Wed, Oct 10, 2001 page24

• South Africa to ban foreign guard firms

  PROTECTION Several foreign security companies have acquired subsidiaries in the country, where poor police service have made private security a booming business

  • NY TIMES NEWS SERVICE
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  The world's biggest security companies could be forced out of the lucrative South African market under a law that would ban foreign ownership of such businesses.

  While the proposed law has been in the pipeline for months, the terrorist attacks on the US have brought increased public attention on security here and given the matter added urgency.

  The proposal, part of a bill scheduled for a vote this month, has outraged industry leaders and alarmed some investment experts, who say South Africa cannot afford to send such a signal to the world.

  But important lawmakers from the governing African National Congress (ANC) say that having multinationals in control of crucial companies in the industry is a threat to South Africa's national security.

  Several foreign companies, including Securicor International and the ADT unit of Tyco International of Exeter, NH, have acquired subsidiaries in South Africa, where poor police service and one of the world's highest crime rates have made private security a booming business.

  "This is a very sensitive industry," said Mluleki George, chairman of Parliament's committee on safety and security and principal sponsor of the proposal.

  He said that many members of the police and military under apartheid had ended up in the security industry and that it would be much more difficult to monitor the personnel of companies that were in foreign hands. Critics say such fears are unfounded.

  The timing of the push, George recently said, is a coincidence. The bill, a sweeping effort to update oversight of the fast-growing industry, would require that registered security guards, their supervisors and security companies' corporate directors all be citizens or permanent residents of South Africa.

  By saying at this time that the law would apply even to shareholders -- an interpretation that arose in recent weeks, during formal debate on the measure -- the legislature has aroused suspicion that it is making a backdoor move to open the industry to black entrepreneurs. None of the country's biggest security concerns have any significant black ownership, a problem the industry acknowledges and that experts say must be addressed.

  But a spokesman for the Security Employers Alliance, an umbrella organization of trade groups here, says that if greater diversity is the goal, "there are other ways to bring that about."

  Indeed, some say that the international interest has encouraged consolidation, which in turn could actually help diversify the business, with its handful of giants and thousands of bit-players.

  "The more dominated a sector is by a few companies, the easier it is to push through black empowerment," said Reg Rumney, a director at Business Map, an investment consulting firm in Johannesburg. "You can exert leverage on bigger companies. They are clear targets. How do you say to a guarding company that has three people that 25 percent need to be black?"

  George said that the industry did need to diversify but denied that this motivated the proposal.

  The stakes are significant, and not only in the security industry. Britain, where Securicor is based, is one of South Africa's biggest investors and an important trading partner. Nick Sheppard, the spokesman for the British High Commission in South Africa, said the proposed law could violate a 1998 trade agreement between the countries.

  "We are concerned," he said, "and we are talking to the companies about what action we should take," he said.

  Alec Erwin, South Africa's trade minister, thinks there are other ways to meet national security concerns, a spokesman said, and he will take up the matter this week with the minister of safety and security, who backs the foreign-ownership ban.

  Representatives of ADT and Securicor did not return calls seeking comment.South Africa's private security business is one of the few bright lights in an economy that, while stable, has yet to produce the kind of growth the country needs to deal with huge, deeply entrenched income inequality -- a legacy of apartheid.

  With violent crime increasingly spreading to affluent white neighborhoods, demand for armed patrols has surged. The thick walls and high gates that ring many houses in Johannesburg are almost invariably emblazoned with the signs of private-security companies.

  This year, Credit Suisse First Boston estimated the size of the country's security industry at US$1.2 billion at current exchange rates and found that spending on security, as a percentage of gross domestic product, was 1.25 percent, the highest in the world.

  While demand is projected to slow some, the introduction of new technologies, in particular the integration of fire and medical protection into security packages, has been seen as one of the keys to sustaining growth.
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