Armscor seeks service fee for its acquisition duties


Senior management of Armscor, the State procurement agency for government defence and security organs, presented its revised strategy, including charging a service fee, during a recent Industry Day.

The presentation at the Industry Day started with an overview of the Armscor Strategy delivered by acting chief executive Sipho Mkwanazi. This included the acquisition agency’s functions, strategic focus and challenges facing it.

Challenges he made mention of were insufficient resourcing for finance, infrastructure and people as well as that “Armscor’s ability to spearhead military technological advancement had been eroded”.

Mkwanazi’s presentation also sees Armscor running as a business as well as implementing a number of strategic projects. These include trucks, utility helicopters, missile systems and shipbuilding.

Other presentations covered research and development, acquisition, corporate compliance including transformation and arms control, finance as well as industry support.

One person who welcomed the day and its deliberations was Riaz Salojee, chief executive of State owned defence industry conglomerate, Denel.
“A positive is that Denel will be the prime contractor on key systems integration projects announced by Armscor at its defence industry day,” he said at Denel’s first media briefing of the year shortly after the Armscor event.

Defence watchers, however, feel the strategy would be better described as a “curate’s egg” (partly bad but with some redeeming features).
“Overall there are some good ideas but they do not seem to be fully aligned with either the Defence Review or the financial reality of the SA National Defence Force (SANDF),” is top military analyst Helmoed Romer Heitman’s first response with the rider that “there are also some outstandingly bad ones, such as the proposed 10% service charge”.

He is of the opinion that levying the SANDF a service charge for handling acquisitions is outrageous. “It’s akin to an office manager demanding 10% of turnover in addition to salary.”

A retired Armscor employee with over 30 years of service was also critical of the proposed service charge. He felt present Armscor management are “looking for ways to make money, which is not an Armscor function in terms of the Armscor Act”.

The man, who preferred to remain anonymous because of his lengthy career at Armscor, pointed out a previous chief executive officer, Sipho Thomo, had in the 2004/05 financial year closed down the technology exploitation centre (TEC) set up specifically with the intention of putting military technology to use in the wider commercial and industrial market and deriving income from it.
“This seems to be another component of the strategy the current management regime is set on. It has been tried before and didn’t work,” he said, citing the examples of mobile hospitals, run-flat tyres and portable X-ray machines as military technological developments that had been unsuccessful in making any headway into markets other than the military.

This was echoed by Heitman who believes it is not “Armscor’s business to lead efforts of commercialisation and diversification of defence technologies. Armscor does not have the knowledge for this role nor should it concern itself with this”.

He also sees Armscor better off supporting the strategy and activities of its client (the SANDF) and supporting the local defence industry this way rather than, as stated in the Industry Day presentation “ensuring stakeholders support the strategy and activities of Armscor”.
“Armscor has no business having any strategy independent of the Department of Defence and the SANDF.
“Armscor needs to focus on its primary task and not gallop off in other directions under the delusion it is a business enterprise. It is not: it is an office of the State with a specific function.”

Armscor may cease to exist if a proposal in Roelf Meyer’s draft Defence Review goes ahead. The Review proposes to establish a Defence Material Organisation and do away with Armscor.

In its last annual report Armscor indicates it has not had a smooth passage in recent times. Board chairman Lieutenant General (ret) Maomela Moreti Motau notes in the report that, “the once glorious Armscor, that driver of technological advancement in the South African economy, that bastion of innovation, that flagship of strategic capabilities of the SANDF, is a mere shadow of its former self”.

He added Armscor had become “a mere spectator” in the decision-making process on arms acquisition.
defenceWeb has seen a July 2011 Armscor document entitled “Repositioning Armscor: Strategy through the 21st Century”. Chapters cover the establishment of different defence and industrial manufacturing sectors and list possible partner countries for missiles and targeting systems; sensors and imaging systems; aerospace systems and land systems as well as strategic projects including trucks, utility helicopters, shipbuilding, and missile and tractor systems.

Some of these would seem to indicate Armscor plans to return to the manufacturing arena with products destined for the commercial market as well as for use by the SANDF.

It has been speculated that the Repositioning Armscor document has caused some controversy in the defence sector, with Armscor senior management dismissing it as “a document that shows an abysmal lack of understanding of the business in general and the technicalities in particular”.