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SA risks weakening foreign investment environment with Security Bill amendment

Tutwa Consulting director Peter Draper
Webber Wentzel partner Peter Leon

Security Industry Alliance executive committee member Costa Diavastos discusses industry concerns over the Section 20 clause in the Security Bill amendments. Camerawork and videoediting: Nicholas Boyd.

Tutwa Consulting director Peter Draper

Photo by Duane Daws

Webber Wentzel partner Peter Leon

Photo by Duane Daws

30th March 2015

By: Natasha Odendaal

Creamer Media Senior Deputy Editor

  

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Despite the “overwhelming” positivity surrounding the majority of the changes contained within the Private Security Industry Regulatory Authority (PSIRA) Amendment Bill, one clause has “unintended consequences” capable of damaging South Africa as an attractive investment destination and breaching several international trade agreements.

South Africa’s proposed restrictions on foreign ownership of private security companies in the country would set an alarming precedent on uncompensated expropriation if international security firms were forced to hand over 51% of their South African interests under Section 20 of the amended Bill, Security Industry Alliance executive committee member Costa Diavastos said on Monday.

The controversial amendment within the PSIRA, which had attracted significant industry criticism after being reinserted at the eleventh hour, would likely become a precedent-setting case, with South Africa’s neighbouring countries and trade partners apprehensively awaiting President Jacob Zuma’s decision on the matter after Parliament’s approval earlier in March.

Speaking during a media briefing in Rosebank on Monday, Tutwa Consulting director Peter Draper warned that the foreign ownership restriction could be applied to other sectors of the economy in what Webber Wentzel partner Peter Leon described as a form of indigenisation with no form of compensation.

Police Minister Nathi Nhleko, who was driving – and defending – the Bill, had cited “national security” as the reason behind government’s attempt to restrict foreign ownership and control.

“The private security industry has been growing at an exponential rate and it would be unrealistic not to guard against these potential dangers of [an] industry player with strong links outside of South Africa gathering a mass of intelligence,” he was quoted by various media outlets as saying last week at a private security conference.

“South Africa’s security industry does not gather mass intelligence,” Diavastos said, pointing out that foreign-owned or controlled entities only accounted for 10% of the R60-billion private security sector in South Africa – employing only 45 000 of the recorded 446 000 workers employed by the industry.

The private security sector has been deemed the largest entry-level employer in South Africa; however, there has been “no recorded event” indicating that the industry could present a threat to national security, he added.

Leon noted that the limitation on foreign ownership would not only send a negative message to international investors, but would also likely lead South Africa to breach several international trade agreements, including that of the World Trade Organisation’s General Agreement on Trade in Services (GATS) and bilateral investment treaties.

And despite the Minister’s assurances last week that this was not the case, Leon said that the provisions within Section 20 did not fall with the governmental services exclusion from the scope of the agreements.

The GATS stipulated that “no limitations must be imposed on foreign supplier entitlement to full market access and national treatment in the private security sector.

Industry reiterated its call to the Presidency to return the Bill to Parliament to have Section 20 removed.

Edited by Tracy Hancock
Creamer Media Contributing Editor

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