Defence Review 2014 – The Defence Industry


An important element of the Defence Review is its consideration of the defence industry which is needed to define the capability actually required and how best to support that capability, to provide a policy as the basis for a defence industry strategy that can guide both the Defence Force’s acquisition planning, and planning by companies in the defence sector.

The purpose of the defence industry is to provide a practicable degree of strategic independence, to develop capabilities considered to be of ‘sovereign’ importance (eg the algorithms for secure communications), to develop optimised equipment where that is of real operational benefit, and to support equipment in service. Beyond that, a vibrant defence industry is also able to support foreign policy by helping equip the forces of allies, is able to support wider industrial development policies, establish new technologies and capabilities in South Africa, and generates foreign currency earnings and reduces outflows.

The Review makes it clear that there is no intention to regain the breadth and depth of capabilities developed during the arms embargo years. That is not necessary, would not be cost-effective, and would divorce the industry from international technology developments. Instead the focus is on retaining, rebuilding or, where necessary, creating the capabilities to:
• Support equipment and systems in service.
• Manufacture critical munitions, batteries and spares of which the availability cannot be guaranteed.
• Integrate equipment and systems, to allow optimised combinations of local and foreign equipment and systems, and to facilitate modernisation and upgrades during the typically thirty years or more of a major system’s service life.
• Develop, manufacture and support items of ‘sovereign’ importance.
• Develop, manufacture and support optimised equipment and/or to optimise foreign-sourced items to meet specific requirements of the Defence Force, where there is real operational benefit to be realised by doing so.
• Develop, manufacture and support equipment and systems in which South Africa has a demonstrable technological lead or niche capability.
• Manufacture any equipment that is required in large numbers or where similarities of manufacturing processes allow parallel or sequential manufacturing.

The Review then goes on to identify key technology domains and focus areas, for instance command and control systems and night-fighting equipment, and areas in which the industry has an edge or potential edge, for instance long-range artillery and low-cost but very effective guided weapons.

It further makes the point that a viable defence industry depends on long-term acquisition planning by the Defence Force, which must be visible to the industry to enable it to develop its own long-term plans, expand or modernise plants, establish new technologies, refocus training of new engineers, etc. That same long-term equipment planning will also enable the Defence Force to avoid the block obsolescence such as it currently faces (eg Ratel, Casspir, Samil) by adopting a system of phased or half generation change-over. With an eye to efficiency, the Review also argues for multi-year contracts, which have been demonstrated to quite dramatically reduce costs by allowing the manufacturers to plan and operate more efficiently: Nothing is as costly or damaging to long-term capability, military and industrial, than on/off acquisition programmes.

Another point in the Review is the importance of synchronised acquisition to enable the Defence Force to field coherent force elements: for instance, it makes little sense to give a mechanised infantry battalion a set of brand new and vastly more capable infantry combat vehicles, if neither the field engineers nor its own logistic elements can keep up with those vehicles. Acquisition must take place in coherent ‘packages’ and phased accordingly.

This will take time to achieve, and the Review proposes four partially overlapping phases, plus a fifth that will overlap the others for much of the time:
• Ensuring the retention of selected existing capabilities, primarily by placing sufficient manufacturing, development or research orders to enable the organisation to remain active for now.
• Ensuring the sustainment of those capabilities, primarily by placing longer-term orders or supporting export efforts.
• Supporting the turn-around of the industry, primarily by developing and setting out a long-term plan for Defence Force equipment and system acquisition, upgrading and support, and for defence R&D.
• Supporting further development of the industry by working with it to identify future needs and also by supporting future export efforts.
• Recovery, recreation or development of sovereign capabilities, which will overlap with all the above phases.

Looking to the longer-term development of the industry and support to the Defence Force, the Review has also recommended the appointment of a Chief Defence Scientist with a small staff to monitor technology development and plan, focus and control defence-related research and development. It also refers to the National Defence Industry Council already established by the previous Minister of Defence, as a critical body to facilitate close coordination among the Defence Force, companies in the defence industry and any research bodies conducting research in defence-related technologies.

The other major aspect of the defence industry chapter of the Defence Review is identification of what is meant by local or foreign companies, an issue that has brought some complications in the past. To this end the Review identifies five types of company, in the order in which they will enjoy certain preferences in bidding for defence contracts:
• South African owned companies (51%) can bid for any contracts and will enjoy absolute preference in respect of ‘sovereign’ and ‘strategic’ items.
• Partly South African owned companies (26%) can bid for any contracts but will stand behind fully-owned companies in respect of ‘sovereign’ items.
• South African based companies (factory in South Africa), which can bid for most contracts but stand behind the wholly and partly owned companies in respect of strategic items, will only be able to bid for ‘sovereign’ items given special security measures.
• Foreign-controlled companies in South Africa (other factories or assets in South Africa), which can demonstrate commitment to South Africa’s development, will be able to bid for all general contracts and for some strategic contracts with the proviso that local manufacture and the establishment of local support capability will be mandatory in some cases (e.g. for a strategic item).
• Foreign companies with no presence in South Africa, which will be allowed to bid for general items and will be allowed to bid for strategic items where there is no local alternative, but in for which they will have to establish at least a fully localised support capability.

In each case the level of ownership must also be matched by the degree of South African management and actual control of the operations of the company in respect of the equipment or system to be acquired.

A final aspect of the defence industry policy is that it must be aligned insofar as practicably possible with wider national industrial and related policies. That said, the phrase “insofar as practicably possible” is key in that a strategic imperative must override other policy considerations.