South African businesses, government departments and state-owned companies are under siege from gangs of extortionists parading as local business forums that are increasingly threatening billions of rands in infrastructure investments and major projects.
The Sunday Times has spoken to construction magnates, the police, government officials and mining bosses — some of whom have had to move house for their safety — who spoke of an alarming rise in organised criminal gangs that use threats, violence and murder to demand a 30% cut of multibillion-rand contracts.
In a discussion with the Sunday Times in July, President Cyril Ramaphosa’s national security adviser, Sydney Mufamadi, said these acts of “economic banditry” were costing the fiscus billions of rands and threatening to further strangle investment in the country.
A June report titled “Extortion or Transformation? The construction mafia in South Africa”, by Jenni Irish-Qhobosheane of the Global Initiative Against Transnational Organised Crime, found that about 183 infrastructure and construction projects worth more than R63bn were affected by the “construction mafias”.
However, the Sunday Times has found more projects — worth more than R9bn — in the mining and construction sectors which have been affected.
These include:
- A JSE-listed mining company’s R5bn project to rehabilitate and reopen an old mine;
- A R4bn construction project in Umhlanga, north of Durban, has been threatened by a local “business forum” demanding a 30% share;
- A developer in two Durban townships whose R140m projects have been threatened by local “business forums” demanding 30%;
- A R250m housing project in Gugulethu, Cape Town, has stopped since February because the contractor was being extorted and workers were injured on site; and
- A R180m project to build a campus for a technical vocational education and training college in Khayelitsha, Cape Town, stalled because the contractor was threatened and a security guard killed.
Ramaphosa said in his 2020 state of the nation address that he would prioritise “the problem of criminal groups that extort money from construction and other businesses”.
Last week, police minister Bheki Cele told parliament during a debate on the economic impact of theft and vandalism of public infrastructure that the police had established economic infrastructure task teams consisting of specialised units, working with private security companies, government departments and businesses, to investigate extortion at, among others, construction sites, as well as other economic crimes such as illegal mining and copper theft.
Extortionists target mines
A R5bn project to rehabilitate and reopen an old mine has been put on hold for two years after foreign investors walked away because of delays caused by the “mining mafias” who demanded a cut.
The CEO of the JSE-listed company involved, who asked not to be named, because of threats to his life, said: “We lost an opportunity because shareholders ran for the hills. There have been 1,000 jobs not created, and the R5bn which should have been spent in South Africa hasn’t because of these guys.”
The company’s offices were recently ransacked, with security guards held at gunpoint, after the company had issued a tender worth more than R300m for installing water pumps and dewatering systems.
“They don’t even want to do the work. They want to be the gatekeepers and subcontract foreign companies. They don’t have the ability to do the work. Their whole modus operandi is to get the community to go on a riot,” he said.
“This is organised crime on another scale … They target all the mines the same way. They openly tell you that they will not allow you to continue your business unless you give them a cut.
“You can appoint any subcontractors, but you must then appoint them to supervise those guys and they want to decide who you employ.”
Another JSE-listed company, Gold Fields, was targeted by the “mafias” over two projects, one of which was its R715m 50MW solar plant at the South Deep mine southwest of Johannesburg.
“During the construction phase of those two projects we did receive demands from local business organisations to receive 30% of the project without any contribution to it,” said Gold Fields spokesperson Sven Lunsche.
“We rejected them, but it required that we put up fences around those projects and get security for our procurement team. We employ 70% from the host community and … we believe we have a level of support from the community for our stance towards these business associations. Our experience has been a horrible one but it’s the same experience shared by construction and mining companies across the country.”
This is organised crime on another scale … They target all the mines the same way. They openly tell you that they will not allow you to continue your business unless you give them a cut
— CEO of a JSE-listed company
Other mining firms have also had to bring in heavily armed security personnel to keep the gangs away.
Sibanye-Stillwater spokesperson James Wellsted said one of the company’s operations was interrupted for about 24 hours because of such demands.
“We have made a point of saying no to these guys and we only deal with formal structures with the communities,” he said.
“This is a massive disincentive for investment. First, the threats of violence are a deterrent; second, taking 30% of the value makes an investment worthless.”
Construction companies forced to work with bandits
A major property developer in Durban, who asked not to be named for safety reasons, told the Sunday Times he would no longer invest in projects in townships such as Umlazi and KwaMashu. He has had two projects stalled because local business forums have demanded 30% subcontracts.
“While we have found a way to coexist and work together out of necessity, it’s by no means easy and there are still ad hoc requests for cash,” he said.
“All I am doing is making the best of a bad situation … We should be ridding ourselves of this scourge. They are not easy investments to manage, and they come with a massive amount of risk. Now, with lower returns it’s not really worth it any more.”
The entity that has been repeatedly accused of using threats and violence to extort 30% cuts from government and private construction projects is the Delangokubona Business Forum in Durban.
This week, at an exhibition in the city, human settlements minister Mmamoloko Kubayi mentioned it by name, saying: “The issue isn’t that we refuse to work with AmaDelangokubona and other SMMEs, but we don’t agree with people who want to take 30% and sit at home. Thirty percent is meant for those who are going to work and contributing to the development of our sector. They’re closing the space for real businesspeople in our community. This will force us then to escalate the matter to the law enforcement authorities.”
Delangokubona says it is entitled to a 30% share of contracts because of the preferential procurement regulations introduced by the National Treasury in 2017.
Its president, Nathi Mnyandu, told the Sunday Times this week: “When you want something from the government, you will have agreements during the negotiations, but when it’s time for action they turn on you and make it look like you are aggressive. We end up being forced to this havoc and noise when we want them to live by the agreements we made in the boardroom. We also end up chasing them with guns because they are breaking their promises.”
Mnyandu said they started the forum because they wanted to leave their lives of crime, which included hijacking and robbery.
“We sat down with others who were doing crime and told them what the police were advising us to find another way to live,” he said.
Kubayi’s remarks did not go down well with Delangokubona chairperson Thabani Mzulwini, who told the Sunday Times that there was no evidence to suggest that his group had ever extorted money from anyone.
“People will open their own business forums and do certain activities and when projects shut down they hide behind our name,” he said.
Not just KZN
In Mpumalanga and the Western Cape multimillion-rand projects have also been stopped by business forums trying to extort money from contractors.
Bongani Dlamini, spokesperson for Mpumalanga’s department of public works, roads & transport, said these included the construction of a youth development centre, the Mpumalanga parliamentary village in Mbombela, a fresh produce market, a high-altitude training centre for athletes and several sanitation projects.
“The stoppages were led by some members of the community claiming to be members of local business forums and demanding 30% subcontracting or monies even when the projects were far less than the R30m threshold,” he said.
In announcing a three-year R18bn infrastructure project in the Western Cape this week, infrastructure MEC Tertuis Simmers said the “construction mafias” delayed many projects.
“There has been an alarming increase across the industry in extortion from the construction mafia and forums. While we are putting systems in place to ensure that these criminal organisations do not derail our plans, this needs a specialist intervention by the South African Police Service as it is outright criminal what is happening,” he said.
There have also been extensive reports of delays in government projects in the Eastern Cape and North West, but government spokespeople declined to provide further detail, saying most cases were “resolved amicably”.
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