economic growth and employment.

The South African construction sector has declined in each of the past eight years, contracting by a total of 33.7% in that period.

This is likely to have translated into thousands of South Africans losing out on employment opportunities in this sector, exacerbating the country’s unemployment crisis.

Construction mafia and infrastructure

The largest drag on the construction sector has been the emergence of the so-called ‘construction mafia,’ which costs the country billions of rands annually and hobbles vital infrastructure development.

This mafia first emerged in 2015 and operated at a relatively small scale, disrupting a handful of construction projects in Gauteng.

It has now evolved into a nationwide network that has held the country’s construction sector ransom, with JSE-listed WBHO and Stefanutti Stocks warning of its impact.

WBHO and Stefanutti have repeatedly said in their annual reports over the past two years that they have been negatively impacted by disruptive and unlawful activities by informal business forums in South Africa.

WBHO chairman Louwtjie Nel said the construction sector faces multiple headwinds, which have seen the industry shrink by 44% over the past six years.

“There is an urgent need for South Africa to prioritise upholding the rule of law. The adverse effects of not doing so are becoming increasingly obvious,” Nel said in his letter to the shareholders.

“Crime and corruption function as significant deterrents to business and investor confidence, demanding swift and decisive action.”

“We strongly urge the government to combat the growing tide of criminal extortion and corruption that is affecting South African society, particularly within the construction sector.”

Nel mainly focused on the “persistent challenge of ‘business forums’ that continue to disrupt projects”.

These forums are more commonly known as the construction mafia and invade construction sites nationwide, demanding money or a stake in the projects.

“This issue requires immediate attention. Despite numerous initiatives, many in conjunction with the government, to address this scourge, it still persists,” Nel said.

MDA Attorneys director Euan Massey said that over the past two years, around 600 investigations and cases related to the construction mafias have been opened.

It is unclear how many cases have been closed and how many prosecutions have followed these investigations, but it seems to be a low number.

“Until that starts taking place, construction mafias will continue to plague and invade projects and cause disruption to this valuable sector of the economy,” he said.

Roelof Viljoen, national project manager at Business Against Crime South Africa (BACSA), warned that construction firms need to plan for the worst, as construction mafias have become ingrained in South Africa with no signs of reversing.

“Extortion in the construction sector has reached worryingly high levels, derailing and delaying projects worth billions of rands,” he said.

Collapse of one of South Africa’s biggest employers – Daily Investor

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