Impact of the Economic downturn on the security industry in SA.

Recession, economic downturn, impact of labour unrest on mining and the general economy, high labour force salary expectations, labour union fights for survival, political rivalry with external influences from socialist movements on labour issues  and now lately fragflation (high inflation and low economic growth) also influence the private security industry negatively. With more than 8 000 registered security businesses the “cake” is not big enough to give everyone a sizable opportunity under current conditions.

The reality is a decline in business spending or planning to spend on private security services and stretching payment terms to 60 days plus. Budget adjustments hardly exceed 6% whilst new security contracts are all signed on lower than current rates. The nett effect is an ailing private security industry dropping to net profit margins below 5% at rand values of between R300 and R350 per person per month. It is estimated that on equal time work, companies make more profit out of car guards than a security guard – up to R900 profit could be made from a car guard.

Despite for the above is the security industry growing – more and more new entrants are seen in the industry, new names emerge and “go down” (No nonsense security CC) more second hand bakkies of new companies feature and there are rumours of a growing dissatisfaction amongst security officers due to low rates, non complying security owners pertaining to provident fund contributions and statutory compliance. Government Gazette 36278 dated 28 March 2013 reflect on more than 200 security services providers withdrawn from rendering security services due to failure to pay annual PSIRA fees. In an April 2013 report it is published that only 480 private security companies out of 9020 registered companies contribute and comply with the regulations of the Private Security Services Provident Fund (PSSPF).

But to the contrary:  The Private Security Industry Regulatory Authority (PSIRA) is spending more than R65 milj on offices and furniture to improve their corporate image and R700 000 a year for a management events office with no events to manage, as published in a Parliaments portfolio committee report on police. The authority is funded through tariffs and fees from members – that is security companies and security officers contributing. To foot the bill, tariff increases imposed were almost 900% in 2012 and is now a cause for legal action from the private security industry. The chairman of PSIRA earns R1,44 milj per annum, which is according to the report R500 000 more than in equivalent entities.  All the positions in the Risk Management and Internal Audit and prosecution division were empty and the IT department appointed 5 new people. Despite for all of these the portfolio committee raised its concerns for poor performance, meeting only 14 of the 46 measureable targets leaving the authority with a 30,4% success rate.

Where does this leave private security companies and business?

 A decline in service levels, less innovative security solutions, security officers less cared for, increases in safety risks due to improper uniforms and protective measures with staff vulnerable due to non statutory compliance in terms of UIF, WCA and other compliant contributions and an industry looking shabby due to low cost uniforms? All of these in efforts to protect net profit margins and enhance shareholder expectations?

The serious security services provider would take on the challenge to compete on price (sic) and would differentiate the low price with additional products and services – over are the days where high prices would be justified with promises of better staff, better uniforms, better training and management. The era is entered (wrongly) where low prices will be protected by the above but business will require that ‘extra” from the service provider, despite for a low price.

 More and more smaller role players will vanish whilst BBBEE and Mining Charter requirements will put more pressure on the larger companies to share wealth in especially mining contracts with local role players putting additional pressure on profit margins being at least 26% less than a year ago.

Whilst survival will force security companies to “go for every new business opportunity” will the responsible business owner still wait and see to it that affordable business contracts are entered into. Mining security might not, if Mining Charter pressure continue to surface, be the lucrative business in the future.

Responsible business owners and users of private security will continue to maintain their values of preferring security services suppliers who care for their employees, value safety of staff and provide that bit extra that would put the user of security at ease of dealing with a responsible security services supplier. The risk of dishonest, unhappy and disgruntled security staff is a threat to business.

Irresponsible security businesses will underpay their staff, reduce costs on uniforms and site equipment and continue to be non statutory compliant – clever and innovative ideas to overcome high statutory expenses in terms of for example the 4,28% WCA contributions will become more pertinent whilst tax compliance would decrease. Security officer unhappiness and possible irresponsible industrial action could be the order of the day.

 Responsible security companies will continue to do business on quality standards, differentiate themselves from the rest of the market and wait for “better days to come” whilst the responsible user of security should appreciate and uses businesses that would be prepared to reduce costs, maintain standards and lower profits.

 The future

The future lies in the hands of true, honest and caring leaders with a passion for the industry, service delivery and maintenance of standards who rate quality as the first prize and then profits will follow immediately