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A perceived threat

June 2014

Recent years have shown exponential growth in the private security industry in South Africa. Accordingly, the Private Security Industry Regulation Authority (PSIRA) saw fit to introduce the Private Security Industry Regulatory Amendment Bill before Parliament for purposes of amending the Private Security Industry Regulation Act 56 of 2001 to cater for both the developmental changes and burgeoning growth in the industry.

The Amendment Bill must be viewed against the backdrop of the prevailing circumstances in the South African private security industry. According to PSIRA's Annual Report for 2012/2013, there are currently more than 440 000 private security guards employed by over 9 000 registered security companies. The private security industry in South Africa has shown overall growth of 24.53% over the 2012/2013 period. However, the number of registered security service providers has declined by 3.56%.

The country has significantly more private security guards than SAPS police officers and SANDF personnel. These, and other factors such as the desire to further and more stringently regulate the issuing and control of firearms and, controversially, protect and maintain national security, have resulted in the introduction of the Amendment Bill.

The proposed amendments
The Amendment Bill seeks to introduce a wide-ranging set of amendments to the Act, the most controversial of which is section 20(2). This section will impose the requirement that a security business may only be registered as a security provider, inter alia, if at least 51% of the ownership and control is exercised by South African citizens. Since section 14A of the Amendment Bill will provide that no person other than a South African citizen may be appointed as a director or deputy director of a security business, “ownership and control” relates specifically to the shareholding of a private security company.

When section 20(2) was initially proposed, it was coupled with section 20(6) in revision B 27-2012 of the Amendment Bill, which required that security service providers that were registered as such, at the commencement of the Act, comply with section 20(2)(c) within five years of the start of the Amendment Bill. Supposedly in an effort to assuage the concerns of foreign-owned security companies in South Africa, the latest Amendment Bill that currently awaits signature into law by President Jacob Zuma, revision B 27D-2012, contains so-called transitional provisions, the most notable of which is section 44A(15) which reads as follows:

“The implementation of section 20(2)(c) with regard to a security business that is registered as a security service provider at the commencement of the Amendment Act must be done in accordance with legislation promoting and protecting investment in the Republic and the Republic's international trade obligations.”

This is at best a vague sort of pseudo-panacea on the part of the drafters of the Amendment Bill that does little to explain the true basis for the proposed amendment, nor does it give any indication as to the effect that the implementation of section 20(2)(c) will have on the South African security industry. The Act is broad in its application and applies even to such sub-security industry companies registered in terms of the Act as locksmiths, which do not provide “security services” in the application of the phrase as it is generally understood (that is, guarding and armed-response services).

Public reaction and likely effects
Not surprisingly, this proposed amendment has been met with staunch opposition from players in the South African private security industry due to the fact that a number of the large security service providers are wholly foreign-owned and will fall foul of section 20(2)(c).

The purpose of this amendment is protecting South Africa’s national security - according to Minister of Police Nathi Mthethwa, foreign-owned private security companies in South Africa constitute a threat to our national security. Exactly what the threat is remains unknown (or undisclosed) and the failure of Nathi Mthethwa and/or Parliament to be transparent and accountable to the South African security industry certainly smacks of an “Nkandla-style” scenario, with terms such as “public interest” and “national security” being thrown around loosely and with little credibility.

The mere fact that the personnel employed within the South African private security industry exceeds that of the SAPS and SANDF does not automatically presuppose an impending coalition of armed security guards ready to storm the gates of the Houses of Parliament in a coup d'etat, or pose any real threat to national security at all. At least, there is no evidence to suggest such things. In fact, in the aforementioned Annual Report of PSIRA, Nathi Mthethwa acknowledges that businesses and private individuals use the private security industry as a means to protect their homes, business and assets. This is something of an admission by PSIRA and Nathi Mthethwa that South Africa's police force is simply not equipped to fill the vital role that the private security industry plays in South African society.

Over and above the perceived threat to national security little, if any, thought has been given to the impact that this proposed amendment will have on foreign investment into the Republic. It will place us in the precarious position of foreign-owned security companies being forced to either pull-out of the country or take drastic and highly costly restructuring measures to comply with section 20(2)(c). The perception by potential and existing foreign investors may well be that if this can happen in the security industry, it could happen in other industries and thus lead to the stifling of potential foreign investment and even the withdrawal of existing foreign investment in South Africa.

In my opinion, there has been no rational connection established by PSIRA or the South African government between limiting foreign ownership of private security companies and the maintenance and protection of national security. Accordingly, section 20(2)(c) may soon face constitutional challenge should President Zuma sign the Amendment Bill as it stands into law.

It can never be denied that it is of utmost importance for any private security industry to be well regulated and controlled, and the Amendment Bill contains provisions not dealt with here that are reasonable and drafted with the intention of tightening up certain areas in the industry. However, section 20(2)(c) is certainly a bridge too far in terms of achieving any positive outcome for the heightened regulation of the industry. The transitional provisions in the Amendment Bill are of no assurance to foreign-owned security companies operating in South Africa.

The effects of section 20(2)(c) may be severe and could result in a marked impact on employment and foreign investment in South Africa's private security industry, and will leave a void unlikely to be easily and timeously filled by locally-owned security service providers.

The team

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