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Earlier this month, the U. M1A2T Abrams tanks and Stinger missiles, among other weapons. The U. Click to enlarge. China , U. Sorry, but your browser needs Javascript to use this site. Chinese military vehicles carrying DFD anti-ship ballistic missiles travel past Tiananmen Gate during a military parade to commemorate the 70th anniversary of the end of World War II in Beijing in September Hong Kong police block protesters from reaching airport Hong Kong riot police took up position at the main rail station serving the airport on Sunday to prevent a new anti-government protest targeting air travel after a night of violent street clashe The White Paper states that the SANDF has to maintain a core defence capability because of the inherent unpredictability of the future.

Such a capability cannot be created from scratch should the need suddenly arise. The maintenance and development of weapons systems is a long-term endeavour Chapter 4: par. The White Paper notes that deterrence requires the existence of a defence capability which is sufficiently credible to inhibit potential aggressors. Although South Africa is not confronted by any foreseeable external military threat, this capability cannot be turned on and off like a tap.

It is therefore necessary to maintain a core defence capability Chapter 5: par. A core defence capability includes a balanced and sustainable nucleus with, amongst other features, the maintenance and, where necessary, the adequate and appropriate upgrading or replacement of equipment and weaponry Chapter 5: par. The White Paper states that the services of an efficient domestic defence industry are required to address these needs maintenance, upgrading and, where necessary, the replacement of weapons and equipment and enable the SANDF to meet its constitutional obligations Chapter 8: par.

The industry will permit the cost-effective purchase of certain products and systems, ensure the life-cycle maintenance and support of such systems, and perform refurbishment and upgrades of existing equipment. Chapter 8: par. The defence equipment required by the SANDF, however, cannot and should not be procured exclusively from the local industry. Many complex systems cannot be produced domestically and will have to be imported.

Management expertise for the specialised procurement functions is located within the DoD Chapter 8: par. The White Paper recognises that the government might be called upon by neighbouring countries to play a number of supportive roles. The SANDF could, for example, provide assistance as regards the maintenance and upgrading of weaponry and equipment Chapter 4: par. The White Paper indicates that South Africa's consideration of involvement in specific peace support operations will not be limited to the possible deployment of troops.

The involvement could also take the form of providing equipment, logistical support, engineering services, communications systems and medical personnel facilities Chapter 5: par. The acquisition and maintenance of military equipment shall take account of the particular requirements of peace support operations Chapter 5: par.

The White Paper states that the approval of major weapons procurement projects is the prerogative of Parliament on an annual and long-term basis Chapter 7: par. The White Paper requires the Defence Review to present, for the consideration of Parliament and the public, detailed and well-motivated budgetary forecasts and proposals; specific policies regarding the provisioning of logistic resources; and the identification of appropriate technology to optimise the cost-effectiveness of the core force Chapter 7: par.

It is stated that within budgetary constraints, the DoD will engage in co-operative ventures with its counterparts throughout the world in such fields as training and education, defence planning, exchange visits, combined exercises and procurement of arms and equipment Chapter 4: par. The White Paper states that in circumstances of diminishing domestic defence expenditure and falling global arms sales, the industry will be encouraged to convert production capability to civilian manufacture without losing key technology capability needed for military production Chapter 8: par 2.

The White Paper states explicitly that the defence industry must have access to international markets in order to facilitate cost-effective performance and reduce the unit costs of producing items for the SANDF Chapter 8: par. The government will support the export initiatives of the defence industry by permitting it to contract and honour obligations which have been duly approved Chapter 8: par. Chapter 8 of the White Paper deals specifically with arms control.

On 30 August , Cabinet approved new interim policy on arms control.

Sensitive issues:

The White Paper establishes a number of principles and guidelines governing conventional arms trade. In essence, these require that:. This will be limited only by national security interests Chapter 8: par. South Africa shall not transfer arms to countries which systematically violate or suppress human rights and fundamental freedoms Chapter 8: par. The principles stated in the White Paper on Defence are in alignment with the NCACC Rationale and Principles which state that the government will take the following into account when evaluating arms sales:.

The White Paper on Defence established certain arms control processes and structures. Conventional armaments and related technology may not be imported, transferred through South Africa, or marketed or exported abroad without a duly approved permit. The applications shall be subject to a multi-departmental review process. An independent Inspectorate will be established to ensure that all levels of the process are subject to scrutiny and oversight Chapter 8: par.

The White Paper states that South Africa is committed to the international cause of non-proliferation of weapons of mass destruction i. The White Paper on Defence provided for a Defence Review, the aim of which was to elaborate on the policy framework through comprehensive long-range planning on such matters as posture, doctrine, force design, force levels, logistic support, armaments, equipment, human resources and funding.

More specifically, the White Paper provided that the Review would encompass the following:. The absence of any immediate military threat to South Africa, the low probability of a significant threat within the foreseeable future, the reductions in the defence budget since and the likelihood that the budget will remain restricted for some time, have created a situation where the maintenance of extensive military capabilities is neither necessary nor affordable. The Defence Review therefore defines the minimum force level that can be maintained as a growth core, in accordance with the core force approach, without the permanent loss of capabilities.

The Defence Review deals with a number of policy matters relevant to defence related industries, such as:. The White Paper on Science and Technology deals with defence research. A notable exception is the armaments industry, which currently has a positive annual balance of trade. The White Paper on Science and Technology states that the essence of the new strategy of the SANDF is to convert the current force into a small, but technologically more capable one.

The reliance on quality intelligence will be high to allow for the timeous scaling-up of the force to meet potential threats, as will be dependence on a broad technology base Section 8. Insurance against threats will take the form of maintaining small, but sophisticated forces which can be mobilised quickly and which rely on technology to increase the flexibility and responsiveness of a smaller military establishment Section 8.

The White Paper on Science and Technology states that the future of the South African defence industry cannot be seen as distinct from that of its civilian manufacturing counterpart and that dual concepts should be understood and applied. The view that defence technology should be phased out in favour of civilian technology, or converted into it, is not tenable.

Instead, the defence industry must make special efforts to leverage spin-offs in the civilian sector and to develop relationships with civilian institutions in the National Science Initiative NSI to promote spin-on's Section 8. The Defence Research and Development Board budget should be displayed in the government science, education and technology SET budget, as well as in the Department of Defence budget.

This would give government and the public the opportunity to evaluate the entire SET spend in an non-fragmented way Section 8. South Africa's destiny is inextricably linked to that of the region and the continent Foreign Policy Framework for Southern Africa: Section 1. To achieve lasting peace and security, South Africa will actively promote its foreign policy principles. South Africa will, within the Southern African region, promote respect for human rights and democracy.

South Africa will be guided by the principles of justice and international law Foreign Policy Framework for Southern Africa: Section 1. The Department of Foreign Affairs aims to develop regional policy through negotiations and mutual co-ordination. Government will support the export initiatives of defence related industries by permitting them to contract and honour obligations which have been duly approved in terms of the national arms control system.

Government shall however reserve the right to prohibit or withdraw such support should it be in conflict with or irreconcilable with international or national interest at any given time NCACC Rationale and Principles. The Department of Trade and Industry is responsible for the general well-being of South Africa's industrial base, its general trade and contribution to economic growth, and establishing and promoting trade relations within the international community. From an economic point of view, the government is committed to the basic principles of fiscal and monetary discipline.

Furthermore, there has been a fundamental shift in trade and industry policy from an inward orientated, import substitution approach to an outward orientated approach focusing on the achievement of international competitiveness. Government announced, in support of these basic principles, a framework for sustainable growth and development with an outward orientation - the Growth, Employment and Redistribution strategy GEAR. Central to the GEAR strategy is the enhancement of non-gold exports, increased private sector investments with a primary focus on increasing labour opportunities , development of infrastructure and improved service delivery.

Key ingredients which impact specifically on defence related industries include, amongst others:. GEAR intends to lead off with the sale of non-strategic assets and the development of public-private partnerships in transport and communications. Strategic equity partnership arrangements, rather than full-scale privatisation, is envisaged for large public corporations.

The GEAR programme includes the restructuring of state assets which could include the reorganisation of assets into new companies, privatisation, strategic equity partnerships, and a suitable range of related actions. Industrial policy in South Africa is undergoing an historic change in direction. Previously, the key concern was self-sufficiency, largely for political and strategic reasons.

In this context industrial policy was largely focused on demand-side incentives e. Today the major focus of industrial policy is towards providing long-term improvements in employment and wealth creation in South Africa, through the creation of a sustainable, internationally competitive manufacturing base. In order to achieve this, industrial policy has shifted from demand-side incentives towards supply-side measures, which are designed to lower unit costs, and encourage firms to invest in products and processes that are internationally competitive.

This supply-side approach is intended to revitalise South African industry and to expedite the country's evolutionary progress up the so-called value chain towards competitiveness in more skills-intensive and technology-intensive products. Historically, defence related industries, because of their strategic importance in the context of United Nations arms embargoes against South Africa, benefited from a high degree of direct and indirect support from government.

The support that these industries received from government was determined by strategic not economic considerations. As a result of its previous privileged access to state resources, defence related industries developed into some of the most significant parts of South Africa's industrial base. Thy also became some of the country's leading producers and exporters of high value-added and technology-intensive products.

Government no longer regards defence related industries as being unique, although they will be treated differently to other industries in some respects for the following reasons:. Defence related industries are an integral part of South Africa's industrial base. National industrial policy is therefore applicable in its entirety to these industries, except in those key strategic areas where national defence priorities indicate a deviation from such policy.

These exceptions are limited solely to those strategic technologies and capabilities which are crucial to the national defence interest. National industrial policy is aimed at the promotion of industrial expansion, employment creation, exports, small business development and black empowerment and contains a number of policy directions impacting on defence related industries. However, none of its policy initiatives are specifically directed toward defence related industries. Small, medium and micro enterprises SMMEs engaged in defence production, particularly those that are owned or managed by individuals from previously disadvantaged communities, should benefit significantly from many of these industrial policy initiatives.

Supply-Side Support Measures. The supply-side support measure SSM agenda has several elements, which contain a range of strategies and programmes. A key area of the SSM is technology promotion or innovation support. Investment Support. Investment support is designed as an incentive fore relatively labour-intensive manufacturing industries, to support industrial growth in regions of existing or potential high agglomeration economies and to support new investments in SMME's.

As described below, this support takes a number of forms. As already noted in this paper, the White Paper on Science and Technology touches on several aspects relevant to defence related industries. It indicates that the balance of trade in medium and high technologies remains negative, with the exception of the armaments industry, which highlights the importance of defence related industries in maintaining the overall technology base.

It confirms the importance of a strong local technology base as an essential component of the core force concept and lists several capabilities required to support the SANDF strategy. National Industrial Participation Programme. The mission of the programme is to leverage economic benefits and support development of South African industry by effectively utilising government procurement. It seeks to enable small, medium and micro enterprises SMME's easier access to the public sector tendering system.

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Government recognises the important role of SMME's in the macro-economic development of the country. In the past, the tendering system favoured larger and more established businesses, and the Green Paper seeks to level the playing field. The Green Paper proposes that the current state and provincial tender boards are abolished and that these are replaced with Procurement Centres at departmental and provincial level. It is envisaged that these are overseen at national level by a Procurement Compliance Office.

Nations in Arms: Theory and Practice of Territorial Defence (Study in International Security)

In effect each Director General will be empowered to conduct all departmental procurement. Government is the largest single purchaser of goods and services in the country, and as such government procurement must support South Africa's overall macro-economic objectives. The Green Paper has a number of socio-economic objectives which have significant implications for defence related industries and the manner in which the DoD conducts its procurements. The objectives include:.

Such a policy has been approved by the Ministry of Defence MoD. When this document is adopted, the Secretary for Defence, as Head of Department in the DoD, will be empowered to conduct all DoD acquisition and procurement. The following legal and policy frameworks are also relevant to the defence industry and have been taken into consideration in this White Paper:. R, 2 August The origins of the domestic defence related industries can be traced back to the 19th century, but it was only during the Second World War that substantial quantities of armaments were manufactured locally 5 armoured cars, guns and 30 military vehicles to support the Allied war effort.

Local development of armaments was also undertaken: notable achievements were the MK1 armoured car and the JB1 radar. After the war most of the wartime factories converted to their pre-war civilian activities although a very modest defence industrial base was retained.

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In the early 's the government decided to expand the defence related industries in the face of increasing international isolation as a result of apartheid and growing resistance domestically and in the region. At that stage armaments production was largely in the hands of private industry. The first step was the establishment in of a statutory body, the Armaments Production Board, that was responsible for both acquisition for the SADF and the establishment and management of public sector defence related industries.

The Board was also tasked with the co-ordination of arms production in the private sector, and by the mid's nearly private sector firms were involved in various aspects of domestic arms production. In the Armaments Production Board was renamed the Armaments Board and tasked with the acquisition of armaments for the South African Defence Force, as well as ensuring the optimal utilisation of the private sector.

In the same year the government established the Armaments Development and Production Corporation of South Africa Armscor Act 57 of , with the mandate to foster and develop South Africa's domestic defence industry and to supervise the manufacture of armaments. During the next few years Armscor took over various private sector companies, such as Atlas Aircraft Corporation, and established a number of new production and research and development facilities. Domestic production was also encouraged through the government's support to strategic industries and its import-substitution drive.

An important development during this period was the establishment of quality standards appropriate for the manufacture of military equipment. This had a profound effect on the lifting of quality standards in the manufacturing sector of the economy. Increasing international opposition to apartheid, and world-wide demands for a mandatory arms embargo against South Africa prompted the government to embark on a major reorganisation and expansion of the domestic defence related industries during the mid's.

The rationale behind the establishment of Armscor was based primarily on the then government's strategic concerns in the context of the United Nations' arms embargo. The motivation for the establishment of Armscor was fundamentally strategic in nature, due primarily to the strategic concerns of the government of the day.

The imposition of the United Nations' mandatory arms embargo against South Africa in November led to the establishment of new defence production facilities by Armscor in a drive for self-sufficiency in armaments. Armscor also became the state organisation used to break or circumvent imposed sanctions.

The policy was to utilise the private sector industry wherever possible. Capabilities that already existed in the private sector, e. Armscor was primarily responsible for weapons systems development and integration, whereas the private sector supplied materials, components, subsystems and in many cases complete products. The major portion of South Africa's defence related industries thus remained in the private sector.

Armscor had three main tasks, namely manufacture of armaments, acquisition of armaments and arms control. A number of secondary functions existed. These included testing and evaluation, defence research and development, industrial development and the marketing and the sale of SADF excess stock.

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Armscor played an important role in the overall co-ordination of the industry and was given the de facto mandate for developing policy for the industry. The establishment of product development capabilities was a major milestone during this period. An example of this was the establishment of Kentron in , placing the missile development industry on a firm footing.

This elevated the status of the manufacturing sector of the economy to that of a designing industry. The concentration on development of the defence sector, however, inevitably entailed opportunity costs for other sectors of the economy and on a macro-level the economy was probably adversely affected. Armscor and the private sector defence related industries expanded rapidly during the 's as a result of South Africa's military involvement in a number of regional conflicts e.

Completely new sectors of the defence related industries were established, and the capabilities of the general industrial base were vastly improved through substantial investment. During this period, about half of the rapidly increasing defence budget was allocated for the procurement of armaments. As a result of massive state investment Armscor developed into one of the largest industrial groups in South Africa and by had assets of R million, a yearly turnover of R million and more than 25 employees. Armscor was also contracting more than companies in the private sector, which employed about people.

System development capabilities were established: Armscor set up operational research and systems engineering facilities such as Milistan, Gennan and Armatron and the concept of system suppliers was introduced in the defence industrial base. It also carried out covert and illegal activities such as establishing front companies to circumvent the embargo. The then government authorised chemical, biological and nuclear weapons programmes - the latter was carried out under the auspices of Armscor and resulted in the assembly of at least six nuclear devices.

Most of these activities were carried out in secrecy, protected by legislation such as the Armaments Development and Production Act no 57 of as amended. The Atomic Energy Corporation supplier the material for this endeavour. To decrease unit costs for its local customers and to utilise excess capacity, Armscor entered the export market in Since the early 's the value of defence exports has increased substantially, and defence related industries are now some of the largest exporters of manufactured goods in the country.

The relative success of South Africa's arms export drive resulted in United Nations Security Council Resolution of requesting all nations to refrain from purchasing armaments produced in South Africa. By the late 's defence production had become one of the most significant activities in the country's industrial base, both in terms of employment and contribution to the national economy. Defence production had also reached a relatively high degree of self-sufficiency by the end of the 's and most of the equipment requirements of the South African Defence Force SADF were met domestically.

Instead the industries concentrated on acquiring a capacity for upgrading, modifying and modernising existing armaments and weapons systems. By Armscor was ranked as one of the largest industrial companies in South Africa. It was ranked 30th in the country in terms of total assets R2,5 billion and fifth in the public sector after Eskom, Transnet, the Post Office and the Land Bank.

The dramatic expansion of defence related industries, particularly during the late 's and throughout the 's, was informed by strategic as opposed to economic considerations, and occurred during a period when the economy was performing poorly. Thus, the development of the domestic industries imposed a substantial burden on the national economy and was a significant contributing factor to the country's deteriorating economic performance in the 's and 's.

While defence related industries emerged as significant providers of jobs and skills during the 's and 's, most of these jobs were highly capital and skill intensive and thus inappropriate given South Africa's factor endowments. South Africa's external strategic environment changed dramatically after The end of East-West contestation was accompanied by a reduction in ideological tensions within and amongst African countries, by significant moves towards political pluralism in Southern Africa and by the end of apartheid in South Africa.

These developments contributed to the resolution of most of the region's historical conflicts and, especially after South Africa had set itself on the road to democracy, provided opportunities for countries in the region to reduce their levels of military spending and implement disarmament measures, including the demobilisation of former combatants. These interlinked processes of democratisation and disarmament, which occurred in many countries in the region, had a positive impact on the South African state's threat perceptions, and this lead to dramatic changes in the country's defence and foreign policies and a rapid decline in the defence budget.

The dramatic cuts in defence spending have had a major impact on domestic defence related industries, which have been forced to downsize and restructure as a result of the cancellation or postponement of defence contracts, resulting in the retrenchment of large numbers of workers since the late 's. During and Armscor made representations to Government to commercialise some of its industrial facilities.

It was felt at the time that most of Armscor's industrial facilities could be utilised for commercial purposes, while still being available as manufacturing resources capable of supplying the country's defence needs. On 1 April Armscor was divided into two separate organisations. A new state-owned industrial company called Denel Pty Ltd was established under the Companies Act as a commercial enterprise reporting to the Minister of Public Enterprises. Armscor was thus involved in the production of armaments up until , when its manufacturing capability was transferred in Denel.

Armscor however remained responsible for acquisition management, defence industrial development policy and arms control. Armscor contracted Denel in the same way as it contracted private sector companies. In , as a result of the Cameron Commission reports, and especially the recommendations from the Modise Commission resulting in a Cabinet Memorandum on 30 August , the roles and functions of Armscor with respect to the import and export of conventional arms were transferred to the National Conventional Arms Control Committee NCACC.

Two of the three primary roles of Armscor have been transferred production to Denel in and arms control to the NCACC in thus focussing Armscor on acquisition management and the management of certain strategic capabilities on behalf of the DoD through its subsidiary companies. During , Armscor, with the cooperation of the DoD, conducted an investigation into the roles and functions of Armscor.

This investigation made proposals with regard to the management and execution of the DoD's acquisition function. The roles, functions, structure, division of responsibilities, organisational positioning and interface between the SANDF, Defence Secretariat, Armscor and the defence industry were addressed. Armscor, as the designated acquisition agency of the DoD, is today responsible for professional program management and the drafting of tender documentation for the contracting of industry on behalf of the DoD during the execution of armament acquisition programmes. It ensures that the technical, financial and legal integrity in contract management are in accordance with DoD requirements.

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The DoD and Armscor also jointly oversee industrial development of the industry, in order to support DoD acquisition programmes and the retention of strategic defence technologies and capabilities. Once projects have been approved by the Armaments Acquisition Council AAC , Armscor places contracts on industry for project execution. All such contracts are authorised by formal Contracts Authorisation Committees with respect to legal, financial and technical integrity, as well as the integrity of the contractor selection process.

The composition of these Authorisation Committees reflect appropriate representation of all relevant stakeholders. Organised Defence Industry is timeously involved in the acquisition process in order to ensure local defence industry participation and industrial cost-effective solutions for the DoD's requirements. The Armscor Board serves as a decision making board for tender adjudication Special Defence Account and ensures that all contractual obligations of project management are in accordance with national procurement legislation and are in the national interest.

On acceptance by Parliament of the proposals of the Green Paper on Public Procurement, and the final re-engineering of the DoD acquisition function, the Armaments Development and Production Act must be reviewed to reflect the new functions and authority of the Armscor Board and the roles, powers and responsibilities of the DoD's acquisition Agency. The transformation of Armscor must be driven by two government imperatives, namely the attainment of efficiency and economy in acquisition management and the fostering of civil control and accountability.

In order to achieve efficiency and economy, the business processes of Armscor are to be aligned with core Department of Defence business requirements and the maintenance of those specific strategic capabilities which are not possible to create or sustain in the private sector. The retention of Armscor as a state corporation will ensure that Armscor will be accountable to a specific and identifiable member of the Executive and can be called to account by parliamentary oversight.

Defence related industries comprise various organisations, companies and business units such as:. The firms and companies involved in defence work vary in size considerably. Most have sales of less than R million per year, and at least a third have sales of less than R10 million per year.

Hardly any of these companies carry out defence work exclusively and for most of them it is a relatively small part of their business. Table 2. Note Figures: Rand million in constant prices. Cross-contracting and sub-contracting are important features of defence related industries. Although only the larger companies can usually act as main contractors, much of the work is contracted out, to the point where the value added by the main contractor may be a minor fraction of the total value of the project. Much of the value therefore trickles down to smaller companies, including many commercial suppliers which are not considered armaments producers.

Government is the sole domestic client for defence business, and most of its contracts are placed by Armscor. Armscor currently has contracts with approximately local firms and companies, which act as contractors, sub-contractors and suppliers of armaments and non-defence goods and services.

The domestic defence related industries have undergone a dramatic process of downsizing and restructuring since the late 's. The industry has become increasingly concentrated, as many small and medium-sized companies have gone out of business, exited the defence market, merged with, or been acquired by larger private sector companies. The decline in the size of the market has been reflected in massive reductions in the value and volume of domestic arms production.

This is primarily due to the past requirement for maximum self-sufficiency, and the fact that Armscor imports directly when necessary. The value and share of imports has declined in line with the cuts in acquisition spending. State-owned Denel and three large private sector industrial groups - Altech, Reunert and Grintek, currently dominate the domestic defence market. Denel is the largest defence-related company in South Africa, both in terms of the value of its defence sales, and its dependence on defence sales. Its sales account for nearly half the domestic market.

Accurate statistics on the size of defence related industries are difficult to arrive at, as it is often impossible to separate civilian and defence work. According to a survey of AMD member companies carried out in total South African defence sales including exports amounted to R 4 million.

The contribution of defence related industries to the national economy has also declined since the late 's. Companies involved in defence production have survived during this period of defence cuts by increasing defence and other exports, and by diversifying into civilian production. Denel and the three large private sector defence-related groups have significantly reduced their dependence on defence sales since the late 's. In a recent AMD survey, defence work accounted for less than 20 per cent of turnover in three-quarters of the companies involved in such work.

The value of defence exports has increased quite substantially as a result of the decline in domestic demand for armaments, and the lifting of the UN arms embargoes against South Africa. The value of exports in prices increased from R million in to R million in before declining to R million in Note Figures: Rand million in current prices. Despite the increases in defence exports between and , South Africa is a very minor player in the international armaments market. Its contribution to the world trade in conventional arms is less than half of one per cent, and appears to be declining even further.

An analysis of the value of defence exports as measured by the value of export permits since , is given in table 2. Government actively supports the export of South African defence products and state resources are used to maintain the country's defence export infrastructure.

A portion of Armscor's operating subsidy from the defence budget is used to maintain overseas offices, to provide international marketing support, and to assist the participation of South African firms at international defence exhibitions. Ministers also use their overseas visits to promote South African defence products. The South African defence related industries has followed the global trend towards multi-national defence industrial co-operation. International joint ventures and strategic alliances have been established with defence-related companies in 20 different countries.

Despite the growing emphasis on the export market, the DoD remains the largest, and in many cases the only, client for defence products and services. Following a global trend, the SANDF also contracts out a large portion of its logistic and operational support. Defence related industries thus become indispensable to the SANDF's logistic and operational capability, both during times of peace and war.

The DoD believes that domestic defence related industries may help to maintain independence from possible foreign coercion in times of tension. In certain strategic areas, such as electronic warfare and secure communications, and when equipment needs to be developed specifically for local conditions, systems and services are not available on the international market.

Preference is therefore given to the procurement of defence products and services from local suppliers, providing such procurement represents good value for money. A key concept in the acquisition of armaments is derived from systems theory, which defines a hierarchy of systems and subsystems as shown in the following table. Acquisition takes place at all the levels of the hierarchy and each level supplies to the next higher level. The DoD is primarily responsible for system acquisition at levels 8, 7 and 6; Armscor is responsible for acquisition of level 5 systems, while the suppliers in industry are the acquiring parties at the lower levels.

The major competency of Denel and the three major private sector defence related groups is overall system or sub-system design, development, integration and testing. Most of the actual manufacture and assembly is sub-contracted out to more specialised industries which are part of the country's general industrial base. Many of the systems such as attack helicopters or main battle tanks are very complex systems, requiring complex project management and competent design, development, production and upgrade capabilities.

Local defence related industries have developed a strong set of core competencies in the following three main areas, although there is also significant competence in vehicle systems, simulators, unmanned aircraft and logistics:. The major area of competency is in avionics for aircraft and helicopters: many companies are involved in the design and development of avionics sub-systems for fighter aircraft and attack helicopters.

Areas of competence include secure communications, electronic warfare, radar and information technology. In part as a result of the arms embargo which made major equipment purchases almost impossible, South African defence related industries are today world leaders in the field of upgrading outdated systems, in many cases resulting in significant exports.

It is possible to keep systems in service much longer than their normal life expectancy, through effective maintenance programmes and life extension developments. This enables large reductions in cost to be attained. Defence related industries were included in this audit. The survey results indicated a high level of awareness of technologies within the defence related industries, with an emphasis on product technologies.

This was directly a result of research contracts placed by the SANDF, the funding for which came largely from the defence budget. Notes Figures: Rand million in prices. It is difficult to accurately estimate the number of jobs linked to the defence industrial activity. However, it is estimated that direct and indirect employment currently amounts to approximately 76 people, down from a peak of over in the late 's.

Direct employment amounts to 26 including 15 in the public sector defence related industries. The dramatic cuts in defence spending have led to a large migration of skills and capacity from manufacturing industry in general and the defence related industries specifically. The largest defence employer in the country is Denel with over 14 employees, while a significant number of small companies employ fewer than 20 people. Three-quarters of defence related industries comprise small, medium and micro enterprises SMMEs.

More than half of all employees in defence related industries are engineers, scientists, technicians or artisans and the industries are currently staffed at most levels by white, largely male personnel. The lack of gender and ethnic diversity is particularly marked in the middle to senior management levels, as well as in all the technical fields.

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The cuts in the defence budget have had a dramatic impact on the profitability of defence related industries. Many firms have gone bankrupt, exited the defence market or been taken over or acquired by other firms. These developments, and the prospect of further cuts in defence spending, have raised concerns about the continued economic viability of defence related industries.

In order to illustrate the declining profitability of defence related industries the financial performance of Denel and two of the large private sector defence related groups Reunert, Altech is presented in the following paragraphs. Since Denel's financial performance in terms of profitability and asset management and productivity has not been particularly impressive.

Turnover has declined in real terms by an average of 1. The financial performance of private sector defence related companies such as Reunert and Altech since the early 's has also been negatively affected by the severity of the cuts in defence spending. However, both companies are less dependent upon their defence business than Denel, and so have been better placed to endure the impact of the dramatic decline in demand for armaments.

Reunert's turnover has continued to grow in real terms since the late 's, despite a sharp decline in and almost no growth in turnover in Altech's financial performance since has been less impressive than Reunert's. It is highly likely that the financial performance of Denel and private sector defence related companies will continue to be negatively affected if there are further cuts in defence spending, and if companies cannot expand their export markets defence and commercial or their domestic commercial business to offset the declining domestic demand for armaments. The concerns around the continued economic viability of the domestic defence related industries are linked to the need to create jobs, to improve the performance and competitiveness of the manufacturing sector, and to boost exports.

In this context the imperative to initiate diversification efforts in the defence related industries has become an urgent economic necessity. Notes Figures: Rand Million in constant prices. Figures in italics are in percentages. Source: Denel Annual Report, various years. The DoD has taken steps to ensure the sustainability of those technologies and capabilities that it regards as strategic, Chapter 4, para 29 to Initiatives that have been launched to sustain these strategic technologies and capabilities are:.

Source: Company Annual Reports, various years. The Defence Secretariat was responsible for all defence acquisition programmes prior to its disbandment in pending the imposition of UN sanctions. The Defence Secretariat provided a measure of civil-control to the defence acquisition process. The establishment of Armscor saw the transfer of this acquisition responsibility to this state corporation existing outside of the public service domain and the DoD specifically.

With the introduction of armament sanctions against South Africa, in addition to its main functions of developing the South African defence industrial base and managing defence acquisition, Armscor provided the ability to circumvent such UN sanctions. Armscor became South Africa's leading arms manufacturer and exporter of all military type equipment. Armscor became the spending authority of all capital folio 1 and folio 2 funds of the DoD. All technology funding and defence industrialisation activities were controlled, directed and funded by Armscor. The Armaments Development and Production Act Act no 57 of thus empowered Armscor to be an acquisition agency with Tender Board status, as well as be a manufacturing company.

The Act entitles Armscor to undertake inter alia the following activities:. Any person hindering such a inspector will be guilty of an offence. A person or body of persons shall not be divested of power delegated by him or it, and may amend or withdraw any decision made in the exercise of such power. The establishment of the Defence Secretariat post saw the creation of a Defence Acquisition and Procurement Division reporting to the Secretary for Defence, thus once again instituting oversight and civil-control over defence acquisition.

Armscor, as a state corporation with its members employed outside of the jurisdiction of the Public Service Act, is not a component of the Department of Defence and may therefore not be a budget holder in terms of the Exchequer Act. The defence capital budget therefore resorts with the Defence Acquisition and Procurement Division which is accountable for the appropriate management of public monies and resources and Armscor acts as the Acquisition Agency of the Department of Defence. Acquisition refers to all those actions that have to be taken to satisfy the need for materiel, facilities or logistic services.

It involves, in sequence, requirements planning, operational research, technology acquisition, design and development, operational qualification, quality assurance, industrialisation, initial procurement and commissioning. Procurement on the other hand, is a much narrower concept that involves contracting for a requirement on the basis of an existing specification or by purchasing, manufacturing, leasing or hiring where the production process has been previously qualified during an acquisition activity.

Procurement can be a component of acquisition. Two parallel processes can be identified that run simultaneously during the acquisition of cardinal defence capital equipment and specifically high value defence capital equipment. The first relates to a wider government process, the second to the DoD's acquisition management process. These two parallel processes are identified as the following:.

These include issues of National Industrial Participation and Financing implications. High value, cardinal defence capital acquisition programmes require consideration by various government departments due to the strategic and financial implications of such programmes. The acquisition of defence capital equipment establishes long term supply chains and consequently establishes long-term relationships with both defence related companies and governments.

A committee will be established to ensure that an integrated government approach is adopted during defence acquisition programmes. This committee will analyse each intended large scale defence capital acquisitions programme from both an industrial participation and technical perspective for Cabinet consideration. The committee is chaired by the Chief of Acquisitions reporting to the Secretary for Defence, and should consist of the following representatives:. The management of the acquisition of defence capital equipment and defence technology has been described in the Defence Review, as approved by Parliament in May Extracts from this document are presented below.

Civil control and oversight over all defence acquisition programmes will be executed by the Defence Secretariat within the MoD. Armscor will be appointed as the acquisition agency to support the MoD Acquisition Division. Political Accountability. The executive authority and responsibility for defence acquisitions rests with the Minister of Defence. The Minister is responsible for the defence function of Government and is accountable to the President, the Cabinet and Parliament for the management and execution of this function Defence Review Acquisition Chapter: Par.

Division of Roles. The functions of requirement identification, policy making, selection of successful tender, execution of acquisition projects and acceptance of equipment into service are to be separated. The Defence Review sets out the following distinctions:. The SANDF is responsible for determining the requirement and for accepting the equipment into service once acquired.

The Arms of Service participate in the various acquisition planning and approval forums, being the users of the equipment and services Defence Review Acquisition Chapter: Par. The Secretary for Defence is responsible for planning, programming and budgeting for all acquisitions. The Secretary is furthermore responsible for programming, budgeting and in-year control and auditing of defence expenditure, and also for inter-departmental and industrial co-ordination.

Defence Review Acquisition Chapter: Par. The Secretary for Defence is responsible for determining all acquisition related policies and the drafting of related strategic plans. The Secretary for Defence is responsible for ensuring that all acquisition activities are executed in terms of national objectives and policies. The Secretary is the Accounting Officer of the DoD and performs such duties and functions as may be necessary for civil control of the defence acquisition function, and to enhance parliamentary and ministerial control over SANDF acquisition programmes. The DAPD will be responsible for the management of the overall acquisition process and counter-trade issues.

Acquisitions are subject to oversight by civil authority, including the executive and parliament. To this end, the Secretary for Defence is accountable to parliament and the executive for all acquisitions, and for all public moneys spent in this regard. Execution of Acquisition Projects.