Strategic Analysis

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South Africa: An overview of the defence industry

Ruchita Beri

To cite this article: Ruchita Beri (2001) South Africa: An overview of the defence industry,
Strategic Analysis, 25:4, 569-584, DOI: 10.1080/09700160108458979
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 South Africa:
An Overview of the Defence Industry
Ruchita Beri

Abstract
The South African defence industry is one of the largest in the developing world.
Its development and expansion have been influenced by a number of factors—
strategic, political and economic. In the post-apartheid era, one of the main debates
has been on the value and future of a local defence industry. With the decrease in
the possibility of an external threat, the necessity of maintaining the defence industry
has been questioned. Between 1989 and 1994, substantial cuts in defence expenditure
were implemented in South Africa. As a result, the defence industry was forced to
downsize and restructure. The strategy of rationalisation and restructuring after
1992 was based on the desire to remain in the market but to shrink to fit the
declining domestic defence market. This article reviews the South African defence
industry, which is in the throes of restructuring and suggests that it has led to a
down scaled defence industry.

Both Armscor and the defence industry are valuable national assets and an integral reservoir
of our research and development capabilities.
Joe Modise1
The democratic transformation in South Africa has triggered the transformation
of its military institutions, including the defence industry. It is aptly called a national
economic industrial asset. Considerable resources have been expended in establishing
this industry, which in output is substantial when ranked against other complex
manufacturing industries. South Africa's arms industry is one of the largest in the
developing world.2 The development and expansion of South Africa's arms industry
were influenced by a number of strategic, political and economic factors. The strategic
factor such as the imposition of UN arms embargoes in 1963 and 1977, the presence
of growing external threats to apartheid, the increasing hostility of the international
community and the imposition of embargoes and sanctions were the primary
determinants. Political factors such as the implementation of the discriminatory and
repressive apartheid policies after 1961, which led to increasing black resistance and

Ruchita Beri is a Research Officer at IDSA.

Strategic Analysis, Vol. XXV, No. 4
© The Institute for Defence Studies and Analyses

South Africa 569

civil unrest, forced the state to develop a domestic military capability in order to
supply the security forces with the means to maintain minority rule. The development
of the arms industry was also linked to the broader strategy of promoting the
development of Afrikaner industrial capital. The expansion of the defence industry
contributed to the development of closer links between the state and private capital.
The fact that the strategic concerns of the government increasingly coincided with
the short-term interest of private capital was an important determinant in South
Africa becoming self-sufficient in arms production. The development of the South
African arms industry can be divided into two stages: (a) apartheid era; and (b) post-
apartheid era. In each it was influenced and constrained by the political and strategic
developments in the country.

Emergence and Development: Apartheid Era

Before 1961, South Africa-relied quite heavily on arms imports. Withdrawal

from the Commonwealth in 1961 and imposition of a UN arms embargo in 1963
severely affected South Africa's arms procurement. It also provided an impetus
towards developing an indigenous arms industry. The emergence of the South African
defence industry can be traced back to 1964 when the Armaments Production Board
was set up, with the responsibility for both acquisition and management of the
public sector defence industry. In 1968, the state owned Armaments Development
and Production Corporation were set up. Between 1968 and 1977, South Africa's
arms industry reached a critical stage of development. During this period, it began
to undertake minor R&D improvements to local licensed-produced armaments and
started limited production of less sophisticated weapons. In 1977, the Armaments
Production Board and the Armaments Development and Production Corporation
were amalgamated to form Armscor (the Armaments Corporation of South Africa).
Between 1977 and 1989, the South African arms industry expanded considerably in
response to the imposition of the UN arms embargo and South Africa's increasing
involvement in a number of regional conflicts. During the early 1980s, South Africa's
arms industry began to face a number of economic problems as a result of increasing
production costs, excess capacities and declining domestic demand. Arms exports
were introduced to resolve some of these problems. A new international sales and
marketing organisation, Nimrod, was created within Armscor in 1982, to deal with
arms exports. By the late 1980s, South Africa's arms industry had achieved a relatively
high level of self-sufficiency in terms of being able to supply the South African
Defence Force (SADF) with most of its equipment requirements. It had by then
reached the stage of independent R&D and production of less sophisticated weapons,
and limited R&D and production of more advanced weapons.
Military R&D began in earnest in South Africa in 1961. In the early 1970s, a
Defence Research Committee (DRC) was established to coordinate and manage
military R&D programmes. In 1978, a new structure for coordinating military R&D,
the Defence Research and Development Council (DFDC), supported by a technical

570 Strategic Analysis/July 2001

secretariat, was established in the office of the chief of Staff Logistics of the SADF.
The DRDC was tasked with identifying the SADF R&D needs and coordinating and
managing R&D efforts in order to fulfil them. In the same year, a large part of
military R&D previously carried out by the National Institute for Defence Research
was transferred to the Armscor subsidiary, Kentron. In 1984, a new management
system for coordinating military R&D was established. The DRDC remained the
centre of the system, tasked with identifying, funding and managing military R&D
activities. It included representatives from the SADF, Armscor and the Council for
Scientific and Industrial Research (CSIR). After 1977, military R&D was funded
from the defence budget either through the Special Defence Account or from
Armscor's operating subsidy (paid out of the general support programme for the
defence budget). The Special Defence Account, established in 1974 by an act of
Parliament and administered by Armscor on behalf of the SADF, is used to fund all
major procurement projects, spares, parts and maintenance for SADF equipment,
associated R&D and the activities of the military intelligence. Military R&D activities
were carried out by some state institutions such as the CSIR, various universities and
private sector industries. South Africa's expenditure on military R&D increased
dramatically during the 1980s. As a percentage of total R&D expenditure, it increased
from 19.3 per cent in 1979 to 54 per cent in 1987, before declining to 48 per cent
in 1989. However, these increases came about in a period when the total R&D
investment in the country was declining. Thus, the high investment of military R&D
might have crowded out investment in non-military R&D.
The arms industry was spread between the public and private sectors. The public
sector industry in South Africa was concentrated entirely in one company, Armscor.
Armscor's production and research activities were located in a number of subsidiary
companies, and research and testing facilities in various parts of the country. By
1989, Armscor had developed into the 30th largest company in the country in terms
of total assets and 15th in terms of employment. Its total assets were estimated at
Rand 2 billion in 1989. The size and structure of the private sector arms industry
in the apartheid era are difficult to ascertain because of the lack of economic data
on this area. Armscor stated in the mid-1980s that it had contracts with 2,271 private
sector firms of which 1,083 (48 per cent) were direct contractors and 1,188 (52 per
cent) were suppliers of standard items. The structure of the private sector arms
industry in the late 1980s reflected the structure and ownership patterns of the South
African manufacturing sector. Large and highly diversified corporate groups were a
common feature of the manufacturing sector and were in turn owned or controlled
by one or more of the six large financial- mining- industrial conglomerates: Anglo
American, Anglovaal, Liberty Life, Old Mutual, the Rembrant group and Sanlam.
These six controlled approximately 90 per cent of the asset value of the Johannesburg
Stock Exchange in the latter 1980s. Three large industrial groups publicly quoted on
the Johannesburg Stock Exchange—Altech, Grintek and Reunert—dominated the
private sector arms industry. All three were in turn either owned or controlled by one
of the six large conglomerates. Altech was controlled by Anglo-American, Grintek

South Africa 571

by Anglovaal, and Reunert by Old Mutual. In terms of geographical distribution of
private sector firms, more than 75 per cent were located in the Pretoria-Witswaterand-
Vereeniging (PWW) region. This corresponds with the location of the public sector
industry—Armscor and its subsidiaries were mainly centred in that region.
Substantial cuts in defence expenditure were implemented in South Africa between
1989 and 1994. As a result, the arms industry was forced to downsize and restructure.
This led to the establishment of a new state owned arms production company, Denel,
in 1992.3 However, Armscor still retained responsibility for procurement for the
SADF. After 1992, Armscor pursued a number of adjustment strategies—restructuring
and rationalising its administrative structure, introducing more competitive
procurement policies, expanding client base and pursuing export markets through
international marketing and negotiating offset or counter-trade agreements with foreign
suppliers. Denel inherited most of Armscor's production and research facilities. The
strategy of rationalisation and restructuring after 1992 was based on the desire to
remain in the market but to shrink to fit the declining domestic defence market by
consolidating and rationalising the defence operations. As a result, Denel restructured
its 18 divisions and subsidiaries into six different industrial groups: Systems,
Manufacturing, Aerospace, Informatics, Properties and Engineering. At the same
time, around 1,600 workers were laid off in 1992-93 in the drive to cut costs.
In the process of restructuring, all Denel divisions pursued strategies of
diversification. These strategies included joint ventures, acquisitions and mergers
with civilian firms, development of commercial civilian products using defence
technology and production facility. One of Denel's primary restructuring strategies
was to increase exports of both military and commercial products. The company's
exports increased quite significantly in 1992-93. It exported military equipment to
37 countries in 1992, and to 41 countries in 1993. The Systems group, particularly
LIW, which manufactures the G5 and G6 howitzers, provided the bulk of Denel's
export earnings in 1992-93.
The private sector defence industry also took steps to downsize defence operations
in response to defence cuts after 1989. In fact, some of the private firms closed down
their defence operations after 1989. Dorbyl Marine, the country's major naval ship
building firm, closed down its naval ship building facilities in Durban in 1993
because of lack of defence work. Gencor sold its military vehicle business, Sandock
Austral, which manufactured the hulls for the Rooikat armoured car and the Ratel
infantry-fighting vehicle (IFV), to Reumech in 1993. Between the period 1989 to
1993, there was a marked decline in the military R&D. At the aggregate level, this
declined by 65 per cent in real terms in this period. The share of military R&D in
total R&D spending declined from 48 per cent in the late 1980s to about 18 per cent
in 1993. Neither the value nor the share of military R&D fell much after 1993,
despite dramatic cuts in 'procurement expenditure.

572 Strategic Analysis/July 2001

Post-Apartheid Era

The end of apartheid and establishment of a democratic government in 1994 had

a significant impact on the local arms industry. The domestic arms industry has been
subject to much higher levels of public scrutiny than before. This has largely been
due to the work of Cameron Commission (established in late 1994 to comment on
South Africa's existing arms trade policies and decision-making procedures), the
public policy processes associated with the 1996 White Paper on National Defence
and the Defence Review. None of these defence policy processes deals directly with
the defence industry, though there is a discussion on the arms industry in the Cameron
Commission reports.
The first policy process initiated by the government on defence issues was the
Joint Military Coordinating Council (JMCC). During this process, in early 1994, a
draft "National Policy for the Defence Industry" was produced and presented to the
TEC Sub-Council on Defence in 1994. The main thrust of this document which was
approved by the Sub-Council on Defence, was preserving rather than restructuring
the arms industry. The document argued in favour of a policy maximising arms
exports, subject to certain guidelines, in order to offset the decline in the domestic
market. The recommendations have not been formally adopted by the new government
but have been used to provide an informal policy framework for the arms industry
since April 1994. A Cabinet committee was set up under the chairmanship of the
minister of defence in 1994. This committee was given the task of developing a
policy framework for dealing with the domestic arms industry. However, nothing
concrete emerged from this work.
The reports of the Cameron Commission have been particularly significant in
challenging many of the economic and strategic arguments in favour of maintaining
a domestic arms industry. It recommended the restructuring of the domestic arms
industry and suggested that the "future of the (defence) industry and the question of
conversion to civilian production should be the subject of a White Paper".4
The White Paper on National Defence was approved by the Parliament in May
1996. While it did not include any major policy pronouncements on the future of the
domestic arms industry, it endorsed the need for the maintenance, upgrading and
where necessary, the replacement of weapons and equipment, and stated that "the
government would encourage the industry to convert (its) production capability to
civilian manufacture without losing the key technological capability needed for
military production."5 Apart from these general statements, it stated that the
government would prepare a separate White Paper on the arms industry, echoing the
recommendations of the Cameron Commission. The Defence Review, another notable
process, was initiated in 1996. It was concerned with the long range planning on
matters such as doctrine, posture, force design, force levels, logistical support,
armaments, equipment, human resources and funding, and was derived from the
policy framework contained in the White Paper on National Defence. While not

South Africa 573

significantly concerned with the future of the domestic arms industry, it dealt with
matters relating to the arms industry in an indirect way. The Defence Review was
approved by the Parliament in August 1997.
One more important development was the formation in July 1994 of the South
African Defence Industry Association (SADIA). The main functions of SADIA are
to coordinate the activities of the domestic arms industry and act as a mouthpiece
for the industry in dealings with the government and other interested parties. These
functions were previously undertaken by Armscor on behalf of the industry. SADIA
has publicly criticised the lack of government policy on the arms industry, arguing
that it caused uncertainty within the industry and led to outflow of technology and
knowhow from the country in the form of off-shore alliances and joint ventures.6
In March 1997, the government initiated the preparation of a White Paper on the
Defence Industry. Professor Kader Asmal, chairman of the National Conventional
Arms Control Committee (NCACC), and the Defence Secretariat were coordinating
it. This White Paper was approved by the Parliament in 1999.

Debate on the Future of the Defence Industry

In the post-apartheid era, one of the main debates has been on the value and
future of a local defence industry. With the decrease in the possibility of any major
external threat, there was a debate within the country on the necessity of maintaining
the South African defence industry. Strong views have been expressed about the
future of the industry. Some have pleaded for retention of the industry while others,
for a variety of reasons, have recommended a total shutdown. A number of government
officials have made public pronouncements on the future of the arms industry and
have argued in favour of maintaining it. Former Deputy Minister of Defence Ronnie
Kasrils suggested five major considerations while assessing the value of the local
industry. The first is a strategic consideration. Many countries in the past have paid
an exorbitant price for their reliance on foreign suppliers of defence equipment: at
crucial moments they were subjected to the "spare parts diplomacy". The second
consideration is political: having all the essential elements of a sovereign state such
as defined territory, population, and legal recognition is meaningless without the
means to uphold and exert that sovereignty. The third consideration is psychological.
Every citizen expects protection from the state and the very existence of a defence
force and defence industry sends out that psychological signal of security, insurance
and assurance, irrespective of any threat analysis. The fourth consideration centres
around national pride and nation building. Every nation takes pride in its assets and
achievements. The fifth consideration is the economic aspects. Kasrils admits that
it is true that the cost of maintaining a defence force and local defence industry is
exorbitant—in the case of South Africa, in excess of Rand 10 billion each year. But
he adds, "Not all these considerations are capable of quantification in money terms.
Therefore, if one takes on board all five considerations together, the retention of
local defence industry holds sway."7 Former Defence Minister Joe Modise has said

574 Strategic Analysis/July 2001

on record that South Africa needs a capable arms industry for strategic reasons
because of the "instability around us" and the need to be able to "protect against any
instability that spills over" into South Africa from the region. He also argues that
the industry can play a greater role in the region in order to promote a high degree
of regional equipment standardisation.8 Pierre Steyn, the earlier secretary of defence,
has highlighted the strategic reasons for maintaining the domestic arms industry in
order to "meet the key technology needs of the S ANDF and to function as a technology
multiplier in the deployment of South Africa's future industrial strategy."
Armscor argues that a South African defence industry has the following
advantages:9
Strategic Self-Sufficiency: Whenever weapons are purchased from foreign
suppliers, the purchaser becomes dependent on the supplier for spares, technical
support and consumables like ammunition. International restrictions on the armaments
trade, especially in times of crises, render a country without a local arms industry,
vulnerable.
Technological Advantages: If all the world's defence forces had free and equal
access to the same weapons, it would only be through the superior employment
thereof that a combat advantage could be achieved. When one party has access to
superior weapons that its adversary cannot obtain, it will have a definite advantage.
This advantage can often only be achieved through own research, development and
manufacture of new generation weapon systems.
Tailor-Made Equipment: Every Country has a unique environment. Unique
climatic, geographic, demographic and doctrinal circumstances require tailor-made
equipment.
Logistic Support: Many modern weapon systems like fighter aircraft require
frequent industrial repair, maintenance and upgrading. War damages require even
more substantial repairs by industry. An efficient and prepared defence force, therefore,
requires a supportive local industry. This becomes even more vital when the country
is situated far away from potential suppliers and their industrial complexes.
In contrast to the high profile support for maintaining the arms industry from the
defence establishment, certain sections of the civil society including the churches,
trade unions and non-govemmental organisations (NGOs) have argued in favour of
further diversification of the domestic arms industry.10 Another extreme view is that
taken by Jacklyn Cock, defence commentator, who claims that "South Africa's arms
industry has always been characterised by a total absence of morality. It has played
a crucial role in maintaining the apartheid regime and the oppression of the majority.
Furthermore, its exports have helped maintain wars and oppressive regimes around
the world...This arms industry has always been characterised by smuggling, secrecy
and shady dealings."
The public opinion within South Africa appeared to support the local defence
industry. The results of a survey carried out in 1995 by Mark Data of the Human

South Africa 575

Sciences Research Council (HSRC) indicated this trend." In answer to the question
of how South Africa should obtain weapons for its security forces, the respondents
were strongly inclined to opt for self-reliance in the provision of weapons. Around
45 per cent indicated that South Africa should make enough weapons for its own
use. An additional 25 per cent indicated that South Africa should produce enough
weapons for its own use and should also compete for weapon sales overseas.
Supporters of all political parties included in the analysis (African National Congress
(ANC), Pan African Congress (PAC), Democratic Party, National Party, Inkatha
Freedom Party, the Right Wing) with the exception of those supporting the right
wing parties, were inclined to respond that South Africa should make enough weapons
for its own use. The majority of supporters of the right wing parties (60 per cent)
tended to respond that South Africa should not only make enough weapons for its
own use but also compete overseas for weapon sales.
The largest single proportion of respondents (48 per cent) indicated that South
Africa should increase its weapons manufacturing capacity. In the analysis, according
to the population groups among the respondents, 42 per cent Africans, 29 per cent
coloured and 50 per cent white people stated that South Africa's weapons
manufacturing capacity should increase. Further, the results show that supporters of
the main political parties are in favour of an increase in South Africa's weapons
manufacturing capacity. Of the supporters of the ANC, the majority party in South
Africa, 43 per cent are in favour of an increase in arms manufacturing, 20 per cent
support a decrease in arms manufacturing, and 36 per cent are undecided.

Recent Trends

South Africa's external strategic environment changed dramatically after 1989.

The end of the East-West conflict was accompanied by a reduction in ideological
tensions within and amongst African countries, by significant moves towards political
pluralism in Southern Africa and by the end of apartheid in South Africa. These
developments contributed to the resolution of most of the region's historical conflicts
and, especially after South Africa had set itself on the road to democracy, provided
opportunities for countries in the region to reduce their levels of military spending
and implement disarmament measures, including the demobilisation of former
combatants. These inter-linked processes of democratisation and disarmament, which
occurred in many countries in the region, had a positive impact on the South African
state's threat perceptions, and this led to dramatic changes in the country's defence
and foreign policies and a rapid decline in the defence budget. The minister of
defence, speaking in the 1995 defence budget vote, stated, "We are living in a
situation of relative peace and stability...the country faces no specific threat in the
near future...we wish to cut the defence funding to the bone."12
Between 1989-90, and 1997-98, the defence budget declined by over 50 per cent
in real terms, while the acquisition budget (the Special Defence Account) declined
by over 80 per cent in real terms during the same period. In 1997-98, acquisition

576 Strategic Analysis/July 2001

spending accounted for 20 per cent of the defence budget, down from nearly 60 per
cent in 1989-90. Defence expenditure as a percentage of Gross Domestic Product
(GDP) declined from 4.1 per cent of GDP in 1989-90 to around 2 per cent in 1997-
98.
These massive cuts were achieved through the disbanding or scaling down of
various former SADF units; closure or scaling down of military bases; reduction in
national service from two years to one year, and eventual replacement of conscription
by an all volunteer system; retrenchment of former SADF and Armscor personnel;
cutbacks in capital and R&D spending; postponement and/or cancellation of armament
projects; and sale and/or mothballing of redundant and obsolete equipment. Of
these, the greatest savings were made through the cancellation of projects and cutbacks
in capital spending. This is evident from the fact that only 24 per cent of the budget
was spent on capital items in 1995-96 as opposed to 44 per cent in 1990.13
The dramatic cuts in defence spending have had a major impact on domestic
defence related industries, which have been forced to downsize and restructure as a
result of the cancellation or postponement of defence contracts, resulting in the
retrenchment of a large number of workers. The employment in the industry has
fallen from a peak of about 160,000 people to less than 50,000 today. As a result
of further defence cuts since 1994, and in the absence of any clear policy direction
from the government, the domestic arms industry, in both the public and private
sectors, has been forced to continue with the process of restructuring and downsizing
which started in the early 1990s.14
Denel: After much resistance earlier, in late 1995 the government announced
that it was investigating the privatisation of state assets, including Denel. However,
till date, no decision on privatisation of Denel has been taken. Denel is at present
structured as a single company with six groups and 18 divisions. The three core
groups and its divisions include: Systems (LIW, Kentron, Eloptro, Musgrave, and
Mechem); Manufacturing (Naschem, PMP, Somchem, and Swartklip); Aerospace
(Houwteq, Simera, and OTR). Table 1 gives the details of the military and civilian
products produced by these divisions.

Table 1. Systems Group

Division Military Civilian

LJW Automatic cannon Skid-steer loader

Small arms Ambidex tractor
Artillery systems Mining equipment
AFV guns/turrets " Machining
Mortars Drifter rock drill
Kentron Missiles Turnkey security systems
Air defence systems Traffic engineering systems
RPVs Electric motors
Weapon systems 'Fibrestruc' glass fibre products
Avionics Solargen solar power system

South Africa 577

 Inertial systems Observation systems
Sights
Observation systems
Fire control systems
Stand off weapons
Eloptro Electro-optical equipment Acbit pattern display unit
Sighting systems Thermal imaging
Laser range finders Laser products
Infra-red Night vision products
Musgrave Rifles Sporting rifles
Shotguns Motor vehicle spares
Cricket bats
Wooden saw handles
Security products
Mechem Mine-resistant vehicles Demolition
Detonics Bomb disposal
Rocket systems Mine clearance
Fuse design Vapour detection

Source: Denel Annual Report 1992-93 & 1993-94.

The downward trend in defence expenditure has had a negative impact on

Denel, and the company has continued to pursue a variety of adjustment strategies.
It continued to lay off employees—the number went down to 14,150 from 15,500
in 1992. In the process of rationalisation,, it closed down some of its facilities
(Houwteq being one). It was not viable to maintain some of the testing facilities such
as Gerotek and Overberg Test Range. All the groups and divisions of Denel continued
their diversification strategies after 1994, particularly mergers and joint ventures
with civilian firms, and the development of civilian products derived from existing
defence technologies and products.

Table 2. Manufacturing Group

Division Military Civilian
Somchem • Artillery charges Nitro-cellulose and
Rocket systems chemical products
Anti-armour weapons Composite material
Missiles (air-to-air) products
Propellants 'Vectus' pipes
Mortars Medical and electronic
Automatic guns monitoring equipment
Food additives
Swartklip Pyrotechnic products Emergency flares
Explosive devices Sporting ammunition
Artillery shells Industrial power tools
Hand/rifle grenades Boulder breaker system
• Electronic warfare
equipment
Naschem Medium and heavy . Mining explosives
calibre ammunition

578 Strategic Analysis/July 2001

PMP Small and medium- Brass/copper products
calibre ammunition Pressed/machined parts
Rapid-fire ammunition for motor industry
Pyrotechnic products
Explosive bonding drill
bits

Source: Denel Annual Report 1992-93 & 1993-94.

The strategy of acquisitions and mergers with civilian firms is supposed to be

the most successful diversification strategy but has proved problematic since Denel
is 100 per cent owned by the state. Thus, the policy of joint ventures is seen to be
the most appropriate strategy at the moment. The strategy of conversion has been
abandoned given the significant difficulties and costs involved in converting facilities
to civilian use and the expensive failure of Houwteq's conversion effort. On the
other hand, Denel has continued to pursue the export markets since April 1994,
particularly in the light of the lifting of the UN arms embargo. The defence exports
rose from 16 per cent of the turnover in 1992 to 24 per cent in 1995. The declining
domestic defence market and the increasingly competitive international arms market
have encouraged Denel to enter a number of joint ventures and strategic alliances
with foreign defence firms. The vast majority of these have been with the UK,
though there have been joint ventures signed with Israel, France, Germany, Spain,
Switzerland and Malaysia. They have concentrated on the Rooivalk attack helicopter
and the potential replacement of the existing Impala Mk II jet trainers.15

Table 3. Aerospace Group

Division Military Civilian

Simera (Atlas) Fixed and rotary wing military
aircraft, trainer aircraft, gas turbine
engines, engine components
Houwteq Military satellites (formerly)
OTR Test range for missiles, rockets,
aircraft, satellites
Fixed and rotary wing commercial
aircraft, gas turbine engines,
engine components, aircraft engine
gear boxes
Low earth orbit (LEO) satellites
Lauch site for LEOs

Source: Denel Annual Report 1992-93 & 1993-94.

Armscor: The other public sector organisation, Armscor, has managed to survive
in the post-apartheid era as the state's armament procurement organisation. Moreover,
it is still a statutory corporation like in the past, and has not been absorbed in the
new Department of Defence or the Defence Secretariat. It is, however, part of the
Ministry of Defence and its board is still accountable to the minister of defence
rather than the chief of SANDF or the defence secretary. There have been some
internal changes in the organisation.
In 1995, as a result of the Cameron Commission reports, and especially the
recommendations from the Modise Commission, the roles and functions of Armscor
South Africa 579
with respect to the import and export of conventional arms were transferred to the
National Conventional Arms Control Committee (NCACC). Two of the three primary
roles of Armscor have been transferred (production to Denel in 1992 and arms
control to the NCACC in 1995), thus, focussing Armscor on acquisition management
and the management of certain strategic capabilities on behalf of the Department of
Defence (DoD) through its subsidiary companies.
The defence related industries draft White Paper states, "Armscor, as the
designated acquisition agency of the DoD, is today responsible for professional
programme management and the drafting of tender documentation for the contracting
of industry on behalf of the DoD during the execution of armament acquisition
programmes. It ensures that the technical, financial and legal integrity in contract
management is in accordance with DoD requirements. The DoD and Armscor also
jointly oversee industrial development of the industry, in order to support DoD
acquisition programmes and the retention of strategic defence technologies and
capabilities."
The core business activities of Armscor are focussed on:
• The management and execution of research and development projects.
• The control and management of a supplier accreditation system.
• The execution of acquisition projects, including quality control.
• The co-management with the department of trade and industry of industrial
development programmes to retain strategic defence capabilities and
technologies.
• The sale and disposal of SANDF surplus equipment.
• Marketing support and facilitation for the defence industry.
• The management and monitoring of defence industrial participation
programmes.
• Functioning as the State Tender Board, as per delegations, on the acquisition
of armaments.
• Functioning as the fund manager for a large number of companies such as
the Institute for Maritime Technology, Protechnik Laboratories, Macro
Counter Trade International, Hazamat, Alkantpan and Gerotek.lfi
Armscor has continued its adjustment strategies. It has intensified its international
marketing campaign after the lifting of the UN arms embargoes and opened additional
overseas offices to support the domestic arms industry's export drive. It has been
tirelessly pushing the sale of surplus SANDF weapons in order to increase the
amount of money available on the Special Defence Account for the purchase of new
weapons and equipment. South Africa's share of the world arms market was estimated
at less than one per cent in 1995. Despite increases in the value of arms exports in
the 1990s, this share has not increased. It has increased the counter-trade requirement

580 Strategic Analysis/July 2001

up to 60 per cent on contract with foreign suppliers since 1994. The corporation has
also pursued a more transparent and competitive procurement policy in order to
achieve better value for money.
Private Sector: It is important to realise that by far the larger part of the South
African industry is in private hands. Arounds 80 per cent of all military production
is by the private industries.17 Some four-fifths of the 50,000 people employed are in
the private sector. The three large groups i.e. Altech, Grintek and Reunert, continue
to dominate the private sector defence industry. The private sector arms industry like
that of the public sector, has continued to pursue the adjustment strategies that it
pursued during the transition period in the post-apartheid era. These strategies include
laying off workers, downsizing, rationalising defence operations, selling off assets,
and exit from the defence market. They have pursued arms exports quite aggressively
after April 1994. Most private sector firms have established international joint ventures
and alliances with foreign defence firms. The South African defence industry is
increasingly being recognised as world class; partnerships and joint ventures with
industries in other countries are providing valuable transfer of technology and
expanded marketing opportunities. Amongst the companies surveyed by the SADIA
during the latter half of 1995, 12 companies were reported to have a total of 93 joint
ventures with companies in other countries. Of these, 29 involve technology with
civilian application, 63 per cent with defence application, and seven per cent with
application in both areas.
Thus, 70 per cent of the joint ventures are dealing with defence technology
applications. In only 27 per cent of the joint ventures, the source of technology is
from outside South Africa, while in 46 per cent, the technology source is from
within the country, and in 28 per cent, the technology is expected to flow from both
directions. These figures reveal the considerable technical competence that has been
established in the defence industries, as over 74 per cent of joint ventures will
involve technology sourced in South Africa.18
Research and Development: Expenditure on defence R&D has declined by more
than 70 per cent in real terms since the beginning of this decade. In 1996-97, Rand
329 million were spent on R&D from the defence budget, down from nearly Rand
one billion in 1989-90 (in constant 1990 prices). Defence R&D spending currently
accounts for five per cent of the total defence budget, down from nearly nine per
cent in the late 1980s."

Table 4. Defence R&D Expenditure, 1989/90-96/97

Year Defence % % Of Total SA Defence/
R&D Change Defence R&D Total (%)
Budget Spending

1989/90 985 8.6 2,043 48.2

1990/91 793 •19.5 7.9
1991/92 580 •26.9 7.2 2,455 23.6

South Africa 581

 1992/93 467 •19.5 6.1
1993/94 342 •26.8 5.2 1,831 18.7
1994/95 342 0 4.8
1995/96 342 0 5.5
1996/97 329 -3.8 5.5
Notes:
Figures: Rand million in 1990 prices. (Figures in italics are in %.)
Source: South African government. Draft Defence Industries related White Paper

In the context of these budgetary constraints, local defence firms have been
forced to fund an increasing amount of defence R&D from their own sources. While
the cuts in defence R&D spending since the late 1980s have not been accompanied
by significant increases in total R&D spending in the South African economy, there
has been improvement in the innovative activity (as measured by patenting activity)
during the same period. This suggests that the crowding out of civilian innovative
activity, which may have occurred during the 1980s when defence R&D was at very
high levels, may be being reversed.
Arms Exports: The South African government has been actively pushing for
arms exports. With the advent of the ANC-led government, it was assumed that
there would be a drastic change in the arms trade policies. However, both President
Mandela and Defence Minister Modise were quite vocal in their support for a
•responsible arms industry and for better supervision and control over arms exports.
On May 25, 1994, the UN lifted the embargo against South Africa by revoking
Security Council Resolutions 418 of 1977 and 558 of 1984, concerning respectively,
the supply of defence equipment to, and the purchase of arms from, South Africa.
Immediately, Armscor announced its intentions to increase South Africa's share in
the global market from 0.4 per cent in 1994 to 2 per cent, increasing the value of
sales from Rand 800 million to roughly Rand 2.4 billion. The decline in domestic
defence expenditure and, particularly the procurement budget, has created the incentive
to maximise arms exports.
The value of defence exports has increased quite substantially as a result of the
decline in domestic demand for armaments, and the lifting of the UN arms embargoes
against South Africa. The value of exports (in 1990 prices) increased from Rand 163
million in 1990 to Rand 721 million in 1995 before declining to Rand 345 million
in 1996.
Table 5. Export Permit Values: Comparative Figures, 1995-97
1995 1996 1997
AREA Rm. % of Rm. % of Rm. % of
Total Total Total
Africa 70.96 8 175.20 31 106.42 8
Europe (Inc. CIS -
& Israel) 43.67 5 107.90 19 253.23 18

582 Strategic Analysis/My 2001

Far East 91.65 11 103.40 78 809.44 58
Middle East 477.28 57 82.00 15 73.85 5
Americas 160.20 19 90.60 16 143.37 10
Total 843.76 100 559.00 100 1,386.31 100
Note
Figures: Rand million in current prices. (Figures in italics are in %.)
Source: South African government. Draft Defence Industries related White Paper

Despite the increase in defence exports between 1990 and 1995, South Africa
is a very minor player in the international armaments market. Its contribution to
world trade in conventional arms is less than half of one per cent, and appears to
be declining even further. An analysis of the value of defence exports (as measured
by the value of export permits) since 1995, is given in Table 5.
At the same time, however, there has been recognition on the part of the new
government of the need to eradicate past arms trade practices which have proved
detrimental to South Africa's newly acquired international standing. In a bid to
regain international legitimacy, the new government launched various initiatives to
transform the arms trade policy and to increase the transparency in the arms trade
operations. Nevertheless, many contradictions persist in South Africa's arms trade
policies. Following the revelations of South African arms sales to Yemen, a prohibited
destination for South African arms, President Mandela appointed a commission of
inquiry, the Cameron Commission, to investigate the existing arms trade practices
of the country. The first report of the commission, which was released in June 1995,
was not directly concerned with the policy on the arms industry. It was, however,
highly crticial of Armscor and made a number of recommendations concerning the
transformation of Armscor and the need for new and tighter controls over South
African arms exports.
In the light of the revelations which emerged during the hearings of the Cameron
Commission, in March 1995, the Cabinet approved the appointment of a ministerial
committee under the defence minister to investigate the issue of South Africa's
conventional arms trade policy and to make recommendations to the government on
policy and a code of conduct. The Modise Commission submitted its proposals in
August 1995. As a result of the findings of the Cameron Commission and the
proposals of the Modise Commission, the Cabinet established a new policy and
procedures for arms control, which included four levels of control, the highest being
the NCACC established in August 1995 under Minister Asmal. It took over the arms
control function, which had been carried out by the Armscor since the early 1990s.
It was also mandated to formulate policy on the arms industry and, thus, took over
from a Cabinet committee on the arms industry established in 1994 under the minister
of defence. The second report of the Cameron Commission published in March 1996
contained a number of recommendations with respect to arms trade policies and
decision-making processes. These included a proposal to classify countries according
to their status as potential customers: those to whom arms should not be sold, those

South Africa 583

to whom arms could be sold, and those regarding which the situation is unclear. A
further recommendation was that Parliament should be given the right to review and
veto arms sales. The second report also challenged many of the political, strategic
and economic arguments in favour of South Africa's continued involvement in the
international arms trade. It also recommended the restructuring of the arms industry.
Nevertheless, the government has not followed its own guidelines on a number of
occasions: the NCACC's approval, of small arms transfers to Rwanda in September
1996 and the proposed sale to Syria of electronic tank sightings for the Soviet built
T-72 tanks. Thus, despite the reforms, the government has not been able to "display
restraint and responsibility. Further, its plans of export maximisation have not
displayed much results.
The review of South African defence industry suggests that South Africa is in
the throes of restructuring. While the restructuring in the defence industry had began
by the end of the last decade, in the period of transition from apartheid to democratic
rule, the defence organisational changes have come mainly in the post-apartheid era.
There was a clamour for demilitarisation in the immediate aftermath of the April
1994 elections and the subsequent debates and the Defence Review have led to a
defensive defence doctrine and a down scaled defence industry.

NOTES
1. "Modise Highlights Benefits of SA Defence Industry", Business Day, November 14, 1996.
2. Excellent readings on this are Peter Batchelor and Susan Willet, Disarmament and Industrial
Adjustment in South Africa (SIPRI 1998); Signe Landgren, Embargo Disimplemented: South Africa's
Military Industry (SIPRI, 1989).
3. An internal study undertaken in 1991 to assess Armscor's future role came to the conclusion that
it would have to participate in the commercial market to survive the defence cuts. However,
Armscor was prohibited from using its production facilities for commercial purposes by the Act.
Therefore, the government decided to form a new industrial company—Denel.
4. Cameron Commission, Second Report, p. vi.
5. See Ibid., p. 41.
6. "What is SADIA?" Engineering News, March 1, 1996, p. 23.
7. Ronnie Kasrils "The Value of our Defence Industry" Salvo, no. 2, 1996, p. 10.
8. See Modise, n. 1.
9. J.K. Cilliers, To Sell or Die: Future of the South African Defence Industry" ISSUP Bulletin, no.
1, 1994. pp. 8-9.
10. Submissions by the Black Sash and the Anglican Church to the Cameron Commission public
hearing, Cape Town, June 1995.
11. Chart Schutte and J.K. Cilliers, "Public Opinion Regarding the South African Defence Industry,
South African Participation in Peacekeeping and Women in Security Services," African Security
Review, vol. 4, no. 4, 1995, pp. 47-54.
12. Defence budget speech, National Assembly, May 24, 1995.
13. Ruchita Ben and J.K. Cilliers, "Defence Industry and its-Restructuring for the 21st Century: A
Perspective on India and South Africa", 1996, unpublished paper.
14. Paul Hatty, "Defence Industry Overview: Today and Future", African Security Review, vol. 5, no.
3, 1996, pp. 44-45.
15. Peter Batchelor and Susan Willet, Disarmament and Defence Industrial Adjustment in South
. . Africa (Stockholm: SIPRI, 1998), p. 69.
16. South African government, Draft White Paper on Defence Related Industries http://www.gov.za
17. Landren, n. 1, p. 48.
18. Julius Kriel, "An Overview of the Defence Industry in South Africa", Salvo, no. 2, 1996, p. 46.
19. n. 16.

584 Strategic Analysis/July 2001