Crime costs South African firms the same as it costs their counterparts in other middle-income countries but South African businesses suffer greater direct losses as a result of crimes such as robbery and pay more for formal security, says Christopher Stone of Harvard University.
In a paper commissioned by the national treasury as part of the accelerated and shared growth initiative Stone rejects conventional wisdoms about how crime impacts on the economy and calls for a more detailed look at how specific crimes affect economic growth. One such assertion is that “white flight” caused by crime has led to a skills shortage that has negatively impacted on the economy. Stone asserts that greater scrutiny of such assumptions could lead to improved policy formulation.
One of the hypotheses that Stone focuses on in the paper is that crime, specifically theft, fraud, corruption, destruction of property and violent attacks, can increase costs to business, deter investments and increase business failures.
A World Bank survey shows that crime costs South African businesses 1,1% of sales and 5% of labour costs. These costs are in line with the costs of crime to business in other middle-income countries such as Brazil, Russia, Peru and the Philippines.
Stone suggests that the criminal justice system should work with businesses on how to reduce security costs. He argues that the cost of crime to business may be higher for small, medium and micro enterprises, and especially for household-based enterprises in low-income settlements.
A study of home-based enterprises in Ghana and Mamelodi in Pretoria reveals that South African entrepreneurs are more concerned with crime than their counterparts in Ghana, and took steps such as closing early to reduce their vulnerability. Police and justice officials could remedy this problem by focusing on safety in communities where household enterprises are concentrated, said Stone.