Should President Jacob Zuma sign into law the Private Security Industry Regulation Amendment Bill, which includes a clause relating to the dilution of foreign ownership, there could be many unintended negative consequences for the South African economy, says the South African Chamber of Commerce and Industry (Sacci).

At a panel discussion on the implications of the clause hosted by Sacci at its offices, in Rosebank, on Wednesday, Sacci CEO Neren Rau said the Bill “very boldly and very clearly advocated for foreign companies to give up a substantial portion of their ownership to local ownership”.

Section 20 of the Private Security Industry Regulation Amendment Bill, which is currently with President Zuma for review and signature, calls for foreign-owned private security companies operating in the country, such as G4S, ADT, Securitas and Chubb, to be at least 51% owned and controlled by South African citizens.

“The definition of security businesses has also been expanded to include companies which are manufacturers, importers and distributors of security equipment such as security cameras and access control,” explained Sacci, adding that, therefore, these companies, which included Panasonic, Bosch, Sony and FedEx, would also be subject to the same limitations on ownership.

Rau stated that through the Bill and other pieces of legislation, such as the Mineral and Petroleum Resources Development Act, Promotion and Protection of Investment Bill and intellectual property policy, South Africa would be sending a signal that its economy was increasingly characterised by interventionism on the policy and regulatory side and increasingly difficult to navigate in terms of the breadth and depth of its legislature.

“These are not the type of signals a country that is heavily dependent on foreign investment and the need to attract foreign investment on an ongoing basis needs to send to the rest of the world,” stressed Rau, noting that South Africa should be an example to its Southern African Development Community (SADC) member countries on how to respect the rule of law when doing business across borders. 

Also speaking on the panel, The Bridge Goup of Advocates’ Mark Oppenheimer, a specialist in constitutional law, pointed out the term South African citizen did not refer to a company, therefore, to comply with the Private Security Industry Regulation Act (PSIRA) it may not be enough for a foreign-owned company to sell shares to a local company. 

Secondly, he said, the 51% ownership requirement was only a general provision, as the Minister had the discretion to raise or lower the percentage of local ownership. Therefore, businesses in the industry were uncertain to what extent the legislation would affect them.

“There is also concern that the legislation could allow for a private dealing with the Minister,” stated Oppenheimer, who stated that the Bill bore similarities to Zimbabwe’s National Indigenisation and Economic Empowerment Act.

He further added that prior drafts of the legislation made provision for compliance within five years; however, this had since been removed. Therefore, compliance was immediate once the Bill was made law, which could negatively impact the share prices of the affected foreign companies.

Meanwhile, the Trade Law Centre’s JB Cronje, specialising in trade law and policy, highlighted that South Africa would “most definitely” violate South Africa’s international obligations under the World Trade Organisation’s General Agreement on Trade and Services (GATS), bilateral investment treaties and the SADC protocol on finance and investment, should the President approve the Bill. 

“South Africa did not inscribe any reservations to liberalisation for private security services in its GATS schedule, so it is fully committed. If it was now to introduce foreign equity caps, this would be in violation of its market access commitments,” said Sacci, pointing out that the limitation on the participation of foreign equity capital in terms of maximum percentage limit on foreign shareholding was prohibited under the GATS for all committed sectors.

“If you violate agreed commitments, it can lead to reciprocal violations and the end result will be a downward spiral of violations, creating an unpredictable environment for doing business,” said Rau.

Cronje added that South Africa would also be placed at odds with the requirement to benefit with regard to the trade preferences under the African Growth and Opportunity Act.

RATIONAL FEAR?
Former Minister of Police Nathi Mthethwa’s rationale for the inclusion of the clause was chiefly out of concern for national security as it was feared that “global security companies will amass too substantial a presence in South Africa,” noted Rau.

The National Assembly passed the Bill on February 25, while the National Council of Provinces adopted it on March 5. However, Sacci highlighted that at that point the Bill had not included the clause diluting foreign ownership. The clause was introduced into the Bill, “without prior notice or discussion”, on the day it was to be voted on by the Portfolio Committee on Police.

Rau said the simplest way to deal with the concern of national security was for government to explain in its procurement process for a security company why foreign companies would not be considered, wherever an organisation, institution or national key point existed that was believed should not be vulnerable. 

However, the Security Industry Alliance (SIA) added that since the PSIRA restricted registration as a security officer to South African citizens, it was unlikely that citizens would place foreign interests before local interests. “[As a result,] the perceived threat to national security because of foreign ownership was not a concern,” it stated.

Foreign companies also only employed between 30 000 and 40 000 of the 446 000 security officers directly employed by the South African private security industry.

Foreign private security companies represent less than 10% of the private safety and security sector in South Africa. The vast majority of the industry, which is worth about R50-billion SIA CEO Steve Conradie said at the panel discussion, was currently owned and controlled by South Africans.

In addition, all foreign-owned private security companies operating in South Africa were controlled and managed by South African citizens, as required by the PSIRA.