After growing at breakneck speed for the past 10-15 years, SA's private security industry has entered a period of tense consolidation.
Two primary factors - mergers and acquisitions (M&As) and stricter state regulation - are reducing the number of security companies, tightening service standards and channelling more revenue to fewer and larger entities.
But the new regulatory regime has plunged to new lows what has always been an uneasy relationship between private security and the state. The two sides disagree strongly over key elements of the regulations. But government - represented by safety & security minister Charles Nqakula on one hand and the Private Security Industry Regulatory Authority (Sira) on the other - seem unwilling to respond to the industry's complaints. This adversarial relationship is delaying what many analysts believe is inevitable and desirable in the long run: a formalised partnership between state and private security to improve community security and crime prevention.
South Africans, with little faith in the police's ability to guarantee their safety, have turned increasingly to companies to protect themselves and their valuables. We now spend more on private security as a share of GDP than any other nation - about R14bn last year. That's about 2% of global security spending, which is roughly the same as in Australia and Spain. In sheer volume, of course, these markets are far smaller than those of North America and the European Union, which account for 43% and 37% of total security spending.
The size and scope for expansion of the SA market have attracted big multinationals in recent years. Four of the world's biggest security companies - Chubb of Britain, Group4Falck of Denmark and the US's Tyco International, through its subsidiary ADT - entered SA by way of acquisition. The biggest of the lot, Securitas of Sweden, is said also to be eyeing SA.
In addition to the foreign entrants, domestic M&As occurred at bewildering pace - at least 14 in the past four years. But the pace has slowed of late. "Just about everything big has been bought," says Godfrey King, editor of trade publication Security Focus.
There are 4 209 registered security businesses in SA. But just 12 of them own 36% of the market. In a 2001 market survey, Credit Suisse First Boston (now split in two) predicted that by 2006 the top six companies will control more than half of the market.
Most analysts categorise six types of private security, with many companies doing more than one - guarding, assets-in-transit, armed response, investigation and risk management, electronic and hardware, and in-house or self-employed security. It is indicative of the wide spread of Sira's authority that the regulator lists 15 separate categories.
Guarding is by far the largest and most visible sector. About 3 000 companies employ about 150 000 guards and serve 12 000 clients. They cover mostly residential and commercial properties, shopping complexes, schools and government institutions. Sector leaders are Fidelity Springbok, Securicor Gray, Secureco, Coin and Group4Falck.
The assets-in-transit sector is closely aligned with guarding and grew out of the necessary transport of money and valuables by banks and large corporations. High capital requirements serve as barriers to entry in this sector, so fewer than 700 assets-in-transit companies are registered with Sira. But just three players - Fidelity, SBV and Coin - control 77% of the market.
Armed response and area monitoring have shown strong growth of up to 20% in recent years. Operating margins of up to 19% are not uncommon, which is why the sector has experienced merger activity in recent years, says the Credit Suisse First Boston report. There were 650 armed response companies in 1999, but this year Sira has registered just 394. Armed response employs fewer staff than guarding but serves more clients - about 500 000. The main players in this sector are Chubb and ADT, with Coin a distant third.
Electronic and hardware involves installers of alarms and other electronic devices. The sector represents about one third of the industry's market value and analysts expect it to grow the fastest in the short to medium term.
Investigative services and risk management is another fast-growing sector. By late last year, Sira had registered 857 private investigation companies.
In-house security, where companies look after themselves, is estimated to employ 60 000-80 000 guards, mostly in government departments, parastatals, banks and heavy industries.
It is against this backdrop that Sira came into existence in February last year. Headed by a five-member, government-appointed council, it replaced the old Security Officers Board, which had been made up mostly of industry representatives and which government felt lacked the power and the will to effectively regulate the sector.
Under the act, every company engaged in any security service must register to be allowed to do business. This includes locksmiths, car-watch services, security trainers and consultants. Registration, renewal and inspection fees amount to several thousands of rand.
Such costs are likely to drive small-scale operators out of business, complains Brian Adams, president of the umbrella Security Association of SA (Sasa). He and other industry groups want to challenge the constitutionality of Sira and the costs. They say they will take legal action the moment Sira prosecutes any company under the contentious legislation.
Meanwhile, companies complain of lengthy delays and bureaucratic snarl-ups in registration and inspections. The fact that two successive Sira directors have resigned or been fired for performance issues in the past 12 months has not helped the regulator to build competence.
One regulation that has drawn vehement objection from the industry is a provision that compels company directors to undergo training and qualify for a "grade B" security officer's rating. Many maintain that such a qualification is unwarranted, and that some company directors have simply flouted the rules and obtained their certificates from their own training establishments without bothering to do the course.
The heat rose further in the mid-year when draft regulations appeared that would prevent security guards from using their own guns for work, and compel companies to use only specified colours for guard uniforms.
But a Sira official insists these are necessary to distinguish private security from police officers and because strict gun regulation is essential in an industry awash with firearms.
Industry representatives decry what they see as the regulator's "dictatorial" methods of issuing regulations without consulting the industry. "There's so much tax and Vat fraud and abuse in the way guards are forced to pay for uniforms and training, and how working hours are doctored that if the authorities carried out a proper due diligence it would wipe out half of the industry," says a leading security industry executive.
The issues have united what has always been a strongly divided and self-serving industry under a new Security Industry Alliance that includes Sasa and about 20 other private security bodies.
"Why should we fund the authority when we have no representation on its board?" asks Adams. He also complains that the industry's repeated entreaties to the minister and Sira on these issues have gone unanswered.
A Sira official, speaking on condition of anonymity, acknowledges that relations have reached a low point, but insists that strong regulation is essential to bring the industry in line with standards to enable future public-private partnership in law enforcement. This, however, is still far from likely. Existing law enforcement statutes make no provision for such an eventuality.
The official candidly admits that a key purpose of the tighter regulation and higher costs is to drive the weak and fly-by-night companies out of business.
But industry spokesmen counter that Sira is not properly equipped to enforce its regulations.
