28 March 2007
Minister and guests,
Thank you for granting me the opportunity to address you today, to cover
something which I believe is of critical importance to our country. I believe
the matter of the relationship between the economy and crime will become
ever-more important as we chart the future of our democracy.
Government commitment
Let me begin by saying that government is committed to bringing crime rates
down. This is something that should be obvious to everyone, but for reasons I
cannot begin to fathom, some people doubt this. So let me reiterate what every
official from the President down has said on innumerable occasions: "Government
knows that crime rates in South Africa are unacceptably high."
We know that far too many ordinary people across South Africa suffer at the
hands of murderers and rapists, robbers and child abusers. We understand the
implications that crime has for their quality of life. We understand the
implications it has for the social fabric and for the health of our
communities. Our commitment to this fight is borne out both by the strategic
choices we have made in restructuring our criminal justice system and by the
massive resources we devote to the criminal justice system every year.
This year we will spend well over R55 billion. This is three times more than
what we spent just 10 years ago and according to the Institute for Security
Studies, as a proportion of Gross Domestic Products (GDP), it is three times
the global norm. The R55 billion pays the salaries of our police officers, the
numbers of which will grow to over 190 000 by 2010. That is up from less than
120 000 just six years ago. This R55 billion pays the salaries of prosecutors
and magistrates, judges and prison warders. It also pays for the construction
and maintenance of facilities: police stations, courts and prisons.
Government has invested heavily in the criminal justice system and will
continue to do so. That is only one measure of our commitment to fighting
crime. The other measure of our commitment to fighting crime lies in the
efforts that the criminal justice departments have made to transform
themselves. In 1994, we inherited a police service shaped by its dedication to
upholding apartheid; a police service whose idea of crime prevention was to
pluck the indigent from suburban streets into vans and then dump them in the
townships. We inherited a legal system in which convictions followed
confessions and as a consequence, 'evidence gathering' often meant little more
than locking a man in a room with some heavies for a few hours.
Government has sought to address these matters and we have made a huge
progress on many fronts. But both the resourcing and reform of the criminal
justice system have not been the only pillars on which we have sought to deal
with criminality. Recognising that crime is a symptom of the iniquities and
inequalities that are reflected in our socio-economic statistics, we have
invested heavily in poverty alleviation and education, in municipal
infrastructure and the building of homes.
We have not neglected the root causes of crime. In fact we have tackled them
head on. The effect of all of these efforts is that most forms of criminality
have shown a steady decline over the past six or seven years. That we would
prefer the improvement to be more rapid goes without saying. I repeat: ours is
a government that is committed to the fight against crime. Our policies show
this. And so does our record.
More to be done
Having said this, I want to say also that there is much we must still
achieve. We know from survey evidence that far too many South Africans are
afraid of crime whether they are at home or in the street, whether at night or
during the day. Their fears and assessment of the risks they face are not
always grounded in reality. Nevertheless, those fears are real and we must deal
with them: we must bring crime down further and faster. As the President said
in his State of the Nation Address at the opening of Parliament, 'we cannot
claim the happiness that comes with freedom if communities live in fear,
closeted behind walls and barbed wire, ever anxious in their houses, on the
streets and on our roads, unable to freely enjoy our public spaces.' This must
change.
It must change for many reasons. The most important of these, as the
President has suggested, is that the fear of crime and the experience of
victimisation, devalues the freedom many of us fought for. Another reason we
must redouble our efforts to bring down crime is almost as important as the
need to give people the security that they deserve. This is that crime is
affecting our economy.
No one can say precisely how great a drag on economic growth our present
levels of crime are. It is not unreasonable, however, to think that the effects
are big enough for the Minister of Finance to worry about and to take
seriously. We know, for instance, that crime imposes costs on business.
Insurance premiums, security costs and losses to thefts and robberies, to say
nothing of the reduction to productivity that follows whenever an employee is
victimised; these are all costs that businesses incur. Each of them makes our
businesses less competitive in the global market place.
Crime also imposes costs on households who spend more on security than they
should have to. I for one would far rather see households saving the money they
are currently spending on security systems and high walls. And, despite their
dominance of the public airwaves, it is not just the middle classes who bear
these costs. In fact, it is common cause that it's the poor, who have little
enough already, and who cannot afford either insurance or security systems, who
suffer disproportionately from crime. To the extent that their lives and
livelihoods are scarred by criminality, government's efforts at uplifting the
poor are undermined.
We often mention crime as a factor that constrains economic growth and the
potential of entrepreneurs, yet we know little about how much crime constrains
growth and by what mechanisms it limits growth and development. Christopher
Stone, an academic at the Kennedy School of Government at Harvard University
has published a paper on Crime, Justice and Growth in South Africa as part of a
growth diagnostics for South Africa. He lists seven mechanisms by which crime
affects economic growth. Without listing these, I urge you to look up this
paper if you're interested on (http://www.treasury.gov.za).
The World Bank's Investment Climate Survey found that crime costs businesses
about 1,1 percent of sales and 3 percent of net value added in South Africa.
This was in line with countries such as Brazil, Philippines, Russia and Peru.
On the positive side, relatively few companies reported that they were forced
to pay 'protection fees' to external parties. However, the cost of providing
security to companies has increased considerably since 1997. The burden of
crime is also felt in the second economy.
In Mamelodi, almost 40 percent of households run some type of business
operation, with 73 percent of these businesses operated by women. Crime was
amongst the highest factors reported when looking at profit margins since
businesses had to close early, operate behind shields and provide secure
storage facilities for goods.
Economic crime
The crimes that people fear the most are usually crimes of violence and it
is, therefore, appropriate that the police and the rest of the criminal justice
system is prioritising the prevention of contact crimes. But these are not the
only crimes that affect the welfare of South Africa's people or the
economy.
In focusing on these 'crimes of the street' we should not forget the crimes
committed by those in their corporate suites. Corporate and economic crime
often goes unmentioned by some of the most outspoken critics of government's
performance in relation to crime. Economic crime is sometimes treated as the
ugly step-child of the criminal justice system.
Corporate crime or so called 'white-collar crime' in the private sector and
in our financial services industry in particular is also a major source of
concern because the victims of these crimes are not just the financial services
companies themselves, but often poor people who have saved in these
institutions.
As Minister of Finance, I place a high premium on the integrity, efficiency
and ultimate credibility of our financial system as a vehicle to deliver the
services upon which a modern thriving economy is based. I am deeply troubled
when those in charge of the institutions of the financial system flout the
trust placed in them by using the financial system for their own enrichment at
the cost of their investors. These actions cause inefficiencies in the system,
which drive up the costs and reduce the profits, and hence our savings.
I especially worry when those who are trusted to invest the savings and
pensions of hardworking people, people who only want to provide a better life
for their dependants or for their old age, loot these savings for their own
greedy purposes. When this kind of abuse happens, who can blame people if they
lose their faith in the financial system and it reduces their eagerness to
save. But we must look at ourselves and ask why it is that only when we see the
impact of the looting of savings on the lives of pensioners that we remember
that this kind of criminal behaviour too, is a scourge that must be rooted
out?
Over the past 10 years we've sought to improve corporate governance through
legal reform and by building institutions like the Financial Services Board. We
have also sought to ensure that our banks become more vigilant for signs of
money laundering. Our Revenue Service has begun to pursue aggressively those
who mock the law by creating ever-more elaborate corporate and financial
structures whose sole purpose is to reduce their tax bill.
The extent of compliance with all these requirements remains unsatisfactory,
however. As a result, it has become obvious that we need to increase our
capacity to enforce the law substantially, something for which our latest
budgets have begun to make provision. The fact of the matter, though, is that
the culture of compliance with both the law and the principles of sound
corporate governance is not embedded deeply enough across our corporate
world.
There are too many companies whose tax affairs are not in order; too many
whose employees' conditions of service are not up to legal norms; too many
whose directors think little of fleecing clients, suppliers or their staff
pension funds. Too many businesses and banks lend recklessly. Too many
buildings fail to meet legal health and safety standards. Too many buses and
taxis are not roadworthy; too many truck drivers are forced to drive 18-hour
days.
The list is endless and each entry on it reinforces my sense that the
culture of business in South Africa is not a culture of compliance. That
explains, I think, why a recent survey conducted by Transparency International
found that South African companies are perceived to be among the most egregious
offenders in the world when it comes to paying bribes.
Let me say here that the era of cajoling business to get its house in order
is rapidly coming to an end. It will be replaced with more active and activist
law enforcement. The fear of getting caught and the probability of being
convicted must rise to reinforce any cultural changes that we seek to bring
about. In this respect, I want to point to the rapid growth of the budget of
the Specialised Commercial Crimes Court, which has doubled in the past three
years. This court is, I believe, the kind of sophisticated response to a
multi-faceted challenge from which other agencies can and should learn.
Corruption
It is not just corporate South Africa and the business community more
broadly about whose compliance culture I am concerned. In government, too, we
have too many officials whose decision-making is skewed by their pursuit of
personal gain. In a 2005 survey by PricewaterhouseCoopers of 100 firms (69 of
which were listed companies), 36 percent reported corruption or bribery
offences, in contrast to 24 percent globally and 21 percent in South Africa two
years earlier. The survey found that 5,6 percent of South Africans had been
asked for a bribe, favour, or gift from a public official in exchange for a
legally required service over a one-year period. A total of 4,6 percent had
been asked specifically for cash, up from 2 percent in 1998.
Whether it is the logistics head who receives kick-backs from building
contractors or the official who sells an ID book, whether it is a police
officer who shakes down immigrants or the local councillor who makes sure
contracts go to his or her relatives, there are too many officials whose ethic
of service is unacceptably frayed.
Fixing this requires that public service managers take more responsibility
for the stewardship of public funds. We have created a regulatory framework
under the Public Finance Management Act (and its municipal counterpart) that
makes this possible. It also requires that political parties who deploy their
members to government must monitor the performance and ethics of those
officials. What it requires most of all, however, is that we use with
ever-increasing vigour the tools contained in our law to identify and prosecute
those who loot public funds.
The resources we have devoted to this task have grown exponentially in the
past few years. The Special Investigating Unit, for instance, will see its
budget double in the next two years. Those funds will be used to scale up their
activities. By prosecuting more officials, I expect their efforts will
encourage other officials to show more respect for their legal and moral
duties.
Building on the successes: The importance of improving deterrence
I want to conclude by making a few observations about where I think some of
our efforts must be directed. We need to ensure that our criminal justice
system truly becomes an effective tool in the deterrence and prevention of
crime. For this to be achieved to the fullest extent possible, the efficiency
of the criminal justice system must be such that it can provide the assurance
that wrong-doers will be identified, found, prosecuted and punished. Whether
these are muggers and murderers, corrupt officials in the public service, or
business people with hands in the till, we need to ensure that our systems can
raise the risk of criminal behaviour. Neither the National Prosecuting
Authority (NPA), nor the courts, nor any of the investigative agencies in the
state, should rest on their laurels.
Too many people get away with their crimes and benefit handsomely from their
criminal lifestyles. More needs to be done to address this. Apart from the
demands of justice, pursuing criminals more effectively will deter others from
following their tracks. In this regard, I want to say that we also need to
develop our capacity to work together. We also recognise that fighting crime
requires both a more co-ordinated response by government involving numerous
agencies, but also social workers, our schools and local councillors.
Furthermore, there is a clear and direct role for communities through
community policing forums and through greater involvement by community
organisations such as churches, youth organisations and the business community.
Only through partnerships can we hold our law enforcement agencies accountable
and direct their efforts in a firm and innovative way, taking into account the
conditions at a local level.
I have already directed the agencies which report to me the Financial
Services Board, the Financial Intelligence Centre and the SA Revenue Service to
work more closely with the police and prosecution service. This partnership
directs its skills and resources at identifying people who commit financial
crimes. But it must do more than this too. It must also seek to recover the
proceeds of crime accumulated by criminals of any and every stripe. We have
already put in place the architecture needed to 'follow the money.' We must now
redouble our efforts to seize these assets.
In addition to raising investigative and prosecutorial success rates, there
are other areas where we need to sharpen our focus.
South Africa is, as I have said, a part of the world economy. There are
great benefits that flow from this. But there are also risks. One of these is
that our public and private institutions attract more criminal attention than
they once did. Many of these institutions, I believe, are vulnerable to the
ever-more sophisticated attacks that some of these criminal forces would seek
to launch. We need to ensure both that our defences are strong and that our
capacity to respond to these incidents is nimble. While building our capacity
to respond to violent crime, we cannot ignore the fact that syndicates across
the planet take greedy advantage of any opportunities for quick profits.
Conclusion
By way of conclusion, I want to congratulate the NPA on the launch of your
'Strategy 2020.' I must say it is sometimes a relief to find an organisation
that is planning for a future beyond 2010.
That future, I am sure, is bright. Your vision looks good. Your leaders are
first class. Your budgets are growing. There is no reason why government should
not be able to expect the effects of your efforts to be felt more and more
strongly.
I thank you for your time and patience.
Issued by: National Treasury
28 March 2007
