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SA’s foreign security investors face curbs

CAPE TOWN — The large foreign investment in SA’s R50bn-a-year private security industry could soon be under threat again if the government goes ahead with plans to limit foreign ownership of security companies.

It has emerged that amendments to the Private Security Industry Regulation Act are being considered — some insiders say early drafts have already been written — which will compel foreign-owned security companies to ensure that a certain portion of their shares are in South African hands.

Almost 10 years ago, when the act was first considered by Parliament, there were attempts to ban any foreign ownership of private security companies.

This almost caused a diplomatic row with the UK as it was interpreted as being in conflict with the investment protection agreement signed between SA and the UK in 1994.

The late Steve Tshwete, who was minister of safety and security at the time, eventually bowed to the pressure and the idea of banning foreign investment in private security was dropped. At the time the main investors were ADT, Chubb, Securicor and Group4- Falke, and their combined investment was in excess of R3bn.

The compromise was that the foreign-owned companies would have to have ministerial exemption for foreign executives to serve on the boards of their local subsidiaries. They would also have to contribute to empowerment.

A document that is circulating among interested parties and in the industry, which Business Day has had sight of, says one of the aims of the amendment bill is "to provide for the limitation of foreign ownership of private security companies". The document appears to be a comment from an industry player on what the government’s intentions are.

Two clauses are quoted, which say: "Requirements for registration: 23.(2) A security business applying for registration as a security service provider in terms of section 21(1), may be so registered only if ... such security business meets the prescribed quotas for share investments in respect of security services"; and "Regulations: 35.(1) The minister may make regulations relating to ... the quotas for share investments in respect of security services".

The civilian secretary for police, Jenni Irish-Qhobosheane, confirmed that amendments to the act were being considered, but there were no details yet as there was not yet a draft bill and the process was at the stage of "finalising policy positions".

She confirmed, however, that ownership of the industry was one of those policy positions.

The document concludes with an analysis of the motivation for "quotas for share investments", saying "it is unclear from the private security industry regulator what has motivated the addition of the ‘quota for share investments’ in the bill, but speculation within the industry is as follows: ‘The private security industry has become one of the biggest industries of SA; there is an inherent lack of trust of the industry by the state; and individuals who do not rely on the state for public safety and order any more have begun to lose all hope of a proper functioning and reliable police service, and the next logical step is for individuals to refuse to serve and contribute to the state in the form of taxes for their basic right to safety, which they are not receiving’."

The CEO of the Private Security Industry Alliance (representing private security companies in SA), Steve Conradie, stressed that the private security industry was the second-largest in the country, turning over about R50bn a year, and was a significant creator of entry-level jobs.

He warned that any measure that prevented expansion in the industry would have an effect on the number of jobs created by the industry.

He said there was a proposed draft document — around which there had been a two-day workshop — and it was there that the industry alliance had objected to the proposed limitation of foreign ownership. He said the alliance would fight the inclusion of such limitations in the bill.

He understood that the process of crafting amendments to the act would "unfold next year".

The document concludes that "the insertion of these clauses and the powers these clauses seek to give to the regulator and the minister of police amounts to stepping on the toes of other line ministries and institutions such as the Department of Trade and Industry, and could potentially alienate investment in the private security industry due to such restrictions".

There are also fears that any moves along these lines could again trigger a diplomatic row as they would again be an infringement of SA’s investment protection agreements.

This article applies to: Middle, Rontree 1, Rontree 2, Glen, Bakoven, Village, Clifton, CPF