POLICE Minister Nathi Nhleko did more than raise the collective eyebrows of the global investment community recently, when he warned that SA "intends to withdraw from its commitments" under its international trade and investment treaties in order to enact a bill that would effectively indigenise the ownership of SA’s private security industry.
It seems remarkable that such a far-reaching announcement should come not from the president, who promised the World Economic Forum in Davos in January that "SA remains fully open for business", nor from the Cabinet’s economic cluster, but from the police minister. What makes this more anomalous is the lack of proper justification for this departure from SA’s international economic protocols.
The apparent motive behind his statement is to secure President Jacob Zuma’s assent to the Private Security Regulatory Authority Amendment Bill, which includes a provision restricting foreign "ownership and control" of private security companies to 49%. This clause was dropped from the bill soon after its introduction, over concerns by the Department of Trade and Industry that it "required significantly more research and would have to be linked to properly understanding and addressing (SA’s) international agreements".
A year later, the clause was reinserted by the parliamentary portfolio committee on police, without addressing the department’s concerns, while the bill was passed by Parliament last month. This relapse was defended by reliance on a "briefing note" prepared by the South African Police Service, a summary of which appeared under Nhleko’s name on this page last Tuesday. It said the growth of the private security industry carries the "potential to compromise national security", so foreign influence in security firms must be restricted to minority participation. This measure has been heavily criticised, mainly on the grounds that it will discourage foreign investment; contravene the constitution; violate SA’s trade and investment treaty commitments; and not actually enhance national security. Nhleko rebuffs these concerns and insists that "the government will be ready for any legal challenge to the bill once it becomes law … be it at the international or domestic level".
Nhelko’s justifications, however, reveal that the government is far from ready for a legal challenge. First, his interpretation of the constitution is incorrect and incomplete. He cites section 199(3), which says that, other than the national defence, police and intelligence services, armed organisations may be established only "in terms of national legislation". But he omits to mention the governing principle in section 198(d): "National security must be pursued in compliance with the law, including international law." In any event, a country’s national law can never excuse it from failing to adhere to its international law obligations. What is more, the bill would apply not only to "armed organisations", but to a vast array of service providers, including manufacturers, importers, distributors and marketers of "monitoring devices".
Nhleko also observes that the constitutional right to freedom of trade and occupation is accorded only to citizens, and that the equality clause permits discrimination against non-citizens when there is good reason. Indeed, the Constitutional Court has already accepted that requiring all registered security guards to be citizens or permanent residents is not unfair discrimination, as public safety demands that people permitted to provide private security should be susceptible to thorough vetting. Nhleko fails to acknowledge, however, that, for this reason, foreigners are already prohibited by law from participation in private security firms as directors, managers or officers.
Most important, Nhleko fails to explain precisely what threat the remaining form of foreign participation — capital investment — poses to "national security", let alone how imposing a cap of 49% would eradicate such a threat. Yet the constitution demands that every exercise of public power must be justified. What is more, when such exercise cuts into a constitutional right, it must be rationally and proportionally related to a public purpose.
Protecting national security is indeed a legitimate public purpose but, tellingly, Nhleko admits that the measure is aimed at addressing not "existing threats", but "potential future threats". This is not good enough. The Constitutional Court has long held that the state must present evidence, not speculation or conjecture, to justify an infringement of rights. Nhleko has not revealed any such evidence.
Even further removed from his remit is the management of SA’s foreign investment and trade relations. Nhleko’s assumption that the government may summarily withdraw from its international trade commitments is misconceived. As a member of the World Trade Organisation and a party to the General Agreement on Trade in Services, SA has undertaken not to impose any foreign capital restrictions on private security companies. Modifying this commitment is not simply a matter of notice and negotiation, as Nhleko imagines, but a complex, costly and lengthy exercise, after which SA will have to make compensatory adjustments to the member states affected or face their withdrawal of equivalent benefits.
As the bill has direct implications for SA’s international trade law obligations, it should fall within the domain of the Department of Trade and Industry, rather than the police. The department is engaged in sensitive negotiations with the US to ensure that South African exports continue to qualify for duty-free access under the Africa Growth and Opportunity Act (Agoa) when it comes up for renewal by the US Congress in September. The US’s concerns about the bill, which in effect expropriates the investments of US security firms in SA, appear to have made little impression on Nhleko, further complicating the department’s task.
Zuma can avoid a protracted international trade dispute, and spare SA the risk that Congress excludes it from the renewal of Agoa, if the bill is returned to Parliament for reconsideration on the grounds of its manifest unconstitutionality. This would subject the bill to much-needed insight and oversight by the department, and hopefully result in a law more consistent with SA’s trade and investment goals.
Leon is a partner and Winks an associate at Webber Wentzel attorneys.