A new report by the World Bank analyzes the state of the South African economy and the economic cost of crime in the country. The report, titled “Safety First: The Economic Cost of Crime in South Africa”, was released on Thursday and is the 14th edition of the South Africa Economic Update series.
According to the report, South Africa is on a low growth–low employment trajectory, with persistent poverty and inequality. The economy is expected to grow by only 0.7 percent in 2023, after slowing down to 1.9 percent in 2022 and 4.7 percent in 2021. The report attributes this weak performance to the deepening electricity crisis, transport bottlenecks, and the volatile global environment.
The report also estimates the economic impact of crime on South Africa to be at least 10 percent of GDP every year, comprising transfer, protection, and opportunity costs. The report says that crime reduces the country’s growth potential by distorting the allocation of resources, constraining private sector investment and job creation, eroding households’ disposable income and quality of life, and crowding out developmental spending by the public sector.
The report calls for broad-based economic reforms to address the persistent constraints on growth and the weak impact of fiscal policy on growth. It also recommends targeted interventions to reduce crime, such as strengthening the police and justice systems, preventing crime and violence through evidence-based programs, and tackling the challenge of organized crime.
The report highlights some of the key challenges and opportunities facing the South African economy, such as:
- The electricity crisis: The report notes that the electricity sector is in a state of crisis, with frequent load shedding, high tariffs, and low reliability. The report estimates that the electricity crisis reduced GDP growth by 0.5 percentage points in 2021 and 0.3 percentage points in 2022. The report urges the government to implement the Integrated Resource Plan 2021, which aims to diversify the energy mix and increase the share of renewable energy sources.
- The transport sector: The report identifies the transport sector as a key bottleneck for economic growth, especially for exports and regional integration. The report estimates that the inefficiencies in the transport sector cost the economy about 1.5 percent of GDP every year. The report suggests that the government should improve the governance and management of state-owned enterprises in the transport sector, such as Transnet and South African Airways, and promote competition and private sector participation.
- The global environment: The report warns that the global environment poses significant risks and uncertainties for the South African economy, such as the COVID-19 pandemic, the rising oil prices, and the tightening of global financial conditions. The report advises the government to maintain a prudent fiscal stance, enhance the resilience of the financial sector, and strengthen the external position by boosting exports and attracting foreign direct investment.
The report also provides an in-depth analysis of the economic cost of crime in South Africa, which is one of the most violent countries in the world, with a homicide rate of 35.8 per 100,000 people in 2021, compared to the global average of 6.1. The report estimates that the direct and indirect costs of crime amount to at least 10 percent of GDP every year, which is equivalent to about R600 billion or $40 billion.
The report breaks down the economic cost of crime into three categories:
- Transfer costs: These are the costs incurred by the victims of crime, such as medical expenses, property losses, and legal fees. The report estimates that these costs amount to about 3.5 percent of GDP every year, based on the data from the Victims of Crime Survey 2021.
- Protection costs: These are the costs incurred by the public and private sectors to prevent and combat crime, such as spending on police, courts, prisons, and security services. The report estimates that these costs amount to about 3.8 percent of GDP every year, based on the data from the National Treasury and the private security industry.
- Opportunity costs: These are the costs associated with the foregone economic activities and welfare due to crime, such as reduced investment, lower productivity, lower employment, lower income, lower education, lower health, and lower happiness. The report estimates that these costs amount to about 2.7 percent of GDP every year, based on various studies and surveys.
The report argues that crime has a negative impact on the country’s growth potential by distorting the allocation of resources, constraining private sector investment and job creation, eroding households’ disposable income and quality of life, and crowding out developmental spending by the public sector. The report cites some of the evidence of the adverse effects of crime on the economy, such as:
- Investment: The report finds that crime reduces the expected returns and increases the risk premium of investing in South Africa, especially for foreign investors. The report estimates that a 10 percent reduction in the crime rate could increase the investment rate by 1.2 percentage points and the GDP growth rate by 0.3 percentage points.
- Employment: The report shows that crime reduces the labor force participation and employment rates, especially for women and youth. The report estimates that a 10 percent reduction in the crime rate could increase the labor force participation rate by 0.8 percentage points and the employment rate by 0.6 percentage points.
- Income: The report reveals that crime reduces the income levels and growth rates of households and firms, especially for the poor and the informal sector. The report estimates that a 10 percent reduction in the crime rate could increase the average household income by 1.5 percent and the average firm revenue by 2.2 percent.
- Education: The report demonstrates that crime reduces the educational attainment and outcomes of children and youth, especially for those living in high-crime areas. The report estimates that a 10 percent reduction in the crime rate could increase the average years of schooling by 0.2 years and the average test scores by 1.4 percent.
- Health: The report indicates that crime reduces the physical and mental health of individuals and communities, especially for those exposed to violence and trauma. The report estimates that a 10 percent reduction in the crime rate could decrease the prevalence of depression by 1.1 percentage points and the mortality rate by 0.4 percentage points.
- Happiness: The report suggests that crime reduces the subjective well-being and happiness of people, especially for those who are victims or witnesses of crime. The report estimates that a 10 percent reduction in the crime rate could increase the life satisfaction score by 0.2 points and the happiness score by 0.1 points.
The report calls for targeted interventions to reduce crime, such as strengthening the police and justice systems, preventing crime and violence through evidence-based programs, and tackling the challenge of organized crime. The report emphasizes the need for a comprehensive and coordinated approach that involves all levels of government, civil society, and the private sector, and that addresses the root causes and drivers of crime, such as poverty, inequality, unemployment, social exclusion, and substance abuse.
