NEW RULES TO GOV­ERN SE­CU­RITY

Thanks to a new bill, four ma­jor in­ter­na­tional com­pa­nies will likely have to sell some of the firms they have just bought

CityPress - - Business - DE­WALD VAN RENS­BURG de­wald.vrens­burg@city­press.co.za

The im­mi­nent new law ban­ning for­eign con­trol of se­cu­rity com­pa­nies would sub­stan­tially af­fect the four ma­jor in­ter­na­tional se­cu­rity com­pa­nies op­er­at­ing in South Africa.

The avail­able an­nual re­ports from these com­pa­nies show at least two of them are in the mid­dle of an ac­qui­si­tion-led growth plan in South Africa. Un­der the new law, they will in ef­fect be forced to sell com­pa­nies they have just bought.

Se­cu­ri­tas, a Swedish multi­na­tional, made its en­try into the lo­cal mar­ket in 2009 by buy­ing MKB Tac­ti­cal, a se­cu­rity com­pany with 280 em­ploy­ees.

Since then, it has spent sev­eral mil­lion rands buy­ing up more South African se­cu­rity com­pa­nies.

It took over Claw Pro­tec­tion Ser­vices as well as Pi­ranha Se­cu­rity in 2010. In 2011, it ac­quired Or­bis Se­cu­rity So­lu­tions and in 2012 it in ef­fect took over 50% of Top Se­cu­rity.

Last year it bought Rentsec and Vamsa, two re­lated lo­cal com­pa­nies in the “re­mote sur­veil­lance” busi­ness.

All of these sub­sidiaries are ma­jor­ity owned, mean­ing Se­cu­ri­tas would likely have to sell parts of ev­ery­thing it has ac­quired in South Africa in the past five years.

The UK’s G4S has also been ex­pand­ing in South Africa through ac­qui­si­tions since 2007, when it bought half of Fi­delity Cash Man­age­ment for £18 mil­lion (R325 mil­lion). In 2008, it bought War­rior Alarms, Ahead Se­cu­rity Ser­vices and Coastal Se­cu­rity. It bought Sky­com and Impro Dis­tri­bu­tion and Sup­port in 2010. Last year, it ac­quired De­posita Sys­tems for R144 mil­lion.

Se­cu­rity, but also trans­for­ma­tion

Although the of­fi­cial rea­son for the 51% law is to pro­tect na­tional se­cu­rity, the op­por­tu­nity for South African com­pa­nies to buy the of­fend­ing “ex­cess” for­eign share­hold­ings is very much part of the pic­ture.

In the heated par­lia­men­tary de­bate on the bill in Fe­bru­ary, ANC MP An­nel­ize van Wyk, chair­per­son of the port­fo­lio com­mit­tee on po­lice, said: “What is wrong if South Africa wants to open up this in­dus­try for its own peo­ple?”

ANC MP John Ka­belo Moepeng echoed that, say­ing: “Let us as­sist South Africans to be part of this in­dus­try so that in the process we can as­sist in putting them in the main­stream of eco­nomic ac­tiv­ity, through the se­cu­rity in­dus­try.”

No one re­ally knows how much of the sec­tor is for­eign owned. The in­dus­try lobby group, Se­cu­rity In­dus­try Al­liance, has re­peat­edly used the fig­ure of 10%, which has been re­peated by var­i­ous op­po­nents of the 51% law. The fig­ure is, how­ever, highly mis­lead­ing. The 10% refers to the num­ber of reg­is­tered guards em­ployed mostly by the big four in­ter­na­tional com­pa­nies op­er­at­ing in South Africa.

These are Lon­don-listed G4S, ADT from the US, Se­cu­ri­tas and Chubb, a sub­sidiary of United Tech­nolo­gies Cor­po­ra­tion in the US.

These com­pa­nies’ lo­cal sub­sidiaries are, how­ever, heav­ily in­vested in the higher end of the sec­tor, which is more cap­i­tal and tech­nol­ogy in­ten­sive.

Their head­count of guards does not re­ally re­flect their size and value in the lo­cal in­dus­try.

They will, how­ever, all be forced to sell down parts of their South African busi­nesses if the bill is signed into law.

Se­cu­rity In­dus­try Al­liance said the bill, specif­i­cally the 51% rule, would cause cat­a­strophic job losses, whole­sale di­vest­ment and costly re­tal­i­a­tion in terms of trade agree­ments.

This week, it said the bill was a threat to the African Growth and Op­por­tu­nity Act, which was a hot topic at the sum­mit of African lead­ers held in Wash­ing­ton this week.

Ev­ery­body’s do­ing it

For­mer po­lice min­is­ter Nathi Mthethwa’s rea­son­ing for the 51% law in­cluded that it re­flected a gen­eral in­ter­na­tional trend.

The ar­gu­ment around na­tional se­cu­rity also hinges on the own­er­ship of more spe­cialised and hi-tech se­cu­rity in­dus­tries, not the place­ment of se­cu­rity guards.

In speeches as well as a brief­ing note pre­pared for Par­lia­ment ear­lier this year, Mthethwa listed nu­mer­ous coun­tries that re­strict for­eign own­er­ship of pri­vate se­cu­rity com­pa­nies.

Many of the coun­tries he listed, how­ever, don’t pro­hibit for­eign own­er­ship at all. In­stead, they have laws, like South Africa al­ready has, that ban for­eign­ers from man­ag­ing se­cu­rity firms or act­ing as se­cu­rity of­fi­cers.

There are, how­ever, sev­eral ex­am­ples of own­er­ship lim­its. The pro­posed limit in South Africa is iden­ti­cal to that in In­dia, where for­eign own­er­ship of se­cu­rity firms has been lim­ited to 49% since 2005.

That limit is, how­ever, part of In­dia’s large and com­pli­cated for­eign di­rect in­vest­ment regime that places var­i­ous own­er­ship lim­its on for­eign­ers in a va­ri­ety of sec­tors. The cap has not de­terred com­pa­nies like Se­cu­ri­tas, which bought 49% of a ma­jor In­dian se­cu­rity group in 2007.

Other coun­tries that specif­i­cally limit for­eign own­er­ship of se­cu­rity firms in­clude the Philip­pines, where for­eign com­pa­nies can­not own any eq­uity at all. Like In­dia, this pro­hi­bi­tion is part of a gen­eral regime of lim­i­ta­tions on for­eign own­er­ship in many sec­tors.

The same goes for Saudi Ara­bia, Malaysia, Colom­bia and Nige­ria. Kenya in­sists Kenyans own 26% of any se­cu­rity firm. The govern­ment has never de­nied that the bill sits un­easily un­der South Africa’s com­mit­ments un­der the World Trade Or­gan­i­sa­tion’s Gen­eral Agree­ment on Trade in Ser­vices (Gats).

Ac­cord­ing to Mthethwa, the tran­si­tion pro­vi­sion writ­ten into the bill is a re­sponse to that.

In a brief­ing note pre­pared for par­lia­men­tar­i­ans early this year, his de­part­ment noted that South Africa would have to mod­ify its Gats com­mit­ments. Any other coun­try can then re­quest ne­go­ti­a­tions or ar­bi­tra­tion on a tit for tat ad­just­ment on other com­mit­ments as com­pen­sa­tion.

If no one specif­i­cally re­quests it, the mod­i­fi­ca­tion goes ahead.

The govern­ment has, how­ever, in­di­cated that “na­tional se­cu­rity” is a sound ba­sis for changes, sug­gest­ing other coun­tries will be hard-pressed to push for com­pen­sa­tion.

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