Across South Africa, businesses of all sizes are grappling with an escalating crisis that transcends typical market challenges: the rise of protection fees. These criminally imposed payments, demanded under the guise of “security,” have spread from isolated urban areas to nearly every corner of the country, affecting businesses from street vendors to professional practitioners. This underground "tax" system places a tremendous burden on local enterprises, forcing some to the brink of closure and impacting the broader economic landscape.
The Burden on Small Businesses
This phenomenon is particularly dire for small businesses, where profit margins are already tight. Street vendors selling daily essentials are now frequently forced to pay regular payments in exchange for supposed “protection” from vandalism, and other criminals. However, this “protection” is often a façade for intimidation, and businesses unable to pay risk facing retaliation, harassment, or even violent attacks.
For many business owners unable to afford these payments, the outcome is devastating. Harassment, intimidation, and physical attacks often follow non-payment, leaving them with little choice but to close shop. Not only does this deprive local communities of essential goods & services, but it also has ripple effects across the economy, impacting local employment rates as well as investment and consumer expenditure.
A Hidden Tax Impacting Growth
For local enterprises, these protection fees act as an unofficial and unpredictable tax, cutting into already slim margins, limiting growth, and creating an unstable environment for entrepreneurs. Businesses that are forced to allocate substantial resources to meet these demands find it challenging to reinvest in growth, innovation, or community improvement, thus stalling economic development at the grassroots level. As costs rise and profit margins shrink, consumer prices may also increase as businesses pass on their costs to customers, eroding household purchasing power and undermining quality of life, particularly in economically vulnerable areas.
In areas where protection fees are a prevalent problem, businesses are more likely to adopt a short-term focus, prioritising survival over expansion. This hinders the ability of local economies to grow sustainably, creating a drag on South Africa’s broader economic potential and diminishing the appeal of starting or maintaining a business in certain regions.
A Barrier to Investment
For investors, the rise of protection fees poses a significant deterrent, introducing both operational and reputational risks associated with South African trade and business. The prevalence of criminal extortion within the business landscape raises uncertainties for investors, particularly those focused on stability and high growth potential. SMEs, which serve as critical engines for job creation and economic diversity, are disproportionately vulnerable. This creates uncertainty in sectors most accessible to local entrepreneurs, such as retail, hospitality, and healthcare (private practices).
International investors who prioritise risk mitigation and stability may hesitate to invest in markets where businesses face added pressures and unpredictability. Similarly, the presence of extortion within essential sectors such as healthcare, where practitioners and clinics now face security concerns and even closure, underscores the urgent need for intervention. These issues raise concerns about South Africa’s reputation as an investment destination, as the criminal element in its economy impacts perceptions of safety, governance, and the potential for long-term returns.
Hope for Change
There is hope, however, in the form of community-driven safety initiatives and stronger governmental intervention to combat organised crime. For South Africa to attract and retain investment, addressing the protection fee crisis is imperative. Collaborative efforts between business owners, communities, and authorities can create safer operating environments that empower local businesses to thrive without fear.
In the meantime, understanding these unique operational risks is crucial for investors. While South Africa’s market remains rich with opportunity, the need for careful, well-informed decision-making is more important than ever. Addressing protection fees will be critical for sustainable economic growth and the long-term resilience of the South African business landscape.