Keynote address by Secretary for Defence, Sonto Kudjoe, Aerospace and Defence Masterplan webinar 25 May 2021


Programme director

Captains of industry

Members of the South African National Defence Force

Defence attaches and foreign military representatives

Members of the media

Ladies and gentlemen

Welcome to the inaugural Aerospace and Defence Masterplan webinar. The subject of the future of the aerospace and defence industry has seldom been more relevant as defence budget cuts and the precarious situation at Denel have wide-reaching consequences for the sector as a whole. On top of this, the COVID-19 pandemic has strained the industry further.

The need for a strong and healthy defence force is clear, especially as the coronavirus pandemic continues and an insurgency brews next door. As a possible third wave of the virus looms, the South African National Defence Force may once again be called in to assist with the state of national disaster, supporting the National Health Department, enforcing lockdown regulations, providing quarantine facilities, establishing roadblocks and testing and screening people.

South African troops may soon be called upon to assist the Southern African Development Community in its response to the insurgency in Mozambique’s Cabo Delgado province, which has killed several thousand people and displaced nearly a million. Even if violence does not spill over into South Africa, displaced persons may flood across the border, causing problems in itself. Instability in Mozambique and elsewhere on the continent is also bad news for economic development – Mozambique’s instability threatens to affect the oil and gas industry in its exploitation of recent finds. This conflict is very close to home and needs to be carefully monitored – we can ill afford for it to spill over our border.

The South African National Defence Force is a very active peacetime defence force, performing search and rescue, peacekeeping, humanitarian assistance and firefighting tasks, amongst others. Many of you will have seen South African Air Force helicopters fighting fires in the Western Cape over the last couple of months, and few can forget the Defence Force’s role in assisting Mozambique and Zimbabwe after Cyclone Idai. There are over a thousand soldiers deployed in the Democratic Republic of Congo on peacekeeping operations with the United Nations – the idea is that if Africa is safe and stable, this will benefit South Africa too.

The Department of Defence is mandated to protect the sovereignty and security of the Republic of South Africa. This is an increasingly difficult task as the defence budget continues to shrink and the South African National Defence Force becomes increasingly thinly stretched through a multitude of taskings. The majority of the budget already goes to paying salaries, leaving little for capital acquisitions and other expenditure, meaning the Department of Defence has to do more with less but the reality is one does less with less.

Due to consistent budget cuts over many years, there is little doubt the South African National Defence Force is in a state of decline. The defence budget has been slashed again and is now just .86% of Gross Domestic Product, falling from R54.2 billion in 2020/2021 to R46.2 billion in 2021/2022, representing a 14% decrease. Much of this decrease comes from the shrinkage of the Special Defence Account, which goes from R5.2 billion in 2020/2021 to R1 billion in 2021/2022.

This has severe implications for the SANDF and the defence industry as a whole. As Minister Nosiviwe Mapisa-Nqakula stated in her budget vote address on 18 May, the severely declining defence allocation is having a negative impact on South Africa’s military capabilities in particular and our ability to meet operational responsibilities and international obligations. Our capital budget has been reduced to a trickle and the operating budget is under extreme pressure. Under these conditions, we are finding it very difficult to improve the serviceability of our Prime Mission Equipment.

As the minister pointed out, the reduction to the defence budget has a devastating impact, not only on the National Defence Force, but also on our defence and related industry and the many SMMEs in the supply chain. If we do not intervene in a decisive manner, we will lose our state-owned defence industrial base and the ability to repair, maintain and overhaul most of our defence systems. The South African Air Force, for example, has expressed concern that it will not have serviceable aircraft due to a declining industry.

A declining aerospace and defence industry compromises South Africa’s ability to maintain equipment in service and also impacts the Department of Defence’s longer-term ability to remain relevant and ready to conduct effective operations in the future. It is not an ideal situation to have to rely on foreign power and foreign companies to provide and maintain our equipment, as this will be more expensive and will compromise our sovereign integrity.

Overall, the declining defence allocation is putting South Africa’s defence capabilities under extreme stress as the ability to equip and train forces appropriately has become more difficult and current threats require more ‘boots on the ground’. The ability to maintain equipment for operations has declined and this has been exacerbated by the decline of the defence industry and in particular Denel – South Africa’s defence capabilities are heavily reliant on the defence industry and in particular Denel.

Between 2017 and 2020 there have been losses of up to R7 billion in revenue in the defence industry, which is a significant dent on the GDP. The work force has declined from 15 000 to 12 000 in the same period and there is a danger of further losses if key projects such as Hoefyster cannot be funded. The aerospace and defence industry is important because it makes an enormous contribution to science and technology development, manufacturing, export earnings, education and artisan training, jobs for our people and the economy in general.

It is in the Department of Defence’s interest to have a strong and agile aerospace and defence industry, especially as technology can serve as a cost-effective force multiplier and assist the Department of Defence in improving our sovereign security capabilities. The Department of Defence assists where it can with the resources we have, and supports initiatives such as the National Defence Industry Council, which has subsequently delivered the South African Defence Industry Strategy, the Defence Broad-Based Black Economic Empowerment Sector Code and the Defence Industry Fund – the latter is looking to attract R1 billion in investment from the market.

We also ensured that the Defence Sector participated in the Public Private Growth Initiative of the Presidency. The defence industry was identified as an economic sector with significant potential to catalyse economic growth in South Africa.

At the diplomatic level we have been promoting relations with BRICS countries and have been pushing for a growth in defence exports. Armscor in particular has been making progress in tapping into new markets, especially where South Africa’s ITAR-free equipment is in high demand. For example, the United Kingdom Ministry of Defence’s Equipment Sales Authority recently signed a framework agreement with Armscor to broaden its marketing capabilities and increase brand awareness across Africa. Armscor and the UK are working to promote sales opportunities of combat proven UK vehicle capabilities across the African continent.

On our side, the Department is working to address budget challenges and is looking at personnel cost savings; a new departmental policy position on an affordable level of defence ambition cognisant of our funding challenges; a new Blue Print Force Design; and engagements with Armscor on the relationships that must be developed in support of the level of defence ambition and the affordable force design that supports it.

One of the most important initiatives to revive and grow the South African aerospace and defence industry is the Aerospace and Defence Masterplan, which was published last year. This provides clear guidelines on how we can explore ways to unlock South Africa’s aerospace and defence potential. The Masterplan is one of the most important documents for the aerospace and defence sector to have been formulated in decades and will have far-reaching implications for its rejuvenation.

The Masterplan has developed a number of clear goals and plans of action for the stabilisation and development of the South African aerospace and defence industries, from doubling exports to establishing the Centurion Aerospace Village. The first pillar of the Masterplan is increasing market access and this includes doubling South African defence exports. Under Programme one of the Masterplan stages, the goal is to increase export earnings to R13 billion by the end of 2025 by optimising existing capacity and supporting new products on the market. This includes reducing the export backlog through the National Conventional Arms Control Committee, streamlining export processes, and reviewing the business case for light reconnaissance aircraft and determining the potential for support.

Programme two aims to further government-to-government marketing and help increase export earnings. It also aims to increase South African participation in global original equipment manufacturer supply chains by 30% by the end of 2023, position South Africa as the regional centre of excellence for maintenance, repair and overhaul and the supplier of choice for commercial unmanned aerial vehicle manufacturing and piloting, and armoured vehicles.

Programme three aims to increase the budget for the Special Defence Account between 2021 and 2025, and ensure critical maintenance, repair and overhaul activities are maintained for the South African National Defence Force. Goals include funding essential maintenance and upgrade work and ensuring sovereign and strategic needs are met. This includes stabilising Denel and the local industry. A task team will engage with National Treasury on the defence budget. There is already a Save Denel task team that is doing its best to stabilise the group.

Programme four of the Masterplan covers the implementation of an African maintenance, repair and overhaul (or MRO) hub and Centre of Excellence inside the OR Tambo special economic zone. The goal is to build on South African strength in MRO to revitalise SAA Technical and the local industry; and attract extensive demand for South African based MRO. A business plan is expected by the end of 2021.

Programme five aims to replace imports of selected products to achieve 100% local production by the end of 2022, to a minimum value of R3 billion import replacement. The goal is to ensure all products and services which can be made locally and which are procured by the State, are locally produced and procured, beginning with quick wins and where possible, scaling to support exports at the same time.

This will be achieved by reviewing existing procurement processes for state security entities, promoting local acquisition of things like small arms and ammunition, radios etc., and supporting the local production of unmanned aerial vehicles. It is hoped a new procurement system will be approved by the beginning of 2022.

Programme six aims to implement at least two confirmed home build programmes and increase local build activity and improve Denel’s liquidity. Projects could include A-Darter missiles and Badger infantry fighting vehicles, both currently Denel projects. Activities would entail mitigating risk and investigating other sources of funding, possibly from the private sector.

Programme seven is implementing catalytic space programmes, specifically the upgrade of Houwtek and a possible telecommunications satellite procurement project. The Department of Public Enterprises, Denel, Department of Science and Innovation and the South African National Space Agency will finalise the Houwtek transfer agreement and ensure successful handover.

Programme eight calls for the implementation of the Centurion Aerospace Village, which would increase the competitiveness of the local commercial aerospace manufacturing industry; initiate and fast track a South African commercial drone development and commercialisation programme; and increase local industry aeronautics industry participation in OEM supply chains. One aim is to attract at least two OEMs and components suppliers to South Africa by means of extremely attractive investment and synergy packages by mid-2022.

Programme nine covers the implementation of funding and finance support mechanisms for the industry to ensure export sales and local production expansions have relevant funding and financing mechanisms available to support growth. This entails, amongst others, obtaining banking support for the industry, access to a guarantee system to meet customer requirements; government risk underwriting and consideration of an export-import bank option. Implementation is aimed for January 2022.

Programme ten aims to review South African intellectual property with a view to commercialisation and revenue generation. Processes are already underway with Armscor in this regard. Armscor developed an IP Strategy that speaks to how Armscor aims to use IP to drive technology development; how IP is leveraged to promote transformation in the South African defence industry; the importance of proper IP control and protection; and IP exploitation governance. A study done by Armscor in 2016 showed that the then portfolio of IP was worth more than R400 billion if industrialised. This could create at least 10 000 direct jobs and 40 000 indirect jobs.

Several Masterplan programmes are dedicated to human capital development and inclusion. For example, programme eleven aims to retain and develop advanced skills and job retention and growth in the aerospace and defence ecosystem.

Programme thirteen looks at the design and development of a South African Advanced Research Projects Agency. A task team will investigate the United States’ Defence Advanced Research Projects Agency and United Kingdom Advanced Research Projects Agency models with a view to local adaptation and adoption.

It should be noted that the South African defence industry has not been affected by the COVID-19 pandemic like the aerospace sector has and could double exports within 12 to 18 months. The industry has an order book valued at over R20 billion and potential to increase exports quickly of competitive products and services within a 12 month period, with a further R60 billion within 60 months.

The Masterplan has identified a number of defence export opportunities and these include artillery ammunition; electronic warfare equipment; armoured vehicles; airborne sensors; laser rangefinders; submarine periscopes; optronic/radar trackers; coastal and air border surveillance radars; command and control systems; and submarine periscope simulators. Over the next five years, these sectors could generate tens of billions of rands.

A number of products are not export ready but could be ready for export within six to 60 months and these include radars, a helicopter hostile fire indicator, command and control systems and many others.

On the civil aviation side, while the COVID-19 pandemic has caused carnage in the commercial and civil aviation sector, the shakeup resulting from the pandemic has also presented new opportunities for South Africa. The Masterplan notes that airlines are likely to cut new acquisitions and either sell aircraft or keep older aircraft in service, creating an opportunity for South Africa to position itself as the maintenance, repair and overhaul provider of choice to the sub-Saharan market. The Masterplan believes the South African industry can get ready for a resurgence of demand, with the establishment of the Centurion Aerospace Village one of those initiatives.

The Masterplan sees potential in the development of a small regional aircraft for the post-COVID era and the commercialisation of light reconnaissance aircraft. It also sees major growth in the use of military and civilian drones, with South Africa well positioned for the design, manufacture, testing, piloting and maintenance of drones.

The South African space sector holds a number of opportunities for local companies, notably small satellite design, manufacture and launch and payload development. The Masterplan sees ever increasing demand for satellites and linked onboard technology to serve the ever increasing demand for access to services. This means huge demand for the manufacture and launch of constellations of smaller satellites, combined with the ability to download real time data not available on land. For South Africa, this means key opportunities lie in small satellite design, manufacture, testing and launch, combined with satellite payloads for data acquisition, and then the download, manipulation and application of the data.

Recently, President Cyril Ramaphosa announced the funding of a South African Space Infrastructure Hub which will unlock South African capacity to manufacture and provide downstream services and increase South African participation in this sub segment.

The Masterplan has highlighted several projects that could contribute in important ways to ensuring the stabilisation and survival of the defence industry, including an upgraded Rooivalk, Ratel upgrade, air-to-air and surface-to-air missiles and a Samil replacement. Upgrading Ratel vehicles would take pressure off Denel to deliver Badger vehicles to the SA Army, and give work to the local industry as well as ensure the Army receives modernised equipment.

Other landward opportunities are Project Sapula, which covers the acquisition of a new family of armoured personnel carriers to replace the Casspir and Mamba, and Project Vistula for the replacement of the South African National Defence Force’s Samil trucks. Elsewhere on the landward side, Denel Land Systems has the LEO long-range 105 mm gun in development that is estimated to have considerable export potential. Development could be concluded over a period of three years.

I find it heartening that over a dozen South African aerospace and defence companies have made commitments to move their industries forward into growth as part of the Aerospace and Defence Masterplan. Some of these companies include aircraft engine maker Adept, Aerosud, Reutech, Rheinmetall Denel Munition, Sandock Austral, Paramount and GEW. Some of the initiatives they have committed to include skills and supplier development, research and development projects, local investment projects, Science, Technology, Engineering & Mathematics training, internships, aircraft parts manufacture and development of the Centurion Aerospace Village. Elsewhere, the South African Civil Aviation Authority is working towards advancing the use of drones and AMD is assisting the Directorate of Conventional Arms Control to streamline the defence import/export license application process.

These commitments and initiatives are all part of the Masterplan’s ambitious goals to increase local production of selected products by 50% from current baseline levels by the end of 2024; improve export sales by 100% from the current baseline by the end of 2022; increase formal employment from current levels by 50% by the end of 2025; retain advanced skills in the ecosystem and double the participation of black and women participants in the industry from the current baseline by the end of 2022.

The Department of Defence is here to support the aerospace and defence industry, as the industry is not just a Department of Defence asset but a national asset that has value for many departments and government agencies. The industry produces innovative technology useful to wider society and is also an incubator of scarce skills in science, technology, engineering and mathematics and its engineers are an asset for the broader economy. Working together we can grow the economy, create jobs, generate export revenue and keep the South African National Defence Force supplied with the quality and sovereign products it requires.

Myself and the Department of Defence are committed to helping the Aerospace and Defence Masterplan reach its goals as we recognise the necessity of a strong and healthy defence force supported by a strong and healthy defence industry.

I thank you.