South Africa has a hidden R600 billion ‘safety tax’ – and everyone is paying for it

Staff Writer

The Institute for Economics & Peace (IEP) Economic Value of Peace 2021 report has ranked South Africa 21st out of 163 countries for its high economic cost of violence.

The IEP measures the cost of containing violence in a country by tracking the money spent and income lost around 19 variables grouped into three cohorts:

  • Violence containment;
  • Armed conflict;
  • Interpersonal and self-inflicted violence.

The institute estimates that South Africa had an annual containment cost equal to 12% of GDP in 2019 – or around R600 billion.

In turn, peaceful countries like Denmark, Canada and Japan expend only 3% of their GDP containing violence.

This cost of containing the unrest uses public and private money that could otherwise have been used more productively in society had it not been for the unrest.

There has recently been increased awareness in South Africa of violence containment activity and associated expenditure, including increased spending on IEP-tracked variables like police and military deployment, private security, and incarceration due to the recent unrest and looting seen in KwaZulu-Natal and Gauteng.

The South African Property Owners Association (SAPOA) reported on July 19 that 40,000 businesses and 50,000 informal traders were affected by the unrest in KwaZulu-Natal and parts of Gauteng during July.

The organisation also listed damage to 300 bank and post office sites as well as 1,400 ATMs. There were also 160 shopping malls with severe damage and 100 malls with significant fire damage.

The damage caused by the unrest in KwaZulu-Natal and Gauteng is still being calculated with some estimates as high as R70 billion.

The state-owned South African Special Risk Insurance Association (Sasria) – the only local insurer covering claims caused by riots, civil unrest and terrorism, and vandalism caused by public disorder – expects claims of up to R20 billion from businesses that have incurred damages to their insured property.

Economic cost 

This week, a report published by professional services firm PwC estimates that the direct impact and lasting effect of the unrest in July could reduce GDP growth by 0.8 percentage points in 2021.

“This is a big impact but not unexpected considering that the hard-hit KwaZulu-Natal and Gauteng economies represent half of the country’s GDP,” the firm said.

“On a positive note, the R38.9 billion fiscal support package announced on July 29 should bolster economic growth by up to 0.7 percentage points.”

Given that better-than-expected fiscal revenues will fund this expenditure – collections from mining and financial services have been very robust – this is deemed a stimulus not planned for in the February budget. PwC expects the South African economy to grow by 2.5% this year.

“We have not yet assessed what the long-term negative impact on business confidence and investor sentiment will be from the damage to physical infrastructure,” it said.