The National Defence Industry Council (NDIC) has updated Parliament’s Joint Standing Committee on Defence (JSCD) on its initiatives, from small arms manufacturing to alternative funding models, that will help the struggling South African defence industry.
The NDIC was launched by the Minister of Defence and Military Veterans Nosiviwe Mapisa-Nqakula in March 2016, with the Council chaired by the Secretary for Defence. The NDIC consists of senior government officials, captains of industry and the South African Aerospace, Maritime and Defence Industries Association (AMD). It has been tasked with developing a Defence Industry Strategy and a plan for implementation to develop and transform the industry. The NDIC originates from an appreciation that the local defence industry cannot exist and develop effectively on its own without the targeted support and direction of government.
Dr Moses Khanyile, NDIC coordinator, told the JSCD last week that there are several initiatives, linked to the defence industry master plan, that are being implemented to assist the sector. One of these is the resource-based alternative funding model which would see countries purchasing equipment in exchange for resources such as minerals.
This model was presented to key stakeholders, including National Treasury, Khanyile said. The initiative has been tested for feasibility and viability through one of the big banks in South Africa, which confirmed the model is feasible, he added. In the next couple of weeks the NDIC will be developing criteria to pilot the initiative with the bank.
Small arms production
A concerted effort is being made to support the production of certain military hardware, including small calibre weapons and ammunition, in South Africa. In the past, the production of small calibre weapons was done by Denel, but it stopped producing as the local demand declined below economical levels, although small calibre ammunition is still being produced at Denel PMP.
The Department of Defence previously said there is a need for the consolidation of all user requirements, especially the law enforcement agencies — South African National Defence Force, South African Police Service, Metros, Border Management Agency, and Intelligence Services— which will help with economies of scale. Armscor would centrally procure weapons and ammunition for all security-cluster departments and agencies.
This initiative has been presented to and supported by many other stakeholders, including National Treasury. Khanyile stated that the Department of Trade and Industry (now the Department of Trade, Industry and Competition), which is responsible for designating products for local production, supports the initiative and is waiting for further guidance from the main Crime Prevention and Security Cluster (JCPS).
“It is important that this matter is concluded speedily because Denel’s Turnaround Strategy includes selling PMP, which produces small-calibre ammunition for the SANDF. If PMP is sold, it will have a huge impact in terms of national security, job losses and supply of small- calibre ammunition to the SANDF,” Khanyile stated.
The initiative will be presented to the JCPS cluster of Director Generals in April 2021 and will then go to the Ministers’ JCPS cluster.
Task Team on Denel
The National Defence Industry Council helped initiate the Task Team on Denel to help it find solutions to its crisis. The Team, Khanyile said, compiled a comprehensive report which recommended better engagement and alignment between the Department of Defence and Department of Public Enterprises; the need for recapitalisation to fund production and pay staff; private sector investment; the reprioritisation and resetting of SANDF projects and realignment within key government structures.
“Armscor will need to engage Denel and possibly renegotiate current contracts including the long-term framework agreement between Denel and Armscor, addressing sovereign capabilities and associated maintenance,” Khanyile said.
He noted that the liquidity challenges in Denel continue to impact negatively, especially on the broader industry. This has been further exacerbated by the outbreak of COVID-19 pandemic.
In conclusion, Khanyile said the challenges in the industry are huge and are getting worse by the day. The South African defence industry is facing serious challenges of sustainability, the mass exodus of highly-skilled personnel, a shrinking market share and the inability to sustain strategic and sovereign capabilities of the SANDF.
Most of these challenges are directly linked to the massive decline in the SANDF’s budget, and the imminent closure of the Special Defence Account as well as Denel’s financial liquidity crisis, which affects its credit rating and the ability to raise capital.
“The issue of the closure of the SDA is a very serious matter that will be a serious blow to the country from a national security perspective in terms of the ability of the SANDF to manage its projects,” Khanyile said. “The whole defence supply chain will collapse. The NDIC feels the closure of the SDA needs to be given another look as it has many more implications than initially thought. It will be tantamount to shutting down the SA defence industry because most of the SANDF’s projects tend to be multi-year in nature. Therefore the decision to close the SDA should be reconsidered,” he said.
Khanyile warned that if the industry is not able to sustain itself there will be massive job losses, closure of defence-related companies, highly-skilled personnel will be lost to the international labour market, and the cost of supporting the SANDF will rise with forex-based imports. The SANDF will also have difficulty with maintenance, repair and overhaul (MRO) as there will not be enough skilled personnel to deal with defence equipment.
“South Africa’s international standing, as a recognised defence technology producer, will be terminated with no prospects for ever regaining it in future because what we have in the country today was built over many years and once it is destroyed it will be economically and financially impossible to bring it back. There is an urgent need for an industry Lekgotla, which will involve the executive authority or shareholders from the DOD and DPE.” Khanyile added that the concepts of a Team South Africa and buy local need to be promoted.