Industry
13 December 2007
Cabinet considered a strategy report last week on the South African Defence
Related Industry (SADRI) that was commissioned by the Departments of Defence,
Trade and Industry, Science and Technology and Public Enterprises, with the
involvement of the Aerospace, Maritime and Defence Industries Association (AMD)
and Denel.
The study found that the SADRI has developed an extraordinary range of
capabilities, including high tech electronic and communications products,
sensors, land vehicle platform, turrets, ammunition, artillery, small arms,
unmanned aerial vehicles, missiles, stabilisation systems, aerospace
manufacturing and aviation maintenance. The development of these capabilities
was mainly driven by South Africa's isolation under apartheid and significant
historical spend on the sector (R14,1 billion in procurement in 1990).
With the advent of democracy in South Africa, Government spending was
re-prioritised. Defence acquisition spend steadily reduced over the past 12
years to a level of R6,5 billion in 2007. In order to survive, local defence
companies relied heavily on export markets. However, enterprise level
strategies have not always been aligned with local conditions and the changing
nature of the global industry. This is particularly the case with Denel, where,
prior to 2005, the group lacked a clear strategy for global supply chain
integration. Due to the above factors, many of the SADRI capabilities are now
sub-scale, when compared to global standards, and the industry is generally
fragmented.
The Department of Defence and the SANDF regard South African developed
capabilities as strategic in ensuring national security and for our country's
role in contributing to peacekeeping on the continent. Furthermore, the sector
has an important role to play in contributing towards advanced manufacturing in
the economy.
Although the local acquisition budget has reduced, shifts in expenditure
patterns have occurred over the last 2 years with changing matériel
requirements by the SANDF. This includes the finalisation of the Hoefyster
(Infantry Fighting Vehicle) contract (R8 300m), the A-Darter (Air-to-Air
Missile) development programme (R866m, jointly funded with Brazil) and the Oryx
Helicopter midlife upgrade contracts (R730m). These contracts will have
benefits for Denel and the local industry.
Cabinet noted the strategy for the industry. Denel's restructuring programme
will continue. A key objective recommended in the strategy is the principle of
appointing local main contractors for all defence related matériel
requirements, where possible. Furthermore, in line with global benchmarks, a
target of 60% to 70% of defence spend that will be directed towards the SADRI,
in areas that have capacity and competitive advantage, has been set. Research
and Development (R&D) funding and offset obligations will need to be
focused on priority areas in the SADRI so as to optimise their impact. The
principle of cost-effective life cycle support is important. Based on
international best practice, communication between the DOD and the SADRI will
be enhanced, through clear policy statements and communicating medium to long
term procurement plans, through industry supplier forums.
The report found that although the SADRI has developed very good
capabilities (and is a world leader in some areas), not all capabilities are
commercially viable. In addition, managerial and technical skills within local
companies need to be on par with competing countries.
It was reported that the NATO market, in particular, remains protected.
Cabinet resolved that further alliances with global partners will be entered
into to ensure that standards are raised to world-class levels, to increase
access to markets and to contribute to the viability of certain capabilities.
In addition, further export marketing support will be needed. Given reduced
defence spend and the current state of the SADRI, consolidation of the local
industry is both desirable and inevitable. This ranges from collaboration in
specific areas to company mergers.
In terms of national defence support services, Cabinet approved that test
and evaluation functions that exist in a number of entities be consolidated
into the Defence Evaluation and Research Institute (DERI). This will reduce
duplication, resulting in the sustainability of the national defence technology
base. The institute will be established through a Bill and will report to the
Minister of Defence.
For any further queries, please contact:
Vimla Maistry
Chief Director: Communications
Department of Public Enterprises
Tel: 012 4311021
Thabiso Ratsomo
Acting Head of Communications
Ministry of Defence
Tel: 012 355 6104
Jointly issued by the Departments of Defence and Public Enterprises
13 December 2007
Source: Department of Public Enterprises (http://www.dpe.gov.za)
