Construction Industry continues to grapple with ‘Mafias’

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South Africa’s construction sector is facing a host of issues including the so-called construction mafia – popularly known as the “business forums”. South Africa’s construction sector is facing a host of issues including the so-called construction mafia – popularly known as the “business forums”.

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SA’s distressed construction sector is facing a host of issues including the so-called construction mafia – popularly known as the “business forums”.

They have been dubbed criminal, and labelled the construction mafia – or community groups who demand a cut in building projects around the country, sometimes even resorting to violence and intimidation to get their way.

From some form of employment, sub-contracting to their small businesses or in some cases straight up cash – they say they’ll continue to hold construction sites to ransom until they receive their share.

Their proponents believe they are legitimate agents of “radical economic transformation”. It is often unclear where the line between armed violence and genuine demands for access to economic opportunities falls.

The phenomenon emerged in the Durban area of KwaZulu-Natal and began hitting the headlines in 2016. It has since spread across the country at a time when the construction sector is in dire straits — a series of major players have filed for business rescue or have reported depressing financials.

The armed gangs turned up at construction sites demanding 30% of the work, then 30% of the revenue, and in some cases 50%.

State infrastructure projects have been the worst hit with the likes of the South African National Roads Agency (Sanral) seeing more than 60 projects affected to a varying extent, including its R1.6-billion Mtentu bridge project, expected to be the highest bridge in Africa, and a road contract near Stutterheim. Both are in the Eastern Cape.

But private sector projects are not immune from destructive actions by people demanding work. A R2.4-billion German oil storage investment, being built by Wilson Bayly Holmes-Ovcon (WBHO) in Saldanha Bay in the Western Cape was halted in early March last year after “armed gangs” demanded a stake.

No longer content to invade larger construction sites in KwaZulu-Natal and Gauteng, the construction mafia has moved into the townships.

Mpho Moropane, founder of Phoroza Trading & Projects, was awarded a R6 million contract for the construction of 50 houses in Soshanguve, north of Pretoria, by the Gauteng Department of Housing. No sooner had the contract been awarded than “representatives of the local community” arrived to demand their take – a whopping 50% of the budget.

They then went further than this, proposing to take over the entire budget and source materials for the project, leaving Moropane with little if anything other than an obligation to deliver the houses to the client.

Ten meetings with the national police commissioner to discuss tackling the construction mafia in SA have been cancelled in the past four months, says South African Forum of Civil Engineering Contractors (Safcec) CEO Webster Mfebe.

The latest cancellation came on the eve of the state of the nation address in which President Cyril Ramaphosa announced he is “prioritising” the fight against armed gangs that have forced contractors to abandon 84 infrastructure projects worth more than R27bn.

JSE-listed global infrastructure and resources group Aveng believes there is a contradiction between government plans to address the risk posed by the so-called ‘construction mafia’, and the SA National Road Agency (Sanral) wanting to pass these risks onto contractors.

Aveng group CEO Sean Flanagan said on Tuesday the “noises” being made by the government to deal with this issue are “the right noises but there is a need to see the implementation of law and order”.

The problem has now gone countrywide, but is particularly rampant in Gauteng, according to Peter Barnard of attorneys Cox Yeats, who has fought off dozens of mafia invasions through the courts.

“The only reason it continues is because it is tolerated by law enforcement,” says Barnard. “Hopefully, we will now see stronger law enforcement to bring an end to this after Finance Minister Tito Mboweni called for tougher action against the mafia.”

Mboweni in his budget speech last week seemed to have had enough of this lawlessness: “The disruptive actions of those who storm construction sites or mines harm growth and lead to job losses. Communities should expose such people to allow ministers [Bheki] Cele and [Ronald] Lamola [ministers of police and justice) to ensure that the law takes its course.

“I hope all South Africans join me in condemning this,” said Mboweni.

In the last three years, several large construction companies such as Group 5, Basil Read, Liviero, NMC and Esor Construction have closed operations, while many of the remaining firms have reported financial difficulties. Sluggish economic growth, a decline in government infrastructure spending, late payment of contractors by the state and the lack of capacity to undertake public projects with approved budgets have been recorded as other leading causes of the problem.

President Cyril Ramaphosa announced R700 billion in infrastructure development in his state of the nation address earlier this year, but no further details have been provided.

Mboweni has committed to providing R10 billion towards a R200 billion infrastructure finance programme by the Development Bank of Southern Africa.

Construction contributes about 4% to South Africa’s Gross Domestic Product (GDP) and is a key sector for the economy.

READ MORE ON:

SANRAL  |  Safcec  |  Tito Mboweni  |  Aveng  |  Sean Flanagan  |  Mpho Moropane  |  Phoroza Trading Projects  |  Webster Mfebe

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