South Africa: Scrutiny of Undocumented Workers Will Elevate Compliance Risk in Supply Chains

What happened: The government signaled tougher enforcement against employers hiring undocumented foreign nationals by boosting inspections and imposing harsher penalties for non-compliance.

Why it matters: The principal risk for IECs is in contractor and subcontractor networks operating in construction, logistics, security and other labor-intensive services.

What happens next: Targeted inspections will increase in politically sensitive sectors, creating potential compliance, reputational and project delivery risks for companies with large contractor ecosystems.

President Cyril Ramaphosa recently called for tougher action against undocumented migration. Stricter enforcement of immigration policies can create indirect risks for IECs through contractor networks, labor supply chains and local employment expectations, particularly for companies involved in large-scale construction, infrastructure and energy projects.

Immigration has become a salient political issue in South Africa amid high unemployment, persistent economic stagnation and public concerns over crime and pressure on public services. In a national address on 7 June, Ramaphosa signaled a tougher approach toward employers hiring undocumented foreign nationals, arguing that businesses that knowingly employ undocumented workers undermine labor standards and disadvantage South African job seekers.

South Africa already possesses legal mechanisms to penalize employers who are hiring undocumented workers, but they have been applied inconsistently. This will likely change over the coming months, even as capacity constraints limit the scope of a nationwide crackdown, with growing political pressure around immigration, encouraging more visible action against employers and contractors perceived to be relying on undocumented labor.

Compliance Risk

Any surge in workplace inspections or enforcement operations will likely first affect labor-intensive sectors such as construction, private security, logistics, cleaning services, hospitality and agriculture. Historically, these sectors attracted particular scrutiny because they relied on lower-skilled labor and extensive subcontracting arrangements. They are also commonly represented within the contractor ecosystems, supporting major energy and infrastructure developments.

For IECs, the principal exposure is unlikely to stem from their own workforces, which generally comprise formally employed staff and specialized contractors operating through established compliance processes. Instead, risk is concentrated further down the supply chain among subcontractors, labor brokers and service providers whose employment practices may receive less scrutiny from project sponsors.

Increased inspections would create operational disruption if contractors were found to be non-compliant. Depending on the scale of any enforcement action, companies may face delays associated with workforce shortages, contractor replacement or project rescheduling. These risks are relevant during construction phases, where large numbers of workers are typically employed across multiple subcontracting arrangements.

Growing Local Employment Pressures

The issue also intersects with South Africa's broader focus on employment creation. Government officials, labor unions and community groups typically assess major projects according to their contribution to local employment — perceived or otherwise. This trend will intensify as unemployment remains above 30% (and above 40% among youth) and political parties frame immigration as a labor-market issue rather than solely a border-security concern.

As a result, allegations that contractors are employing undocumented foreign nationals could become a source of community grievance even where no formal violations are ultimately established.

This dynamic is relevant to energy projects in economically marginal areas where expectations for local employment opportunities are high. Community representatives may use concerns over foreign labor to pressure companies for additional hiring commitments, greater local procurement or changes to contractor selection processes. In some cases, such disputes could contribute to project delays or reputational challenges.

Policy Watch

The Employment Services Amendment Bill, introduced to parliament in May, would — if passed — give the government greater authority to regulate the employment of foreign nationals in certain sectors and occupations. While it is unclear whether and when it will be implemented, the legislation is notable for reflecting a broader trend towards increased state involvement in labor market management and a stronger political emphasis on employment opportunities for South African citizens.

Recent comments from Employment and Labor Minister Nomakhosazana Meth and Deputy Minister Jomo Sibiya (see Featured Personality) suggest that the government intends to place greater emphasis on workplace inspections and enforcement.

In our view, the most prudent response for IECs going forward is to focus on contractor oversight rather than anticipating major changes to their own employment practices. Companies may wish to review labor compliance procedures among contractors and subcontractors, ensure appropriate documentation requirements are being enforced and assess whether existing due diligence processes adequately identify potential immigration-related risks.