A Monthly Journal of the IDSA
An Overview of the Defence Industry
By Ruchita Beri *
The South African defence industry is one of the largest in the developing world. Its development and expansion have been influenced by a number of factors-strategic, political and economic. In the post-apartheid era, one of the main debates has been on the value and future of a local defence industry. With the decrease in the possibility of an external threat, the necessity of maintaining the defence industry has been questioned. Between 1989 and 1994, substantial cuts in defence expenditure were implemented in South Africa. As a result, the defence industry was forced to downsize and restructure. The strategy of rationalisation and restructuring after 1992 was based on the desire to remain in the market but to shrink to fit the declining domestic defence market. This article reviews the South African defence industry, which is in the throes of restructuring and suggests that it has led to a down scaled defence industry.
Both Armscor and the defence industry are valuable national assets and an integral reservoir of our research and development capabilities.
Joe Modise 1
The democratic transformation in South Africa has triggered the transformation of its military institutions, including the defence industry. It is aptly called a national economic industrial asset. Considerable resources have been expended in establishing this industry, which in output is substantial when ranked against other complex manufacturing industries. South Africa's arms industry is one of the largest in the developing world. 2 The development and expansion of South Africa's arms industry were influenced by a number of strategic, political and economic factors. The strategic factor such as the imposition of UN arms embargoes in 1963 and 1977, the presence of growing external threats to apartheid, the increasing hostility of the international community and the imposition of embargoes and sanctions were the primary determinants. Political factors such as the implementation of the discriminatory and repressive apartheid policies after 1961, which led to increasing black resistance and civil unrest, forced the state to develop a domestic military capability in order to supply the security forces with the means to maintain minority rule. The development of the arms industry was also linked to the broader strategy of promoting the development of Afrikaner industrial capital. The expansion of the defence industry contributed to the development of closer links between the state and private capital. The fact that the strategic concerns of the government increasingly coincided with the short-term interest of private capital was an important determinant in South Africa becoming self-sufficient in arms production. The development of the South African arms industry can be divided into two stages: (a) apartheid era; and (b) post-apartheid era. In each it was influenced and constrained by the political and strategic developments in the country.
Emergence and Development: Apartheid Era
Before 1961, South Africa relied quite heavily on arms imports. Withdrawal from the Commonwealth in 1961 and imposition of a UN arms embargo in 1963 severely affected South Africa's arms procurement. It also provided an impetus towards developing an indigenous arms industry. The emergence of the South African defence industry can be traced back to 1964 when the Armaments Production Board was set up, with the responsibility for both acquisition and management of the public sector defence industry. In 1968, the state owned Armaments Development and Production Corporation were set up. Between 1968 and 1977, South Africa's arms industry reached a critical stage of development. During this period, it began to undertake minor R&D improvements to local licensed-produced armaments and started limited production of less sophisticated weapons. In 1977, the Armaments Production Board and the Armaments Development and Production Corporation were amalgamated to form Armscor (the Armaments Corporation of South Africa). Between 1977 and 1989, the South African arms industry expanded considerably in response to the imposition of the UN arms embargo and South Africa's increasing involvement in a number of regional conflicts. During the early 1980s, South Africa's arms industry began to face a number of economic problems as a result of increasing production costs, excess capacities and declining domestic demand. Arms exports were introduced to resolve some of these problems. A new international sales and marketing organisation, Nimrod, was created within Armscor in 1982, to deal with arms exports. By the late 1980s, South Africa's arms industry had achieved a relatively high level of self-sufficiency in terms of being able to supply the South African Defence Force (SADF) with most of its equipment requirements. It had by then reached the stage of independent R&D and production of less sophisticated weapons, and limited R&D and production of more advanced weapons.
Military R&D began in earnest in South Africa in 1961. In the early 1970s, a Defence Research Committee (DRC) was established to coordinate and manage military R&D programmes. In 1978, a new structure for coordinating military R&D, the Defence Research and Development Council (DFDC), supported by a technical secretariat, was established in the office of the chief of Staff Logistics of the SADF. The DRDC was tasked with identifying the SADF R&D needs and coordinating and managing R&D efforts in order to fulfil them. In the same year, a large part of military R&D previously carried out by the National Institute for Defence Research was transferred to the Armscor subsidiary, Kentron. In 1984, a new management system for coordinating military R&D was established. The DRDC remained the centre of the system, tasked with identifying, funding and managing military R&D activities. It included representatives from the SADF, Armscor and the Council for Scientific and Industrial Research (CSIR). After 1977, military R&D was funded from the defence budget either through the Special Defence Account or from Armscor's operating subsidy (paid out of the general support programme for the defence budget). The Special Defence Account, established in 1974 by an act of Parliament and administered by Armscor on behalf of the SADF, is used to fund all major procurement projects, spares, parts and maintenance for SADF equipment, associated R&D and the activities of the military intelligence. Military R&D activities were carried out by some state institutions such as the CSIR, various universities and private sector industries. South Africa's expenditure on military R&D increased dramatically during the 1980s. As a percentage of total R&D expenditure, it increased from 19. 3 per cent in 1979 to 54 per cent in 1987, before declining to 48 per cent in 1989. However, these increases came about in a period when the total R&D investment in the country was declining. Thus, the high investment of military R&D might have crowded out investment in non-military R&D.
The arms industry was spread between the public and private sectors. The public sector industry in South Africa was concentrated entirely in one company, Armscor. Armscor's production and research activities were located in a number of subsidiary companies, and research and testing facilities in various parts of the country. By 1989, Armscor had developed into the 30th largest company in the country in terms of total assets and 15th in terms of employment. Its total assets were estimated at Rand 2 billion in 1989. The size and structure of the private sector arms industry in the apartheid era are difficult to ascertain because of the lack of economic data on this area. Armscor stated in the mid-1980s that it had contracts with 2,271 private sector firms of which 1,083 (48 per cent) were direct contractors and 1,188 (52 per cent) were suppliers of standard items. The structure of the private sector arms industry in the late 1980s reflected the structure and ownership patterns of the South African manufacturing sector. Large and highly diversified corporate groups were a common feature of the manufacturing sector and were in turn owned or controlled by one or more of the six large financial- mining- industrial conglomerates: Anglo American, Anglovaal, Liberty Life, Old Mutual, the Rembrant group and Sanlam. These six controlled approximately 90 per cent of the asset value of the Johannesburg Stock Exchange in the latter 1980s. Three large industrial groups publicly quoted on the Johannesburg Stock Exchange-Altech, Grintek and Reunert-dominated the private sector arms industry. All three were in turn either owned or controlled by one of the six large conglomerates. Altech was controlled by Anglo-American, Grintek by Anglovaal, and Reunert by Old Mutual. In terms of geographical distribution of private sector firms, more than 75 per cent were located in the Pretoria-Witswaterand-Vereeniging (PWW) region. This corresponds with the location of the public sector industry-Armscor and its subsidiaries were mainly centred in that region.
Substantial cuts in defence expenditure were implemented in South Africa between 1989 and 1994. As a result, the arms industry was forced to downsize and restructure. This led to the establishment of a new state owned arms production company, Denel, in 1992.3 However, Armscor still retained responsibility for procurement for the SADF. After 1992, Armscor pursued a number of adjustment strategies-restructuring and rationalising its administrative structure, introducing more competitive procurement policies, expanding client base and pursuing export markets through international marketing and negotiating offset or counter-trade agreements with foreign suppliers. Denel inherited most of Armscor's production and research facilities. The strategy of rationalisation and restructuring after 1992 was based on the desire to remain in the market but to shrink to fit the declining domestic defence market by consolidating and rationalising the defence operations. As a result, Denel restructured its 18 divisions and subsidiaries into six different industrial groups: Systems, Manufacturing, Aerospace, Informatics, Properties and Engineering. At the same time, around 1,600 workers were laid off in 1992-93 in the drive to cut costs.
In the process of restructuring, all Denel divisions pursued strategies of diversification. These strategies included joint ventures, acquisitions and mergers with civilian firms, development of commercial civilian products using defence technology and production facility. One of Denel's primary restructuring strategies was to increase exports of both military and commercial products. The company's exports increased quite significantly in 1992-93. It exported military equipment to 37 countries in 1992, and to 41 countries in 1993. The Systems group, particularly LIW, which manufactures the G5 and G6 howitzers, provided the bulk of Denel's export earnings in 1992-93.
The private sector defence industry also took steps to downsize defence operations in response to defence cuts after 1989. In fact, some of the private firms closed down their defence operations after 1989. Dorbyl Marine, the country's major naval ship building firm, closed down its naval ship building facilities in Durban in 1993 because of lack of defence work. Gencor sold its military vehicle business, Sandock Austral, which manufactured the hulls for the Rooikat armoured car and the Ratel infantry-fighting vehicle (IFV), to Reumech in 1993. Between the period 1989 to 1993, there was a marked decline in the military R&D. At the aggregate level, this declined by 65 per cent in real terms in this period. The share of military R&D in total R&D spending declined from 48 per cent in the late 1980s to about 18 per cent in 1993. Neither the value nor the share of military R&D fell much after 1993, despite dramatic cuts in procurement expenditure.
The end of apartheid and establishment of a democratic government in 1994 had a significant impact on the local arms industry. The domestic arms industry has been subject to much higher levels of public scrutiny than before. This has largely been due to the work of Cameron Commission (established in late 1994 to comment on South Africa's existing arms trade policies and decision-making procedures), the public policy processes associated with the 1996 White Paper on National Defence and the Defence Review. None of these defence policy processes deals directly with the defence industry, though there is a discussion on the arms industry in the Cameron Commission reports.
The first policy process initiated by the government on defence issues was the Joint Military Coordinating Council (JMCC). During this process, in early 1994, a draft "National Policy for the Defence Industry" was produced and presented to the TEC Sub-Council on Defence in 1994. The main thrust of this document which was approved by the Sub-Council on Defence, was preserving rather than restructuring the arms industry. The document argued in favour of a policy maximising arms exports, subject to certain guidelines, in order to offset the decline in the domestic market. The recommendations have not been formally adopted by the new government but have been used to provide an informal policy framework for the arms industry since April 1994. A Cabinet committee was set up under the chairmanship of the minister of defence in 1994. This committee was given the task of developing a policy framework for dealing with the domestic arms industry. However, nothing concrete emerged from this work.
The reports of the Cameron Commission have been particularly significant in challenging many of the economic and strategic arguments in favour of maintaining a domestic arms industry. It recommended the restructuring of the domestic arms industry and suggested that the "future of the (defence) industry and the question of conversion to civilian production should be the subject of a White Paper". 4
The White Paper on National Defence was approved by the Parliament in May 1996. While it did not include any major policy pronouncements on the future of the domestic arms industry, it endorsed the need for the maintenance, upgrading and where necessary, the replacement of weapons and equipment, and stated that "the government would encourage the industry to convert (its) production capability to civilian manufacture without losing the key technological capability needed for military production." 5 Apart from these general statements, it stated that the government would prepare a separate White Paper on the arms industry, echoing the recommendations of the Cameron Commission. The Defence Review, another notable process, was initiated in 1996. It was concerned with the long range planning on matters such as doctrine, posture, force design, force levels, logistical support, armaments, equipment, human resources and funding, and was derived from the policy framework contained in the White Paper on National Defence. While not significantly concerned with the future of the domestic arms industry, it dealt with matters relating to the arms industry in an indirect way. The Defence Review was approved by the Parliament in August 1997.
One more important development was the formation in July 1994 of the South African Defence Industry Association (SADIA). The main functions of SADIA are to coordinate the activities of the domestic arms industry and act as a mouthpiece for the industry in dealings with the government and other interested parties. These functions were previously undertaken by Armscor on behalf of the industry. SADIA has publicly criticised the lack of government policy on the arms industry, arguing that it caused uncertainty within the industry and led to outflow of technology and knowhow from the country in the form of off-shore alliances and joint ventures. 6
In March 1997, the government initiated the preparation of a White Paper on the Defence Industry. Professor Kader Asmal, chairman of the National Conventional Arms Control Committee (NCACC), and the Defence Secretariat were coordinating it. This White Paper was approved by the Parliament in 1999.
Debate on the Future of the Defence Industry
In the post-apartheid era, one of the main debates has been on the value and future of a local defence industry. With the decrease in the possibility of any major external threat, there was a debate within the country on the necessity of maintaining the South African defence industry. Strong views have been expressed about the future of the industry. Some have pleaded for retention of the industry while others, for a variety of reasons, have recommended a total shutdown. A number of government officials have made public pronouncements on the future of the arms industry and have argued in favour of maintaining it. Former Deputy Minister of Defence Ronnie Kasrils suggested five major considerations while assessing the value of the local industry. The first is a strategic consideration. Many countries in the past have paid an exorbitant price for their reliance on foreign suppliers of defence equipment: at crucial moments they were subjected to the "spare parts diplomacy". The second consideration is political: having all the essential elements of a sovereign state such as defined territory, population, and legal recognition is meaningless without the means to uphold and exert that sovereignty. The third consideration is psychological. Every citizen expects protection from the state and the very existence of a defence force and defence industry sends out that psychological signal of security, insurance and assurance, irrespective of any threat analysis. The fourth consideration centres around national pride and nation building. Every nation takes pride in its assets and achievements. The fifth consideration is the economic aspects. Kasrils admits that it is true that the cost of maintaining a defence force and local defence industry is exorbitant-in the case of South Africa, in excess of Rand 10 billion each year. But he adds, "Not all these considerations are capable of quantification in money terms. Therefore, if one takes on board all five considerations together, the retention of local defence industry holds sway." 7 Former Defence Minister Joe Modise has said on record that South Africa needs a capable arms industry for strategic reasons because of the "instability around us" and the need to be able to "protect against any instability that spills over" into South Africa from the region. He also argues that the industry can play a greater role in the region in order to promote a high degree of regional equipment standardisation. 8 Pierre Steyn, the earlier secretary of defence, has highlighted the strategic reasons for maintaining the domestic arms industry in order to "meet the key technology needs of the SANDF and to function as a technology multiplier in the deployment of South Africa's future industrial strategy."
Armscor argues that a South African defence industry has the following advantages: 9
Strategic Self-Sufficiency: Whenever weapons are purchased from foreign suppliers, the purchaser becomes dependent on the supplier for spares, technical support and consumables like ammunition. International restrictions on the armaments trade, especially in times of crises, render a country without a local arms industry, vulnerable.
Technological Advantages: If all the world's defence forces had free and equal access to the same weapons, it would only be through the superior employment thereof that a combat advantage could be achieved. When one party has access to superior weapons that its adversary cannot obtain, it will have a definite advantage. This advantage can often only be achieved through own research, development and manufacture of new generation weapon systems.
Tailor-Made Equipment: Every country has a unique environment. Unique climatic, geographic, demographic and doctrinal circumstances require tailor-made equipment.
Logistic Support: Many modern weapon systems like fighter aircraft require frequent industrial repair, maintenance and upgrading. War damages require even more substantial repairs by industry. An efficient and prepared defence force, therefore, requires a supportive local industry. This becomes even more vital when the country is situated far away from potential suppliers and their industrial complexes.
In contrast to the high profile support for maintaining the arms industry from the defence establishment, certain sections of the civil society including the churches, trade unions and non-governmental organisations (NGOs) have argued in favour of further diversification of the domestic arms industry. 10 Another extreme view is that taken by Jacklyn Cock, defence commentator, who claims that "South Africa's arms industry has always been characterised by a total absence of morality. It has played a crucial role in maintaining the apartheid regime and the oppression of the majority. Furthermore, its exports have helped maintain wars and oppressive regimes around the world...This arms industry has always been characterised by smuggling, secrecy and shady dealings."
The public opinion within South Africa appeared to support the local defence industry. The results of a survey carried out in 1995 by Mark Data of the Human Sciences Research Council (HSRC) indicated this trend. 11 In answer to the question of how South Africa should obtain weapons for its security forces, the respondents were strongly inclined to opt for self-reliance in the provision of weapons. Around 45 per cent indicated that South Africa should make enough weapons for its own use. An additional 25 per cent indicated that South Africa should produce enough weapons for its own use and should also compete for weapon sales overseas. Supporters of all political parties included in the analysis (African National Congress (ANC), Pan African Congress (PAC), Democratic Party, National Party, Inkatha Freedom Party, the Right Wing) with the exception of those supporting the right wing parties, were inclined to respond that South Africa should make enough weapons for its own use. The majority of supporters of the right wing parties (60 per cent) tended to respond that South Africa should not only make enough weapons for its own use but also compete overseas for weapon sales.
The largest single proportion of respondents (48 per cent) indicated that South Africa should increase its weapons manufacturing capacity. In the analysis, according to the population groups among the respondents, 42 per cent Africans, 29 per cent coloured and 50 per cent white people stated that South Africa's weapons manufacturing capacity should increase. Further, the results show that supporters of the main political parties are in favour of an increase in South Africa's weapons manufacturing capacity. Of the supporters of the ANC, the majority party in South Africa, 43 per cent are in favour of an increase in arms manufacturing, 20 per cent support a decrease in arms manufacturing, and 36 per cent are undecided.
South Africa's external strategic environment changed dramatically after 1989. The end of the East-West conflict 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 inter-linked 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 led to dramatic changes in the country's defence and foreign policies and a rapid decline in the defence budget. The minister of defence, speaking in the 1995 defence budget vote, stated, "We are living in a situation of relative peace and stability . . . the country faces no specific threat in the near future. . . we wish to cut the defence funding to the bone." 12
Between 1989-90, and 1997-98, the defence budget declined by over 50 per cent in real terms, while the acquisition budget (the Special Defence Account) declined by over 80 per cent in real terms during the same period. In 1997-98, acquisition spending accounted for 20 per cent of the defence budget, down from nearly 60 per cent in 1989-90. Defence expenditure as a percentage of Gross Domestic Product (GDP) declined from 4.1 per cent of GDP in 1989-90 to around 2 per cent in 1997-98.
These massive cuts were achieved through the disbanding or scaling down of various former SADF units; closure or scaling down of military bases; reduction in national service from two years to one year, and eventual replacement of conscription by an all volunteer system; retrenchment of former SADF and Armscor personnel; cutbacks in capital and R&D spending; postponement and/or cancellation of armament projects; and sale and/or mothballing of redundant and obsolete equipment. Of these, the greatest savings were made through the cancellation of projects and cutbacks in capital spending. This is evident from the fact that only 24 per cent of the budget was spent on capital items in 1995-96 as opposed to 44 per cent in 1990. 13
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 a large number of workers. The employment in the industry has fallen from a peak of about 160,000 people to less than 50,000 today. As a result of further defence cuts since 1994, and in the absence of any clear policy direction from the government, the domestic arms industry, in both the public and private sectors, has been forced to continue with the process of restructuring and downsizing which started in the early 1990s. 14
Denel: After much resistance earlier, in late 1995 the government announced that it was investigating the privatisation of state assets, including Denel. However, till date, no decision on privatisation of Denel has been taken. Denel is at present structured as a single company with six groups and 18 divisions. The three core groups and its divisions include: Systems (LIW, Kentron, Eloptro, Musgrave, and Mechem); Manufacturing (Naschem, PMP, Somchem, and Swartklip); Aerospace (Houwteq, Simera, and OTR). Table 1 gives the details of the military and civilian products produced by these divisions.
Table 1. Systems Group
Division Military Civilian
LIW Automatic cannon Skid-steer loader
Small arms Ambidex tractor
Artillery systems Mining equipment
AFV guns/turrets Machining
Mortars Drifter rock drill
Kentron Missiles Turnkey security systems
Air defence systems Traffic engineering systems
RPVs Electric motors
Weapon systems 'Fibrestruc' glass fibre products
Avionics Solargen solar power system
Inertial systems Observation systems
Fire control systems
Stand off weapons
Eloptro Electro-optical equipment Acbit pattern display unit
Sighting systems Thermal imaging
Laser range finders Laser products
Infra-red Night vision products
Musgrave Rifles Sporting rifles
Shotguns Motor vehicle spares
Wooden saw handles
Mechem Mine-resistant vehicles Demolition
Detonics Bomb disposal
Rocket systems Mine clearance
Fuse design Vapour detection
Source: Denel Annual Report 1992-93 & 1993-94.
The downward trend in defence expenditure has had a negative impact on Denel, and the company has continued to pursue a variety of adjustment strategies. It continued to lay off employees-the number went down to 14,150 from 15,500 in 1992. In the process of rationalisation, it closed down some of its facilities (Houwteq being one). It was not viable to maintain some of the testing facilities such as Gerotek and Overberg Test Range. All the groups and divisions of Denel continued their diversification strategies after 1994, particularly mergers and joint ventures with civilian firms, and the development of civilian products derived from existing defence technologies and products.
Table 2. Manufacturing Group
Division Military Civilian
Somchem Artillery charges Nitro-cellulose and
Rocket systems chemical products
Anti-armour weapons Composite material
Missiles (air-to-air) products
Propellants 'Vectus' pipes
Mortars Medical and electronic
Automatic guns monitoring equipment
Swartklip Pyrotechnic products Emergency flares
Explosive devices Sporting ammunition
Artillery shells Industrial power tools
Hand/rifle grenades Boulder breaker system
Naschem Medium and heavy Mining explosives
PMP Small and medium- Brass/copper products
calibre ammunition Pressed/machined parts
Rapid-fire ammunition for motor industry
Explosive bonding drill
Source: Denel Annual Report 1992-93 & 1993-94.
The strategy of acquisitions and mergers with civilian firms is supposed to be the most successful diversification strategy but has proved problematic since Denel is 100 per cent owned by the state. Thus, the policy of joint ventures is seen to be the most appropriate strategy at the moment. The strategy of conversion has been abandoned given the significant difficulties and costs involved in converting facilities to civilian use and the expensive failure of Houwteq's conversion effort. On the other hand, Denel has continued to pursue the export markets since April 1994, particularly in the light of the lifting of the UN arms embargo. The defence exports rose from 16 per cent of the turnover in 1992 to 24 per cent in 1995. The declining domestic defence market and the increasingly competitive international arms market have encouraged Denel to enter a number of joint ventures and strategic alliances with foreign defence firms. The vast majority of these have been with the UK, though there have been joint ventures signed with Israel, France, Germany, Spain, Switzerland and Malaysia. They have concentrated on the Rooivalk attack helicopter and the potential replacement of the existing Impala Mk II jet trainers. 15
Table 3. Aerospace Group
Division Military Civilian
Simera (Atlas) Fixed and rotary wing military Fixed and rotary wing commercial
aircraft, trainer aircraft, gas turbine aircraft, gas turbine engines,
engines, engine components engine components, aircraft engine
Houwteq Military satellites (formerly) Low earth orbit (LEO) satellites
OTR Test range for missiles, rockets, Lauch site for LEOs
Source: Denel Annual Report 1992-93 & 1993-94.
Armscor: The other public sector organisation, Armscor, has managed to survive in the post-apartheid era as the state's armament procurement organisation. Moreover, it is still a statutory corporation like in the past, and has not been absorbed in the new Department of Defence or the Defence Secretariat. It is, however, part of the Ministry of Defence and its board is still accountable to the minister of defence rather than the chief of SANDF or the defence secretary. There have been some internal changes in the organisation.
In 1995, as a result of the Cameron Commission reports, and especially the recommendations from the Modise Commission, 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 1992 and arms control to the NCACC in 1995), thus, focussing Armscor on acquisition management and the management of certain strategic capabilities on behalf of the Department of Defence (DoD) through its subsidiary companies.
The defence related industries draft White Paper states, "Armscor, as the designated acquisition agency of the DoD, is today responsible for professional programme 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 is in accordance with DoD requirements. 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."
The core business activities of Armscor are focussed on:
Armscor has continued its adjustment strategies. It has intensified its international marketing campaign after the lifting of the UN arms embargoes and opened additional overseas offices to support the domestic arms industry's export drive. It has been tirelessly pushing the sale of surplus SANDF weapons in order to increase the amount of money available on the Special Defence Account for the purchase of new weapons and equipment. South Africa's share of the world arms market was estimated at less than one per cent in 1995. Despite increases in the value of arms exports in the 1990s, this share has not increased. It has increased the counter-trade requirement up to 60 per cent on contract with foreign suppliers since 1994. The corporation has also pursued a more transparent and competitive procurement policy in order to achieve better value for money.
Private Sector: It is important to realise that by far the larger part of the South African industry is in private hands. Arounds 80 per cent of all military production is by the private industries. 17 Some four-fifths of the 50,000 people employed are in the private sector. The three large groups i.e. Altech, Grintek and Reunert, continue to dominate the private sector defence industry. The private sector arms industry like that of the public sector, has continued to pursue the adjustment strategies that it pursued during the transition period in the post-apartheid era. These strategies include laying off workers, downsizing, rationalising defence operations, selling off assets, and exit from the defence market. They have pursued arms exports quite aggressively after April 1994. Most private sector firms have established international joint ventures and alliances with foreign defence firms. The South African defence industry is increasingly being recognised as world class; partnerships and joint ventures with industries in other countries are providing valuable transfer of technology and expanded marketing opportunities. Amongst the companies surveyed by the SADIA during the latter half of 1995, 12 companies were reported to have a total of 93 joint ventures with companies in other countries. Of these, 29 involve technology with civilian application, 63 per cent with defence application, and seven per cent with application in both areas.
Thus, 70 per cent of the joint ventures are dealing with defence technology applications. In only 27 per cent of the joint ventures, the source of technology is from outside South Africa, while in 46 per cent, the technology source is from within the country, and in 28 per cent, the technology is expected to flow from both directions. These figures reveal the considerable technical competence that has been established in the defence industries, as over 74 per cent of joint ventures will involve technology sourced in South Africa. 18
Research and Development: Expenditure on defence R&D has declined by more than 70 per cent in real terms since the beginning of this decade. In 1996-97, Rand 329 million were spent on R&D from the defence budget, down from nearly Rand one billion in 1989-90 (in constant 1990 prices). Defence R&D spending currently accounts for five per cent of the total defence budget, down from nearly nine per cent in the late 1980s. 19
Table 4. Defence R&D Expenditure, 1989/90-96/97
Year Defence % % Of Total SA Defence/
R&D Change Defence R&D Total (%)
1989/90 985 8.6 2,043 48.2
1990/91 793 -19.5 7.9
1991/92 580 -26.9 7.2 2,455 23.6
1992/93 467 -19.5 6.1
1993/94 342 -26.8 5.2 1,831 18.7
1994/95 342 0 4.8
1995/96 342 0 5.5
1996/97 329 -3.8 5.5
Figures: Rand million in 1990 prices. (Figures in italics are in %.)
Source: South African government, Draft Defence Industries related White Paper
In the context of these budgetary constraints, local defence firms have been forced to fund an increasing amount of defence R&D from their own sources. While the cuts in defence R&D spending since the late 1980s have not been accompanied by significant increases in total R&D spending in the South African economy, there has been improvement in the innovative activity (as measured by patenting activity) during the same period. This suggests that the crowding out of civilian innovative activity, which may have occurred during the 1980s when defence R&D was at very high levels, may be being reversed.
Arms Exports: The South African government has been actively pushing for arms exports. With the advent of the ANC-led government, it was assumed that there would be a drastic change in the arms trade policies. However, both President Mandela and Defence Minister Modise were quite vocal in their support for a responsible arms industry and for better supervision and control over arms exports. On May 25, 1994, the UN lifted the embargo against South Africa by revoking Security Council Resolutions 418 of 1977 and 558 of 1984, concerning respectively, the supply of defence equipment to, and the purchase of arms from, South Africa. Immediately, Armscor announced its intentions to increase South Africa's share in the global market from 0.4 per cent in 1994 to 2 per cent, increasing the value of sales from Rand 800 million to roughly Rand 2.4 billion. The decline in domestic defence expenditure and, particularly the procurement budget, has created the incentive to maximise arms exports.
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 1990 prices) increased from Rand 163 million in 1990 to Rand 721 million in 1995 before declining to Rand 345 million in 1996.
Table 5. Export Permit Values: Comparative Figures, 1995-97
1995 1996 1997
AREA Rm. % of Rm. % of Rm. % of
Total Total Total
Africa 70.96 8 175.20 31 106.42 8
Europe (Inc. CIS
& Israel) 43.67 5 107.90 19 253.23 18
Far East 91.65 11 103.40 18 809.44 58
Middle East 477.28 57 82.00 15 73.85 5
Americas 160.20 19 90.60 16 143.37 10
Total 843.76 100 559.00 100 1,386.31 100
Figures: Rand million in current prices. (Figures in italics are in %.)
Source: South African government, Draft Defence Industries related White Paper
Despite the increase in defence exports between 1990 and 1995, South Africa is a very minor player in the international armaments market. Its contribution to 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 1995, is given in Table 5.
At the same time, however, there has been recognition on the part of the new government of the need to eradicate past arms trade practices which have proved detrimental to South Africa's newly acquired international standing. In a bid to regain international legitimacy, the new government launched various initiatives to transform the arms trade policy and to increase the transparency in the arms trade operations. Nevertheless, many contradictions persist in South Africa's arms trade policies. Following the revelations of South African arms sales to Yemen, a prohibited destination for South African arms, President Mandela appointed a commission of inquiry, the Cameron Commission, to investigate the existing arms trade practices of the country. The first report of the commission, which was released in June 1995, was not directly concerned with the policy on the arms industry. It was, however, highly crticial of Armscor and made a number of recommendations concerning the transformation of Armscor and the need for new and tighter controls over South African arms exports.
In the light of the revelations which emerged during the hearings of the Cameron Commission, in March 1995, the Cabinet approved the appointment of a ministerial committee under the defence minister to investigate the issue of South Africa's conventional arms trade policy and to make recommendations to the government on policy and a code of conduct. The Modise Commission submitted its proposals in August 1995. As a result of the findings of the Cameron Commission and the proposals of the Modise Commission, the Cabinet established a new policy and procedures for arms control, which included four levels of control, the highest being the NCACC established in August 1995 under Minister Asmal. It took over the arms control function, which had been carried out by the Armscor since the early 1990s. It was also mandated to formulate policy on the arms industry and, thus, took over from a Cabinet committee on the arms industry established in 1994 under the minister of defence. The second report of the Cameron Commission published in March 1996 contained a number of recommendations with respect to arms trade policies and decision-making processes. These included a proposal to classify countries according to their status as potential customers: those to whom arms should not be sold, those to whom arms could be sold, and those regarding which the situation is unclear. A further recommendation was that Parliament should be given the right to review and veto arms sales. The second report also challenged many of the political, strategic and economic arguments in favour of South Africa's continued involvement in the international arms trade. It also recommended the restructuring of the arms industry. Nevertheless, the government has not followed its own guidelines on a number of occasions: the NCACC's approval, of small arms transfers to Rwanda in September 1996 and the proposed sale to Syria of electronic tank sightings for the Soviet built T-72 tanks. Thus, despite the reforms, the government has not been able to display restraint and responsibility. Further, its plans of export maximisation have not displayed much results.
The review of South African defence industry suggests that South Africa is in the throes of restructuring. While the restructuring in the defence industry had began by the end of the last decade, in the period of transition from apartheid to democratic rule, the defence organisational changes have come mainly in the post-apartheid era. There was a clamour for demilitarisation in the immediate aftermath of the April 1994 elections and the subsequent debates and the Defence Review have led to a defensive defence doctrine and a down scaled defence industry.
Note *: Ruchita Beri, Research OfficerBack
Note 1: "Modise Highlights Benefits of SA Defence Industry", Business Day, November 14, 1996. Back
Note 2: Excellent readings on this are Peter Batchelor and Susan Willet, Disarmament and Industrial Adjustment in South Africa(SIPRI 1998); Signe Landgren, Embargo Disimplemented: South Africa's Military Industry (SIPRI, 1989). Back
Note 3: An internal study undertaken in 1991 to assess Armscor's future role came to the conclusion that it would have to participate in the commercial market to survive the defence cuts. However, Armscor was prohibited from using its production facilities for commercial purposes by the Act. Therefore, the government decided to form a new industrial company-Denel. Back
Note 4: Cameron Commission, Second Report, p. vi. Back
Note 5: See Ibid., p. 41. Back
Note 6: "What is SADIA?" Engineering News, March 1, 1996, p. 23. Back
Note 7: Ronnie Kasrils "The Value of our Defence Industry" Salvo, no. 2, 1996, p. 10. Back
Note 8: See Modise, n. 1. Back
Note 9: J.K. Cilliers, To Sell or Die: Future of the South African Defence Industry" ISSUP Bulletin, no. 1, 1994, pp. 8-9. Back
Note 10: Submissions by the Black Sash and the Anglican Church to the Cameron Commission public hearing, Cape Town, June 1995. Back
Note 11: Charl Schutte and J.K. Cilliers, "Public Opinion Regarding the South African Defence Industry, South African Participation in Peacekeeping and Women in Security Services," African Security Review, vol. 4, no. 4, 1995, pp. 47-54. Back
Note 12: Defence budget speech, National Assembly, May 24, 1995. Back
Note 13: Ruchita Beri and J.K. Cilliers, "Defence Industry and its Restructuring for the 21st Century: A Perspective on India and South Africa", 1996, unpublished paper. Back
Note 14: Paul Hatty, "Defence Industry Overview: Today and Future", African Security Review, vol. 5, no. 3, 1996, pp. 44-45. Back
Note 15: Peter Batchelor and Susan Willet, Disarmament and Defence Industrial Adjustment in South Africa (Stockholm: SIPRI, 1998), p. 69. Back
Note 16: South African government, Draft White Paper on Defence Related Industries http://www.gov.za Back
Note 17: Landren, n. 1, p. 48. Back
Note 18: Julius Kriel, "An Overview of the Defence Industry in South Africa", Salvo, no. 2, 1996, p. 46. Back
Note 19: n. 16. Back