The ‘construction mafia’ is increasingly threatening South Africa’s burgeoning data centre market, leading to delayed projects, violence and significant financial losses for operators.
This was the word from panellists during a discussion titled: “Investment opportunities in Africa’s data centre market”, at the Pan-African Data Centres Exhibition & Conference, taking place this week in Sandton, Johannesburg.
The panellists from Digital Council Africa and Master Power Technologies told moderator Mark Acton, head of technical due diligence at Future-tech, that SA’s flourishing data centre industry presents infinite economic opportunities and is set to become the backbone of Africa’s digital economy.
However, the growing scourge of the ‘construction mafia’ continues to sabotage investment potential in the local market, they stated.
According to Inclusive Society, construction mafias, often labelled ‘business forums’, are networks that employ violence and other illegal means of controlling access to public sector procurement opportunities. These groups typically invade construction sites, demanding money or a stake in development projects.
According to the panellists, this form of extortion has in some cases seen building and infrastructure projects abandoned by developers, hampering the opportunities identified by global data centre operators and threatening the objectives of SA’s National Infrastructure Plan 2050.
“This is a serious problem and I'm sorry to say there has even been loss of life; not one but many people have died as a result of the ‘construction mafia’,” commented Juanita Clark, CEO of Digital Council Africa and co-founder of the FTTH Council Africa.
“It’s a much-formalised sector and the guys [perpetrators] know exactly what they are going after. They would just shut a site down. We've seen people having to change sites or stop working, and this has an impact on the completion timelines of the projects. Until such a time when you can come to an agreement with the ‘business forum’, construction will not proceed in some cases.”
During the criminal act, the leader of the company awarded the development project is approached by the members of the ‘business forum’ and extort funds. If an agreement is not reached, this often escalates to kidnapping, violence, assault, threats or murder.
According to South African attorney journal De Rebus, the mafias often justify these criminal acts by using the Preferential Procurement Regulation, 2017 as a scapegoat.
The regulation stipulates that 30% of a construction development project has to benefit the community where it is allocated, by way of employment. The regulation aims to use public procurement as a lever to promote socio-economic transformation, empowerment of small enterprises, rural and township businesses.
In 2019, at least 183 infrastructure and construction projects worth more than R63 billion had been affected by the construction mafia in SA, according to the Organised Crime and Corruption Reporting Project, 2022.
Since then, invasions have escalated at construction sites across SA, it says.
Clark added that this crime is not only prevalent in the data centre industry, but the telecoms sector and business entities across other industries are increasingly targeted.
“It’s not just the data centres; we are also seeing a similar trend in tower construction. The biggest problem was during the pandemic when traditional construction was shut down and the perpetrators were forced to turn their focus on other things, such as fibre-optic cables.
“Sometimes companies have to employ additional security, because if you don't give them what they want, they will come and burn down what you have on-site. It’s a big problem for investors and operators.”
Developing problem
Despite other challenges, such as infrastructure and regulatory obstacles, SA presents lucrative potential for the market, with more than half of the continent’s data centres located in SA, as hyperscalers and data centre operators continue to establish cloud regions, Clark continued.
SA is considered a ‘sweet spot’ for operators due to several factors, including the growing cloud market, driving the country’s digital economy.
The increased use of cloud computing and digital technologies, such as artificial intelligence and big data, by local businesses is leading to high demand for co-location and data storage services offered by data centres.
According to Arizton Advisory & Intelligence, SA’s data centre market was valued at $2.28 billion in 2023 and is expected to garner investment of $3.70 billion by 2029 – growing at a CAGR of 8.44% during the forecast period.
SA is the largest market in Africa in terms of investment in data centres, with data centre operators in the country including Africa Data Centres, Open Access Data Centres, Teraco (Digital Realty) and Microsoft, Amazon Web Service, Telkom, Vodacom, Equinix and Vantage Data Centers, among others, it says.
Also speaking during the panel discussion, Menno Parsons, MD of Master Power Technologies, explained the construction mafia issue is not exclusive to SA, but is prevalent across the continent, especially in Kenya and Nigeria.
“We go to different countries and regions and we sometimes take work away from people, so they're going to be upset. When you’re going to establish a construction site in a new location in another country, it’s important to make use of some local talent and adopt local people and contractors.
“It may be considered rude to just set up in a country and force your way into communities, so it’s important to engage communities and bring in people from surrounding areas,” explained Parsons.
As part of government’s approach to combating this crime, president Cyril Ramaphosa has requested the establishment of a South African Police Service Task Force that focuses solely on investigating and prosecuting construction mafia incidents across SA, noted Clark.
Several criminal cases are currently under investigation.
“There has been a person appointed within the presidency who is focusing on trying to resolve these problems. We [Digital Council Africa] have written a white paper for our members on how to navigate this and engage the community and speak to community members.”
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