Impact of Crime on Small Businesses Report 2008 - Gauteng Online

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5 DIRECT AND INDIRECT COSTS OF CRIMETHE SURVEY FINDINGS show that crime can have a devastating effect on thepr<strong>of</strong>itability and viability <strong>of</strong> many small enterprises. The smallest businesses maybe particularly vulnerable; but the actual costs for larger firms can be disturbinglyhigh. <strong>Crime</strong> has both direct and indirect costs. The direct costs are made up <strong>of</strong> thevalue <strong>of</strong> goods or money stolen and/or the cost <strong>of</strong> damage to property or goods.Indirect costs include the cost <strong>of</strong> the disruption to business/lost work hours owingto staff time <strong>of</strong>f work, loss <strong>of</strong> necessary equipment or temporary closure <strong>of</strong> thebusiness, as well as medical expenses, loss <strong>of</strong> staff and increased insurance premiums.Businesses also incur precautionary/security costs, which are dealt with insection 6. Opportunity costs, such as a tendency for businesses to limit growth orstaff numbers owing to concerns about crime, are dealt with in section 7.THE MOUNTING COSTS OF THEFT IN A ‘LOW CRIME’ NEIGHBOURHOODX Air manufactures and installs air-conditioning units. The business is based in Roodepoort, on Johannesburg’swest rand, and employs twenty staff members. The manager describes the area as alow crime neighbourhood. He is nonetheless aware <strong>of</strong> a number <strong>of</strong> break-ins and thefts amongneighbouring enterprises, and his own business has experienced several incidents <strong>of</strong> theft in the pasttwelve months. The business faces onto an open space, and is about 1.5kms from a large informalsettlement – two factors which he believes play a part in regular incidents <strong>of</strong> petty theft.In the previous twelve months the business experienced five incidents <strong>of</strong> crime, ranging from thetheft <strong>of</strong> a vehicle and equipment from the premises, to petty theft <strong>of</strong> tools through the workshop window.While no single crime had a particularly large impact in itself, the costs <strong>of</strong> repairing or replacingequipment saw the total direct costs <strong>of</strong> these five thefts tally up to about R19 000 over the year.Indirect costs were also considerable. The stolen vehicle, loaded with equipment, was fortunatelyinsured. However, it was two months before the claim was paid out – two months during which aparticular job had to be put on hold because essential equipment could not be replaced. Threedays <strong>of</strong> work were lost in the immediate aftermath <strong>of</strong> the incident, reporting the incident to the police,dealing with the insurance company, and making arrangements to deal with the loss <strong>of</strong> vehicleand equipment. Given that the firm works with a figure <strong>of</strong> R500 a day for labour and R700 aday in overheads – those three days alone amount to R3 600 in lost revenue.The company’s security costs included once <strong>of</strong>f installation costs for trackers on the five companyvehicles, at a cost <strong>of</strong> around R12 000, as well as installation <strong>of</strong> an alarm system. The companypays about R250 monthly for armed response. It also incurs insurance costs for the building,equipment and five vehicles.
THE IMPACT OF CRIME ON SMALL BUSINESSESSurvey respondents were asked to estimate both their direct and indirect losses toincidents <strong>of</strong> crime in the past year. This section uses the survey data to examine theeconomic impact <strong>of</strong> crime in detail, using econometric modelling. It examines twospecific areas:1. The actual and statistically expected cost <strong>of</strong> crime2. The factors that characterise firms impacted by crimeTable 7 shows the sum <strong>of</strong> indirect and direct costs, per incident, by firm size(measured by turnover).Table 7: Mean and median costs <strong>of</strong> crime by turnoverTurnover per year Mean Median>R5,000 R1 650 R950R5,000 - R9,999 R4 831 R2 750R10,000 - R14,999 R4 040 R2 900R15,000 - R24,999 R23 972 R2 750R25,000 - R49,000 R3 382 R2 267R50,000 - R74,999 R8 028 R3 875R75,000 - R99,999 R2 758 R1 433R100,000 – R199,999 R6 630 R1 417R200,000 – R399,999 R2 030 R1 000R400,000 – R599,999 R12 899 R3 500R600,000 – R799,999 R2 796 R960R800,000 – R999,999 R37 803 R4 813More than R1m R49 203 R4 833Total R15 556 R2 250These results illustrate that, especially for smaller firms, the average costs <strong>of</strong> acrime incident can constitute a large proportion <strong>of</strong> their turnover. This finding isechoed by research in former Eastern bloc and Soviet Union countries, which foundthat the cost <strong>of</strong> crime as a proportion <strong>of</strong> company revenues is greater for small and micr<strong>of</strong>irms than large firms, despite smaller and micro firms experiencing fewer incidents<strong>of</strong> crime. Similarly, a study in Jamaica found that the direct costs <strong>of</strong> crimeamounted to two percent <strong>of</strong> revenue for large and medium firms, and nine percent <strong>of</strong>revenue for micro firms. 19The results presented in Table 7 are the costs <strong>of</strong> crime if a firm is a victim <strong>of</strong> crime.The probabilities <strong>of</strong> a business experiencing an incident <strong>of</strong> crime are presented inTable 8.43
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Impact of Crime on Small Businesses Report 2008 - Gauteng Online

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