Act on private security sector must not be passed

THERE is no doubt that the inclusion of the foreign ownership limitation clause in the Private Security Industry Regulation Amendment Act will mean plenty of pain for both the industry and South Africa, and no obvious gain except for a few lucky, connected shareholders.

The act is currently before President Jacob Zuma, awaiting his signature. If signed into law, the notorious clause 20 in the act will force foreign owned private security firms to overnight yield at least 51 percent of their businesses to South Africans.

The provision would come into force immediately and would lead to a ‘fire sale’ of the affected companies’ shares, providing access to cheap shares for a few lucky shareholders. The entire industry could be thrown into turmoil as a scramble ensued for the “juiciest” assets.

It is important to note that it is not clear precisely which companies would be affected. The provision suggests that all foreign companies in the private security value chain, including, for example, electronics firms, would be affected.

This could hit a significant component of South Africa’s manufacturing sector, thereby compromising the government’s drive to develop domestic industry. Aside from the core private security firms, other affected companies in the security value chain have been worryingly quiet.

Expropriation clause

Are they in denial about what this expropriation clause means for their businesses, or are they too scared to speak out?

What is clear is that foreign owned companies are likely to respond by disinvesting in order to protect their brands. Besides the obvious impact on jobs, this would have negative implications for competition in the private security industry, and its suppliers, threatening the servicing of existing operations, and particularly at the higher ends of the value chain since it is these segments that foreign companies generally occupy.

Overall this will lead to higher prices for consumers and less access to cutting edge specialist industry knowledge and skills across the value chain.

Ironically, the act will also not address the alleged national security threat that the Minister of Police argues is the reason for limiting foreign ownership. Foreign owned firms are less than 10 percent of the private security industry and all local employees from guards to management are already required to be South African.

So if empowerment is the real issue, there are far less destabilising ways to achieve this goal. Furthermore, the same standards should apply to domestic companies – why single out the foreigners?

It needs to be recalled that private security – in every country – fills a ‘government failure’ gap. This is particularly sharp in South Africa with its high crime levels. How would crime levels be affected by this provision? It certainly won’t help.

Investor confidence

This legislation is likely to be rolled out in other policy terrains, adding to the accumulation of legislation undermining foreign, and domestic, investor confidence. Overall these negative implications would compound South Africa’s already dire unemployment, poverty, and inequality challenges.

Furthermore, our neighbours watch us closely, and copy our policy stances. Should they take up the 51 percent ownership provision – itself perhaps modelled on Zimbabwe’s approach to empowerment – then, taken together with the their condemnation of recent violence against foreigners in SA, access for local businesses into those markets could also be affected.

Moreover, key foreign trading partners could retaliate, notably the US, UK, Sweden and Switzerland, all of which have companies in the industry.

The US could do so through selective graduation of South Africa from the African Growth and Opportunity Act, notwithstanding the apparent resolution of the poultry dispute; whereas the UK, Sweden, and Switzerland could sue South Africa under bilateral investment treaties. These countries could demand compensation at the World Trade Organisation since South Africa would be obliged to revoke its commitment there to keep its private security industry market open to foreigners.

As a result the country could find that other domestic economic sectors are hit.

Implementation of this law will cause instant widespread pain and will exacerbate the chronic suffering already plaguing our economy. It is time for more voices to call for the only solution to the problem; that our president heed the warnings and to send the act back to Parliament for the removal of Section 20. Peter Draper is managing director of Tutwa Consulting.

WITH bailout talks between Greece and its creditors collapsing, it seems sensible to start reflecting on what defences the euro might need against the fall-out of a nation leaving the common-currency project.

Once euro membership is proven to be anything but irrevocable, the remaining members will need to reassert their unity. And one way to do that would be to resurrect the concept of euro bonds.

Discussing Grexit is no longer taboo in the upper echelons of the EU. “The shadow of a Greek exit from the euro zone is becoming increasingly perceptible,” German Economy Minister and ViceChancellor Sigmar Gabriel wrote in Bild newspaper. “Unfortunately, the attitude of the Greek government obliges us to take into account other alternatives, such as a Grexit,” Belgian Finance Minister Johan Van Overtveldt told Trends magazine. “I rule out a Grexit as a sensible solution but nobody can rule out everything,” said Greek Finance Minister Yanis Varoufakis.

There might still be a deal that saves the day, but the people closest to the action seem increasingly sceptical.

Enlightened self-interest would suggest the EU will have little sympathy for Greece’s post-euro needs. Quite the opposite – Europe would have incentive to let the runaway country suffer in order to show how cold and lonely life can get outside of the protective confines of the euro club, “pour encourager les autres”.

The EU will be busy, in any case, attending to its own post Grexit situation. The continent will need to make a show of solidarity to demonstrate to the region’s bondholders and the world’s currency traders that the euro is the icon of a true economic union, not just a currency-pegging chimera. Otherwise, the euro’s weaker members might find themselves picked off one by one by speculators driving their borrowing costs through the roof in pursuit of profit. Europe could achieve what’s necessary by reviving plans for the euro zone (or its remaining countries, in this case) to band together to meet its borrowing needs. And there’s a way of pursuing that goal that should overcome the philosophical objections that have previously been raised against the idea.

Bonds

Implementation of this law will cause instant widespread pain and will exacerbate the chronic suffering already plaguing our economy.