The South African Aerospace Maritime and Defence Export Council (SAAMDEC) has released its business plan for the financial year 2019/20, which predicts positive growth for the local defence industry in spite of numerous hurdles.
SADI Capabilities
The SAAMDEC recognises the South African defence industry (SADI) as a cluster of South African private and public sector organisations involved in the design, development, manufacture and maintenance, repair and overhaul (MRO) of landwards, aerospace and maritime defence systems as well as the provision of mission specific systems and sub-systems along with the required enabling capabilities such as training, modelling and simulation. The SAAMDEC states that many of its member companies are original equipment manufacturers (OEMs) while some are small, micro and medium enterprises (SMMEs). The majority of these companies are South African owned – however there are a few companies that are registered in South Africa and provide significant employment opportunities to South Africans whilst the majority shareholding/equity may be foreign.
SADI is a strategic industrial sector and forms an integral part of the South African Defence Force’s (SANDF’s) capability portfolio as the sector provides what the SAAMDEC describes as, “essential technical support in the form of engineering, maintenance, repair overhaul, qualification and certification capabilities for operational systems within the stringent governmental regulations on non-proliferation and conventional arms control regimes.”
The SAAMDEC states the competitive advantages of the SADI are not only its price and quality of products and systems but also its ‘independence’ as an industry that can offer a viable alternative to non-aligned/non-NATO defence clients. With that being said, the SAAMDEC additionally states that all exports of military goods are reviewed and authorised by the National Conventional Arms Control Committee (NCACC), using United Nations Security Council resolutions and international protocols on the control of conventional arms as well as the non-proliferation of weapons of mass destruction as their primary guidelines.
A second advantageous characteristic, the SAAMDEC states, is the size, ingenuity and interdependence of the SADI that allows it to respond, “swiftly and flexibly to new client requirements with some developments reaching fruition in six to nine months from inception”.
Thirdly and lastly, the SADI’s primary client, the SANDF, operates in diverse and exacting climatic and geographical conditions on the African continent, meaning the SADI’s offerings are designed to function optimally in these challenging environmental conditions. Thus, they are ideal for most defence applications virtually anywhere in the world. Additionally, the SAAMDEC believes the strong defence electronics bias within the SADI makes it an ideal partner that is able to offer systems design, engineering and integration capabilities for upgrading and customising foreign defence systems for third-party markets or integrating South African defence equipment on foreign platforms.
Contribution to GDP
The sector annually invests R1.7 billion in own technology development/R&D (research and development) as well as provides meaningful skilled employment opportunities to an estimated 15 000 engineers, technicians and artisans. The SAAMDEC states that many of these highly skilled engineers, technicians and artisans are contributing to key national projects in space, transportation, rail safety, mining, construction, power generation and telecommunications. A conservative estimate of the sector having a multiplier factor of one to four in terms of direct additional job opportunities thus means that the sector supports a further 60 000 skilled jobs in the economy.
Challenges
In addressing key current issues, challenges and opportunities in the sector, the SAAMDEC stated that the SADI’s competitiveness is severely restricted by a number of issues which are critical to its success. Chief among these being, firstly, market attractiveness and market selection.
Whilst global spending may be on the rise, the local defence fiscal constraints are a key challenge to the SADI with much needed investment in R&D having declined and the anchor client status and role of the SANDF having been gravely compromised.
Political stability is continuously threatening SADI export prospects, “particularly the geo-strategic realignment in the Middle East, BREXIT and the evolving political realignment driven by changing US politics especially in South America,” the SAAMDEC stated in its business plan.
Sound financial structures for payment (reliable and stable financial instruments including bartering) as well as export credit guarantees for the SADI are key requirements for defence export support.
The SAAMDEC recognises that the regulatory environment is a key constraint, with the dependability and predictability of the issuance of permits through the National Conventional Arms Control Committee an issue. The impact of rigorous arms control processes often leads to delays in the issuing of permits and thus to customer frustration with the SADI as a reliable service provider.
Denel in its current state means that export growth will be seriously hamstrung and as the SADI forms a key supply chain into Denel, there will be an adverse impact on overall exports in the short to medium term.
The SAAMDEC states that competitiveness in the market is a key area of concern as being biased towards the production of electronic subsystems means that, “the SADI has to compete with and dislodge established players in a foreign OEM’s supply chain and this is often viewed as a major risk by the OEMs while also conflicting with possible national security/industry considerations.”
Additionally, the nature of the creation of defence products and capabilities demands high and constant R&D investment. In the South African context, the SAAMDEC states that this is impaired by a lack of adequate funding and availability of suitable skills.
The SAAMDEC states that although the SADI’s size, ingenuity and interdependence allow it to respond swiftly and flexibly, time frames to secure orders are quite substantial, “usually taking up to 60 months”.
Marketing and networking are quite expensive and the SAAMDEC believes that only companies that can afford to market themselves stand a chance of getting business.
Due to defence business being inherently political there is a crucial need for deliberate and focused political support and the SAAMDEC states the “continued influence of former colonizers on their former colonies also inhibits access to these markets for South African companies.”
Government support to enhance exports is seen as critical. This, the SAAMDEC states, should be done through a common and shared understanding of the sector as well as how exports work within the sector.
Future Exports
Over the next five years, the SAAMDEC sees several big target markets for exports. The largest is Sub-Saharan Africa with a growth figure of 25%. The Middle-East and North Africa are projected to grow at 15%; BRIC countries at 5%, ASEAN countries at 5%; EU countries at 5% and North American Free Trade Agreement (NAFTA) countries at 5% as well.
The SAAMDEC states that due to a depressed local market, the export market is critical for the survival of its members, with some members’ foreign sales accounting for 85% to 100% of their revenue. Therefore, creating an optimal trading environment for the SADI meant the Export Council partnering with the Department of Trade and Industry (DTI), which “has yielded many positives and its nourishment is crucial for the survival of the sector and the Council.”
In 2017 the National Conventional Arms Control Committee said South Africa exported between R3 and R4 billion worth of military equipment, with much of that being armoured vehicles. For the 2018 calendar year, South Africa exported approximately R4.7 billion worth of military equipment.
SAAMDEC states that expected growth in the industry sector will sprout from areas of cyber security, unmanned aerial vehicles, space technologies and protection systems (both passive and active) as well as providing sub-system through integration into the global supply chain.
SAAMDEC Business Plan 2019/20 Key Projects
Key projects identified in the SAAMDEC business plan include leveraging on defence research conducted by the University of Free State, improving market intelligence and creating an export portal that will seek to support all exporters in the defence sector by providing them with a platform where they can promote their products and services. Further cooperation is also seen with the DTI, which can assist with leads, market research, trade delegations and exhibitions.
Indeed, AMD and the Export Council exhibit at many of the world’s largest defence shows, including Africa Aerospace and Defence, the Paris Air Show, IDEX in the United Arab Emirates, LAAD in Brazil, Shield Africa in Ivory Coast and DSEI in the United Kingdom. The SAAMDEC will also be present in Pakistan, Angola, Thailand and China this year.
The SAAMDEC business plan believes that the continued reinvestment by AMD and Export Council members has secured the retention of local orders while growing export orders. In doing so, the SAAMDEC believe this has underpinned high-end technology, skills development, job creation and retention of strategically relevant technologies and manufacturing capabilities. The SAAMDEC therefore stated that, “the members of the EC directly contribute to the South African government’s ability to successfully deliver on its national objectives while assisting in the execution of foreign policy imperatives.”
More information on SAAMDEC
The Export Council is in its fourth year of existence and was established by the Aerospace Maritime and Defence Industries Association together with the DTI. It is acknowledged as the only organisation of its nature for the South African defence industry with its members accounting for not less than 90% of the SA Department of Defence (DOD) local capital acquisition spend. The Export Council is mandated by its members and the DTI to promote and lead the interests of the sector.
There are 54 members (companies) that make up the Export Council, with 30-35% being Black Owned Companies, and 35-45% of the council comprising Black Empowered Companies. Small to Medium Enterprises (companies with a turnover of less than R50 million) comprise 40-45% of members and Woman Owned Enterprises (51% and above woman owned) make up 6% of Council members.
The AMD Export Council’s board members are from companies including Hendsoldt, DCD Protected Mobility, Saab Grintek, the DTI, Department of Defence and Armscor.
