World Bank estimates of cost of crime in SA

The World Bank estimates that crime costs South Africa 10% of GDP annually. Losses from theft are estimated at 2.6% of GDP, protection costs (security and insurance spending) around 4.2%of GDP and forgone opportunity costs (fewer tourists and higher transportation costs) at 1.8% of GDP, and foregone developmental public spending from excessive government spending on crime prevention and safety costs 1% of GDP. For 2023, this cost is conservatively estimated to be R700 billion. That’s a lot. Its almost three times government’s total expenditure on healthcare. Its more than implementing a basic income grant would cost.

The paper suggests that the costs firms in the formal sector face from crime are slightly lower in South Africa than the average in lower middle-income countries such as Indonesia, Morocco, and Nigeria, but double as high as the average in upper middle-income countries  such as Brazil, Colombia, Russia, Thailand, and Türkiye. The paper suggests that if wasteful security expenditures could be redirected, South Africa’s growth potential might have been between 0.7 to 1.3 percentage points higher between 2015 and 2019.

The report includes some noteworthy statistics:

  1. One in five households and similar proportion of formal firms are affected by crime every year
  2. The estimated shortfall of tourists because of safety concerns was estimated to be 5-10 million per year in 2019 (0.7-1.5% of GDP)
  3.  Insurance premia, surprisingly, are not high compared to middle-income countries (0.3% of per capita income compared to 1.3% in Brazil and 0.2% in Mexico)
  4. 71% of South Africans do not feel safe at night
  5. Crime is the biggest reason cited for emigration according to BusinessTech
  6. Vodacom lost 1,500–2,000 batteries every month in 2022, and Telkom 650 batteries per month in 2020. Transnet Freight Rail lost 1100 kilometers of cable in 2022/23.
  7. The financial losses for Eskom, the Passenger Rail Agency
    of South Africa, and Telkom represent 0.1% of GDP. At Eskom alone, theft costs the state-owned enterprise R12 billion per year.
  8. According to the Private Security Industry Regulatory Authority, private security officers outnumbered police four-to-one in 2021. This is double what is observed for lower middle income countries.

The report suggests that many forms of crime have been rising. While there has been an increase in violent crimes such as murder and carjacking since 2010, these crimes are down compared to the 1990s, and crime in categories such as car theft has actually declined. The paper also points to an increase in social unrest over time, which is backed up by data from ACLED. But it is not clear that there has been a trend increase in gross insurance payouts as suggested by the paper, with the July 2021 riots associated with a dramatic one-off spike in national claims.

The paper cites South African Police Service statistics that suggest that only one in six murders were solved in 2021 and that the resolution rate for property-related crime was less than 50% in that year. It is worth pointing out that South Africa’s prosecution rates for serious crimes have been even lower  if expressed relative to the actual number of reported crimes instead of the number of cases brought to trial. Our international comparison suggests that the murder conviction rate in South Africa is very low,  although slightly higher than in other high homicide countries such as Mexico and Brazil. The paper suggests that a decline in the resolution of crime has been associated with the decrease in the number of police officers in South Africa relative to the population.

The functioning of our judicial system will also have a big impact on investment and the efficiency of the economy, although this is not explicitly considered in the paper’s impact estimates.  South Africa spends 2.7% of GDP (almost 10% of non-interest government expenditure) on policing, the judiciary and correctional services. This is 1 percentage point higher than the average across the Organisation for Economic Co-operation and Development. The paper argues that increasing the effectiveness of this expenditure is important for dealing with crime and makes a range of recommendations for strengthening the police and judicial system.

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