A new report by Frans Cronje Private Clients estimates that illicit economic activity costs the fiscus at least R84.6 billion a year. That is equal to 1.0% of GDP, 3.9% of state revenue, and about 23.0% of the annual deficit.

The report, which will be featured in The Common Sense over the next week, comes after a mass shooting in Johannesburg on Tuesday night that has been linked to the country’s burgeoning illicit mining industry.

Speaking to The Common Sense, Frans Cronje said, “The Johannesburg shooting should be a warning to lawmakers about the scale of an illicit parallel economy that has been allowed to develop under their watch to a point where it poses a severe threat to South Africa’s national security and internal stability. When it comes to illicit activity South Africa is no longer dealing only with criminal markets, but with a shadow state that competes with the legitimate state for money, power, and authority.”

The report defines the illicit economy as a parallel system of production, trade, and finance that operates outside legal, tax, and regulatory controls. It includes smuggling, customs fraud, trade misinvoicing, money laundering, counterfeit goods, illegal mining, fuel adulteration, illegal fishing, and untaxed business activity.

The fiscal losses are concentrated in some keys sectors, but the phenomenon is now growing into every economic sector where there is a brand or product that can be faked or hijacked.

The report warns that the damage extends far beyond lost tax revenue. Illicit networks undercut lawful businesses, destroy jobs, deter investment, and weaken public finances by forcing the state to borrow more or place a heavier burden on compliant taxpayers.

More seriously, the report argues that illicit activity is becoming a national security threat. Criminal syndicates are said to be corrupting enforcement systems, border control, procurement, and parts of the justice system. Illegal mining groups exercise territorial control around shafts and use violence to defend their operations.

The report’s starkest warning is that illicit profits flow into politics, buying protection, influence, and policy leverage. The potential scale of that is vast: if just one percent of the proceeds of illicit economic activity were invested into politics, that would dwarf all legitimate private party funding in South Africa.