Security Industry Bill’s Effect is Far More than 51%

The Private Security Industry Regulation Amendment Bill will have a devastating effect on property rights and foreign investment if it is signed into law, writes Mark Oppenheimer

PARLIAMENT recently passed a bill that will have a devastating effect on property rights and foreign investment if it is signed into law by President Jacob Zuma. In terms of the Private Security Industry Regulation Amendment Bill, a security service provider will not be allowed to operate its business unless it is 51% owned and controlled by South African citizens.

The police minister and a small committee will have the discretion to require a different percentage for particular security sectors. They will have the power to deviate from the general rule by requiring local ownership to exceed 51% in some cases and be lower in others. For example, locksmiths may be allowed to retain 60% of their shares, while guarding companies could be required to sell off 75% of theirs. Not only does this create uncertainty, it incentivises private dealing between the state and affected parties. The state may be willing to allow certain sectors to hold onto more of their shares if they agree to sell to people favoured by the government. Of course, if the sector objects, the minister can always threaten a complete deprivation of ownership.

Earlier versions of the bill gave companies five years to sell their shares, but now they will have to comply as soon as the bill comes into operation. It is unlikely businesses will receive a fair price if they are forced to sell overnight.

The state has sought to justify the law on the basis that it is required for the sake of national security. This pretext has been used by states around the world to deprive people of their rights. It was the reason given for the draconian measures in the “Secrecy Bill”. In this case, it has been intimated foreign-owned security companies could launch a coup unless they are forced to relinquish majority ownership.

There are three ways the bill could be attacked for being unconstitutional. First, in order for a law to pass muster, it must at least be rational. There is no reason to believe a foreign security company would have the desire or the means to pose a threat to national security. According to the Institute for Security Studies, “less than 10% of the local private security industry is foreign owned, and the 445,407 security officers registered as active are all South African citizens or have permanent resident status.

“They do not constitute a coherent, well-organised semi-military force. Rather, they are spread across 9,031 registered businesses, providing more than 20 different categories of security and services such as locksmiths, car guards, bodyguards and armed reaction teams.” In other words, it would be impossible for a foreign entity to organise a coup when it cannot use its own citizens and must rely on South Africans to help overthrow their own government.

Second, the bill breaches the right to equality guaranteed by the constitution. The Constitutional Court has already struck down legislation that arbitrarily restricts the rights of foreigners. In the case of the private security sector, there is no good reason to discriminate between foreign and locally owned companies.

Third, the constitution gives everyone the right not to be arbitrarily deprived of property. Depriving people of their property on the grounds that they were born outside SA is the epitome of arbitrariness. It is xenophobic and intolerable in a country founded on the principles of freedom, dignity and equality for all.

The bill is part of a broader legislative framework that seeks to deprive people of their property without paying compensation. The constitution provides for the payment of fair and equitable compensation in cases where the state expropriates someone’s property. But the Promotion and Protection of Investment Bill allows the state to hand over property to third parties without paying compensation. The government is testing the water with the security industry. If it succeeds, it will start targeting other industries. The end goal appears to be to emulate Zimbabwe’s Indigenisation Act, which requires 51% of all business to be owned by locals.

The security bill has already been passed by Parliament but it is sitting on Zuma’s desk waiting to be signed into law. He still has the power to refer it back to Parliament for reconsideration. If he fails to take this golden opportunity, it will be necessary to challenge the law in the courts. The Constitutional Court has the power to strike out the offending sections on the basis that they are unconstitutional. The process will be lengthy and will provide foreign investors with ample time to find other countries to start businesses and create jobs.

  • Oppenheimer is a practising advocate and a member of the Johannesburg Bar.

Originally published in Business Day in August 2014