G4S Plc (GFS), the world’s biggest provider of security services, and rivals including Securitas AB (SECUB) and Tyco International Ltd. (TYC) face having to relinquish control of their South African units as the government restricts foreign ownership of the industry.
The Private Security Industry Regulation Amendment Bill, which is awaiting President Jacob Zuma’s signature, will require all security companies and manufacturers, importers and distributors of security equipment to be at least 51 percent owned by locals. The government says the measure, which Parliament’s two chambers have passed, is needed to safeguard national security.
“This sends totally the wrong message to foreign investors,” Steve Conradie, chief executive officer of the Security Industry Alliance, an industry body whose members include G4S, Securitas and Tyco’s ADT Security (Pty) Ltd., said in an April 3 phone interview from Pretoria. “We wrote a note to the president to request him not to sign that bill. We need to wait and see what will happen with that process” before deciding on a court challenge.
The private security industry has mushroomed in Africa’s largest economy as the police battle to tackle rampant crime. An average of 2,209 serious felonies, including 45 homicides, were committed daily in the year through March last year, latest police data shows.
About 446,000 registered security guards operate in South Africa, compared with 270,000 police officers and soldiers, according to the government.
Faced with high levels of violent crime, many wealthy and middle-class South Africans have retreated into guarded, gated complexes, ring their homes with electric fences and have contracts with armed response companies.
South Africa is clamping down because of its concern with the size of the industry, the blurring of lines between security companies and private defense businesses and their use in gathering intelligence, Police Minister Nathi Mthethwa said.
“South Africa currently has one of the largest private security industries in the world,” he said in a Feb. 25 speech to the National Assembly in Cape Town. The government needs “to ensure that our domestic legislation protects both our national and security interests.”
The rules are separate from South Africa’s black economic empowerment laws aimed at giving the black majority a bigger stake in the economy to compensate for discrimination during white segregationist rule, which ended in 1994. Those regulations include requiring mining companies’ local assets to be 26 percent black-owned by the end of this year.
The Security Industry Alliance has dismissed the government’s concerns, saying less than 10 percent of guards are employed by foreign-owned companies.
“We asked the question what national threat the foreign companies pose and are still waiting for an answer,” Conradie said. The law already requires that “you need to be a South African citizen to manage a security company.”
G4S, based in Crawley, England, is the largest foreign-based employer, with 14,302 staff, followed by Schaffhausen, Switzerland-based Tyco’s ADT unit with 10,516 and Stockholm-based Securitas with 3,110, according to the industry body. Fidelity Security Services, based in Johannesburg, is the country’s largest security company, with 26,551 workers, followed by Pretoria-based Protea Coin Group, with 17,500.
“This industry is the biggest supplier of entry-level jobs, where guys are getting their first pay check,” Conradie said. “There is a total contradiction” between the law and the government’s stated commitment to creating jobs.
Anthony Minnaar, head of the University of South Africa’s Security Management Program, said his research on foreign-owned security companies showed a number focused exclusively on maximizing profits, while failing to act in their client’s best interests.
The new ownership requirements may “not be a bad thing at all if the companies can somehow deliver better services more cost-effectively,” he said by phone from Pretoria, the capital.
The South African Chamber of Industry, the country’s biggest business organization, said the inclusion of security equipment manufacturers, importers and distributors under the ambit of the law implied that multinational electronic suppliers such as Apple Inc. (AAPL), Sony Corp. (6758) and Panasonic Corp. (6752) would have to sell 51 percent of their businesses to locals.
“The property rights infringement and vague scope of application cannot be said to be rationally linked to the goal of improving the regulation of South Africa’s security industry,” Neren Rau, the chamber’s chief executive, the chamber said in an April 1 e-mail. “The ownership requirement sets a dangerous precedent that can spill onto other industries and weaken property rights and investor confidence.”
The police ministry said it was up to the presidency to decide whether further changes were warranted.
“When anybody raises a concern we look at it,” Jenni Irish Qhobosheane, Mthethwa’s acting chief of staff, said by phone from Pretoria today. “The legislation has been passed by Parliament so the Ministry of Police isn’t in a position to be changing it.”
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