Military analyst Helmoed Heitman is cautiously optimistic about the Defence Industry Fund (DIF) saying, on one hand, the defence industry has “real potential to deliver outstanding return on investment” with the rider that it could also “fade away” without more funding for the national defence force.
The DIF is set be become a reality during the course of this year and will be managed, on behalf of Armscor and AMD (the SA Aerospace, Maritime and Defence Industries Association), by Crede Capital Partners, a Johannesburg-based financial firm.
“The establishment of the DIF is considered a significant step towards the support and transformation of the defence industry, especially SMMEs operating in the defence environment,” a joint Armscor/AMD statement said.
As an example of good return on investment Heitman points to the Rooivalk project.
“It delivered useful export earnings – despite not exporting any helicopters – and defence industrial participation (DIP) capacity,” he said, adding there are other projects which produced “startling forex revenue for smallish investments”.
He maintains investors will not put money into an industry with declining potential.
“Government has to take the lead. If it does, some investors will look more closely and as new products perform in the international market, more will follow.”
Heitman calls the “hostile attitude” to foreign defence groups taking stakes in State-owned defence and technology conglomerate Denel an obstacle.
“That route can bring working capital and wider export markets as RDM (Rheinmetall Denel Munition), Optronics and companies like GEW Technologies and SGD [Saab Grintek Defence] have demonstrated.
“A rejuvenated Denel would then be sub-contracting a range of smaller companies, some which will in time develop own international access as has been shown by several. South Africa should also be putting much more effort into enabling local companies to enter the supply chains of large groups, again as Optronics has demonstrated – who would expect South Africa to produce submarine periscopes – and Aerosud has shown in the civil aviation sector.
“If government takes the lead and the defence industry gets going, we will find investment coming in and the fund can then do a lot to help SMMEs enter the industry. Without that, I do not see much investment likely,” he told defenceWeb.
As to the future of the South African defence industry, Heitman is of the opinion that unless some of the steps he outlines happen, Denel “will at best fade away and at worst, implode”.
“This will see a lot of the local defence industry also dragged down, some as a result of falling sub-contracting and others indirectly. This is because companies that might be successful in a successful sector will find it difficult to win the confidence of investors and clients if the defence industry as a whole is failing.
“Without prompt and serious intervention we will be lucky to still have serious MRO (maintenance, repair and operations) in five years, let alone ten and let alone any development capability.”
He adds the exception will be foreign companies – “unless we drive them away with regulations and hostility – and some niche companies”.
Defence and Military Veterans Minister Nosiviwe Mapisa-Nqakula said last week that the Defence Industry Fund will be launched on 6 June .