Paul Kruger, tralac Researcher, discusses South Africa’s Private Security Act Amendment Bill

Private security is serious business in South Africa. The number of private security firms has been growing rapidly with the number of registered active security businesses reaching 8828 at the end of March 2011. The private security industry has grown to an estimated worth of R50 billion, one of the largest in the world, and the number of registered active security officers at the end of March 2011 (411 109) is higher than the number of police officers (156 489) currently employed by the South African Police Service. During 2012 a review of the Private Security Industry Regulatory Authority (PSIRA) Act 2001 was undertaken to address certain regulatory gaps in the current legislation. Amongst other things, the proposed legislation seeks to regulate foreign ownership of private security firms operating in South Africa by including thresholds to ensure these firms are majority owned by South African citizens. According to a Cabinet statement, tighter regulation is necessary due to the “threat to national security posed by participation of foreigners”.

The PSIRA Amendment Bill 2012 requires that at least 51 percent of the ownership and control of security services providers is exercised by South African citizens. The definition of ‘security services’ is comprehensive and includes practically all guarding, protection, security, response, training, monitoring and managing functions, even those services provided by locksmiths. The requirement also extends to existing companies; services providers that are currently registered are being given five years to align their ownership and control structure with the Bill. The Bill gives the Minister for Safety and Security additional discretion to prescribe a “different percentage of ownership and control” for certain categories of security businesses. It presents the option for the Minister to completely deny any foreign investment if done in the “security interests of the Republic”. Existing security firms are also subject to these powers, which suggests that even the ownership and control of firms currently operating in the South African market can be adjusted by the Minister. Opponents of the Bill argue that these onerous restrictions will lead to job losses, disinvestment and a rise in unregistered services providers, which will be detrimental to South Africa’s international image. Most importantly, from an international trade law perspective, the Bill, in its current format, violates the international commitments made by South Africa under the General Agreement on Trade in Services (GATS).

South Africa is a party to the GATS and has submitted a schedule of specific commitments as required by GATS Art. XX. This schedule represents the liberalisation commitments and limitations South Africa has undertaken to apply with respect to foreign suppliers and foreign services. South Africa’s schedule covers market access and national treatment obligations, but only binds the government to the extent and in the areas that it has indicated in the schedules. GATS does not prescribe the scope and level of multilateral liberalisation; the only obligation WTO member states were under, was to enter into successive negotiating rounds to further liberalise trade in services. WTO member states could therefore schedule as many, or as few sub-sectors as they wished to liberalise. South Africa made commitments in 91 sub-sectors, a high number compared to other countries in sub-Saharan Africa. Some countries decided to make minimal commitments, with Madagascar committing four sub-sectors, Namibia three sub-sectors and Tanzania only one sub-sector. It can be argued that South Africa made far more liberal commitments than most developing countries, and took commitments that were comparable to those made by developed countries. The Uruguay Round of negotiations coincided with South Africa’s return to the international trade arena, which could partly explain the approach it took. South Africa had aspirations to become a globally competitive manufacturing economy, and this needed to be underpinned by strong services industries. The country was ready to make liberal commitments to invite foreign investment and prove to the world South Africa was open for business.

One of the services categories liberalised by South Africa was that of “Investigation and security (CPC 873)”. The UN Central Product Classification List (CPC) provides a more detailed explanation of the scope of ‘investigation and security services’ by breaking the category down into 6 sub-groupings: 1) Investigation services;2) Security consultation services; 3) Alarm monitoring services; 4) Armoured car services; 5) Guard services; and 6) Other security services. The category covers a wide range of security services which are in many instances similar to the private security activities regulated by the PSIRA Act 2001. If the category of ‘investigation and security services’ has been liberalised, as is the case with South Africa, the key obligation is to abstain from measures which have the potential to deny the entry of foreign services suppliers, or modify the conditions of competition in favour of the country’s own services industries. The liberalisation commitments made by South Africa specifically relate to the commercial establishment of foreign security providers which includes the acquisition and maintenance of a juridical person or the creation of a branch or representative office.  South Africa made these commitments at the multilateral level and the government has the duty to respect its international obligations and ensure that the current and future domestic regulatory framework is in line with what was agreed. If South Africa introduces domestic measures which are in conflict with its international commitments made under the GATS, any aggrieved WTO member state has the capacity to institute a claim under the WTO dispute settlement system. If the Bill is accepted in its current form, the measures to restrict the ownership and control of foreign security firms will be in direct conflict with South Africa’s international obligations.

It is difficult to speculate what effect liberalisation under the GATS had on the South African economy; but a number of services industries have shown robust growth (certain business services, telecommunications, audio-visual, construction, distribution financial, and tourism services) and have expanded rapidly across Africa. These services providers are delivering world class services that have proven to be internationally competitive. State enterprises continue to fulfill a very specific economic, political and social function in South Africa and still play a central role, particularly in the infrastructure services of transport and energy; however it can be argued that the general state of the services industries in South Africa is very healthy and in some cases even healthier than the manufacturing sector.  Along with manufacturing, South Africa’s other traditional industries have been suffering, with the mining and agriculture sectors being highly volatile and unpredictable during the past year. Given this kind of instability, it may perhaps be an opportune time for South Africa to give more thought about the relative strengths and considerable potential of its services industries.

International interest in South African services industries remains strong with many of the key industry players having a substantial share of their business operations owned or controlled by foreigners. This is the effect of globalisation and the nature of 21st century trade. It is unlikely to change unless protectionist measures are imposed by domestic legislation. Foreign investors are however naturally cautious of unpredictable environments, especially if there is the slightest chance for the expropriation of their investments. This is precisely the kind of uncertainty being created by the amendments to the PSIRA Amendment Bill. More worrying is that these protectionist measures are proposed with total disregard to South Africa’s international obligations. Approval of the PSIRA Bill in its current form it is likely to be very costly for South Africa; both in terms of the international perception regarding the predictability of its investment environment and the threat of dispute settlement proceedings at the multilateral and bilateral levels.

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