According to the South African Aerospace, Maritime and Defence Industries Association (AMD), the local aerospace and defence sector had an annual turnover estimated at R19-billion in 2015, up from R15.8-billion in 2014 and R13.3-billion in 2013. Of the R19-billion earned in 2015, 62 % came from exports.
Kevin Wakeford Chief Executive of the Armaments Corporation of South Africa (Armscor) the South African Department of Defence’s acquisitions, disposals and R&D agency. Who manages the South African Department of Defence’s Defence Technology Enterprise Development program told FDI Spotlight, “We are looking at how we can grease the wheels of our defence sector to become a serious player internationally.
South Africa’s defence sector is a majority exporter with 70 percent of local production exported into the Middle East, Latin America, North America and Africa.
The country’s single biggest defence group is State-owned Denel, which had a turnover of about R5.6-billion in 2015. There are 79 member companies in AMD – South Africa’s Defence Industry Association.
The sector has provided meaningful skilled employment opportunities for about 15, 000 skilled engineers, and artisans – many of them contributing to key national projects in space, transportation, rail safety, mining, construction, power generation and telecommunications.
The sector is also believed to have a multiplier factor of 1:4 of indirect additional job opportunities into the wider manufacturing and associated services sector, thus supporting at least 60 000 further skilled jobs in the South African economy. During 2015, the sector invested some R1.7-billion in research and development (R&D) and technology development.
AMD, which represents the local aerospace and defence industry (both public and private sector), works with the Department of Science and Technology (DST), the Council of Scientific and Industrial Research (CSIR, which falls under the aegis of the DST) and the Technology Localisation and Implementation Unit (formed by the DST and hosted and supported by the CSIR) to form better coordination between local R&D projects.
In parallel to this, AMD also works with the R&D units of the Department of Defence (DoD) and to ensure industry and government R&D programmes are complementary.
Therefore close relations between the industry and the DoD and Armscor also facilitate applied research, resulting in an improvement in existing systems and services and helping the development of new ones. In broad terms, major areas of current local South African R&D are in additive manufacturing (3D printing), titanium beneficiation and specialised radar technologies.
Challenges
Even so, the industry faces substantial challenges and is displaying certain vulnerabilities, apart from the need to maintain strict quality control and high standards of technology, manufacturing standards and operational performance.
Amongst the most intrinsic weakness is that the South African National Defence Force (SANDF) does not buy sufficient of the defence industry’s domestically produced products and services. Hampering development of new systems with the bulk of sales – except for armoured vehicles – coming from local companies that are majority foreign-owned, and positioned to market their products through their parent groups’ global sales networks. Whilst also developing new products with funding from their parent companies.
Resulting in the local companies, overly reliant on local business, which in many cases is doing less well, causing skilled engineers to drift away, either to other sectors in South Africa or to foreign defence firms.
There are several key challenges facing the defence industry in South Africa. With defence products and capabilities often demanding high and constant R&D investment for the creation of the new science and technologies and equipment destined for a demanding client environment. Within a South African context, this fundamental aspect of a viable and sustainable local defence industry is thus impaired by inadequate funding and availability of suitable skills.
A second, challenge is that the international defence business is highly political. Therefore the South African industry needs the conscious and committed support of the South African government in its marketing activities in foreign countries whether these are new or existing markets.
A third, related, but distinct, challenge is the current inefficiency and ineffectiveness of the country’s arms control processes, which delay the issuing of export permits, frustrate customers and damage the South African industry’s reputation as a reliable supplier.
A fourth, challenge is rooted in the current nature of much of the local defence sector. Which displays an overt bias towards the design, development and production of electronic subsystems.
Meaning that the South African defence industry has to compete with and dislodge established players in a foreign original-equipment manufacturer’s (OEM’s) supply chain and which is often viewed as a major risk by the OEMs, while also conflicting with national security and the wider industry considerations.
The bulk of the local industry’s products being in electronics and related subsystem, thus international joint ventures are critical to the defence sector’s sustainability.
Four further main additional challenges face the industry in South Africa. First, and by its very nature, the creation of defence products and capabilities demands high and constant investment in R&D for the development of the new science and technologies and the equipment destined for a demanding client environment.
Within a South African context, this fundamental aspect of a viable and sustainable local defence industry is impaired by the lack of adequate funding and the availability of suitable skills.
The second major challenge is that the international defence business is highly political. The South African industry demands the conscious and committed support of the South African government in its marketing activities in foreign countries whether these are new or existing markets.
Whilst a third, related, but distinct, the challenge is the prevailing inefficiency and inadequacy of the country’s arms control processes. Which delay the issuing of export permits, frustrate customers and injure the South African industry’s reputation as a reliable supplier.
The fourth and final major challenge is entrenched in the current nature of much of the local defence sector. As there is a proclivity towards the design, development and production of electronic subsystems. Meaning that the South African defence industry has to contest with and dislodge established competitors in a foreign original-equipment manufacturer’s (OEM’s) supply chains. Which is often viewed as a major risk by the OEMs themselves.
As well as conflicting with national security and industry considerations. Given that the bulk of the South African industry’s products are concentrated in electronics and related subsystems. Enhanced international joint ventures are therefore integral to its sustainability.
Another core issue is that the areas in which the South African industry was once an undisputed world leader are now seeing much increased international competition.
This is especially true regarding armoured and mine-protected personnel carrying vehicles (APCs) and unmanned air vehicles (UAVs).
Regarding APCs, there are two pronounced market threats. One is the noteworthy increase in the number of countries and companies designing and producing such vehicles (even if these vehicles are inferior to the South African products, their production means that their home countries are no longer in the market for foreign products and so the potential market declines).
The second is the disposal, by the US Army and Marine Corps, of what they designated as mine-resistant ambush-protected (MRAP) vehicles, acquired for the wars in Iraq and Afghanistan, which are now being offered, cheaply or even for free, to American allies. Ironically, many of these MRAP’s were designed in South Africa and quite a few having been built in the country.
With UAVs, there has been massive investment in this sector by an ever-growing number of countries. In comparison, investment in the sector in South Africa has been limited, hampered by declining local R&D budgets. South Africa’s cumbersome local UAV flying regulations are also hampering developing the local civil market and producing and deploying new designs.
On the Attack
The South African government has however recognised the importance of the sector to the wider economy and the need to support it. And the defence industry is recognised as a key industrial sector under the Industrial Policy Action Plan.
Within the framework of this plan, the aim is to augment the defence sector’s capabilities in engineering, manufacturing and support to fulfil local defence and security needs and to exploit export opportunities to the maximum.
Kevin Wakeford CEO of Armscor explained, “One of our key assumptions is that if you do not have a dynamic defence industry, it impacts your broader industrial base. If you look at all the great nations of the world and analyse their various economic sectors and subsectors, it becomes clear that the markets with growing and successful secondary and tertiary economies are driven by a strong, dynamic and innovative defence industry. ”
A further ancillary aim of the South African Government, therefore, is to support the development of local technologies and advanced manufacturing capabilities. Whilst creating new, especially broad-based black economic empowerment and small, medium-sized and micro-enterprise (SMME) participants in the sector, and secure sustainable jobs in the defence industry and increase its broader manufacturing support base.
“Most countries that are successful have a strong research budget that comes directly out of the fiscus and the research is done in collaboration with the private sector. Thus inevitably, dual-purpose technology will be developed. Sometimes the civilian technology is exploited before the defence technology, however, this always happens in the most successful economies.” Said Kevin Wakeford CEO of Armscor.
The South African Aerospace, Maritime and Defence Industries Association (AMD) can also justifiably assert that it has played a pivotal role and is partially responsible for ensuring that a world-class indigenous South African defence industry capability that not only survives but thrives.
The South African government has recognised the impact that the defence industry can have on the wider economy, with several initiatives undertaken and aimed at supporting aerospace and defence companies. And, despite a shrinking budget and thus limited availability of discretionary expenditure, the South African Department of Defence and the SANDF remains the South African defence industry’s primary client.
This symbiotic relationship being of paramount importance for the drive to grow export sales, given that the success of international sales is often to a large extent linked to use of such equipment by South Africa’s own forces. It is, therefore, necessary to stress the importance of equipment serving in the parent country’s own armed forces for other to buy it. Potential customers wanting to be sure it works. That it will be supported for 20 to 30 years and that there is an OEM able to assist with upgrades, and in integrating weapons and so forth.
The local defence industry also retains key strengths. Including its frequent ability to come up with good ideas at affordable prices, Denel Dynamics, for example, remains a world leader in certain categories of guided missiles and other guided weapons. Another example is Reutech Radar Systems, whose RSR210N air/sea surveillance radar is fitted to the frigates of the Royal Norwegian Navy.
AMD’S members have consistently provided high-tech solutions at competitive prices and world-beating standards whilst their continued reinvestment into their capabilities has secured the retention of local orders while growing export orders in a highly competitive market environment.
Through this, local industry has underpinned high-end technology and skills development, job creation and retention of strategically relevant technologies and manufacturing capabilities. The size, ingenuity and interdependence of the South African defence industry allow it to respond swiftly and flexibly to new client requirements.
Kevin Wakeford further explained, “There has certainly been attrition; we are at a little over 1 % of the GDP and we are not manufacturing the same products we used to. However, we are still considered as one of the best manufacturers of military products globally.”
South Africa’s defence industry also has some important diplomatic and political strengths. South Africa’s foreign policy outlook having been and remains grounded in its “non-aligned” approach and therefore maintains friendly relations with all key global players. Giving the local industry an “independent status” as a reliable source of defence technology, products and services. And all South African defence exports are conducted in line with the country’s strict arms control legislation, overseen by the National Conventional Arms Control Committee and by any relevant binding United Nations Security Council resolutions, and international law.
As to what the future might hold, the industry, supported by government agencies, is seeking to further enhance the transformation of the sector. In particular, the DoD’s Defence Technology Enterprise Development programme, managed by Armscor and the CSIR, which aims to create a least 20 black-owned defence SMMEs over the next five years.
The industry hopes that, in the coming years, at least some recommendations from the 2015 Defence Review, aimed at stabilising the situation of the SANDF and then rebuilding its capabilities, will be implemented. However, for the local industry to benefit from these and other future projects and opportunities, in an increasingly tough global market.
Kevin Wakeford stressed, “More often than not people do not need a Rolls Royce, they instead need a Citi Golf. Africa is a robust place with climatic extremes. We are trying to encourage nation states within Africa to bring forth their African capability, strong industry, ability to support us with Afro-centric products and systems that are affordable, of good quality and appropriate for the terrain to be used.”