2022 provided an interesting dynamic in the interaction between the SA defence industry (SADI) and the government role players that have an interest in the defence sector.
The 2022 year kicked off with a bang and the news that the NCACC had found a solution to the backlog resulting from the end-user certificate (EUC) interpretation. The SA Aerospace Maritime and Defence Export Council (SAAMDEC) and AMD interaction mechanisms seem to be working. All looked rosy for SADI. This showed a first element of support for the defence industry in a while.
A shock to the system was offered in February 2022 when it was reported that Armscor had recommended to the portfolio committee on Defence and Military Veterans that the Project Hoefyster contract be cancelled. It was indicated that Denel is unable to complete the contract. It was recommended that the project funds be spent on Ratel upgrades. The Denel headache just seemed to be getting larger. This on the back of the Department of Public Enterprises (DPE) defence sector representative indicating on 18 August 2021 that Denel is financially distressed. Denel 1) has liquidity challenges, 2) is unable to raise required bank guarantees to fund operations, 3) has employees seeking court relief for unpaid salaries, 4) has a loss of critical skills, and 5) has critical capabilities at risk of being lost. The DPE representative is quoted as stating that “A timeous decision on the future and support for Denel is critical”. Action stations! DPE appoint former Denel CEO Riaz Saloojee as Chief Restructuring Officer (CRO) at the end of May 2022. Positive action as it is for fast-tracking the “approved Denel five year strategy” and restoring Denel as a strategic national asset.
The potential for government–SADI interaction pushed up a notch in March 2022 when it was announced that the Secretary for Defence with the National Defence Industry Council (NDIC) was to facilitate a defence industry lekgotla. It was acknowledged that the defence sector is one of the sectors that has huge potential but faces numerous challenges when trying to unlock this potential. The NDIC sees potential for an inter-departmental and inter-sectoral approach to synergise and harmonise national resources and policies for the benefit of the country. The National Defence Industry Lekgotla was scheduled for 4-5 May 2022. Representatives from Cabinet, Parliamentary committees, government entities, the SANDF, defence industry role-players and academia were to gather to plot a way forward. Unfortunately, this was a case of almost action as the Lekgotla was postponed. The Secretary for Defence is trying to raise the visibility of the defence industry. Maybe 2023 is the year of action in the Lekgotla domain.
With the Lekgotla postponed a second glimmer of hope for significant government–SADI interaction presented itself when the Department of Public Enterprises issued a tender related to Aerospace & Defence Masterplan (ADM) coordination and reporting. DPE seems to have been confirmed by cabinet as the entity to lead the implementation of the ADM. Tender submissions were required by end June 2022. With the 90-day proposal validity, tender evaluation and announcement should align with the African Aerospace & Defence (AAD) expo. All defence sector role-players are available at a single location. DPE seemed to have planned well. Unfortunately it seems as though this is a case of almost action. There may be contract in place, but there is no evidence of this. So the assumption is that it does not seem as though any DPE contract has been placed. This could be due to the Denel CRO having some traction in the Denel restructuring process. Let’s see what 2023 brings in the masterplan domain. There is a fully scoped plan. It just needs to be executed if this is what was approved. Just Do It!
SADI puts its best foot forward in September 2022 at the AAD Expo. Denel rallied the troops to deliver a very well received stand. At the show, the Minister of Public Enterprises highlighted the R5.2 billion turnaround plan funding and mentioned Denel’s R3.4 billion state funding request. This state funding was granted by the Minister of Finance at the end of October 2022 (apparently with strings attached). The R12 billion Denel order book is ready to be unlocked. Good action from government. Non-state owned SADI impact unknown. It does seem as though Denel is trying to rally industry role players.
AAD showed a reduced scale with 30% of display space unsold. The AAD organiser numbers show that 203 exhibitors from 24 countries attended the 2022 show, down from 486 exhibitors from 40 countries in 2018 and 532 exhibitors from 34 countries in 2016. There were no contract awards or signings evident. With this it is understandable that AAD did not have as many large foreign defence companies or much of a commercial aviation presence. The declining defence budget is the challenge. This is another reminder that the export market needs to be the SADI focus.
The resilience of the local industry could be seen at AAD in the launches of new products and some new exhibitors from the local industry. As an example, OTT’s self funded Ratel SLEP seems to have been inspired by the February 2022 Armscor announcement. Milkor arrived with the exhibition of the Milkor 380 Combat UAV with payload options at AAD, and the announcement of production for the Milkor 380.
AAD shows the potential for government–SADI interaction. The Minister of Defence was out in force promoting the SANDF and the defence sector. Armscor takes over the reins for AAD 2024. The Armscor chair also put his thoughts forward in the Armscor annual report that “dramatic action” is needed to prevent SA defence capability decline. The Armscor chair also sees an Armscor that “must see greater success in building partnerships and growing the commercial side of Armscor”. African and global markets are growing and Armscor “must be positioned to take advantage”. Downside is little to no Armscor interaction with SADI entities that can supply solutions. This can be easily addressed. Upside is that there is scope for growth through action.
Unfortunately, all positive things came to a grinding halt when it was reported at the end of November 2022 that the NCACC had again restricted SADI from competing in the international market. This really sums up the feeling of “Almost Action”. Hopefully it is a case of two steps forward and one step back, rather than one step forward and two steps back.
From the above, it seems that SADI needs to be more proactive in 2023. Take the lead; pull government along. Here I include state-owned and private SA defence industry role-players. AMD has a new board, appointed in August 2022. The A&D Masterplan was reported as top priority of the AMD board. The ADM action points are clearly stipulated. Maybe the AMD board, with the Secretary of Defence, should be so bold as to engage potential role players to be co-opted as the ADM Executive Oversight Committee and submit to the president directly prior to the defence industry lekgotla 2023. Add the note that SADI wants to grow to a R50 billion revenue per year sector within 5 years with his support. 2024 is around the corner and low hanging fruit is available to leverage.
2023: Year of Action? SADI–Government united?
Written by James Kerr, Orion Consulting CC, which provides Market Entry Strategy and Bid & Proposal services to the Aerospace & Defence related industry and assists international SME mission system product suppliers to gain traction in South Africa.
