South Africa undeniably built up an impressive defence industry during the apartheid years, but excuse me for being cynical about it as it was built on the premise of a paranoid government beating off ‘die Groot Rooi Gevaar.’ There was a lot that was ‘Groot’ in those years; Groot Krokodil and Groot bull**** that forced families to provide their boys, my brother was one of them; for military service on South Africa’s borders to fight ‘the Communists.’ It was also the first opening for ‘Groot Corruption’ as this was where a multi-billion-rand military acquisition project lead to millions lost to bribery, which former President Jacob Zuma still has not answered for. As former ANC MP Andrew Feinstein wrote in a book called After the Party, the flawed arms deal is where the ANC lost its moral compass and ‘it is viewed as having set a regrettable tone for government dealings ever since.’ Added to its history, it can rightly be asked in a country like ours; do we need a sophisticated defence industry and should the government help Denel, which is another state-owned enterprise in trouble, while there are more pressing development needs? Defence writer Helmoed Romer Heitman thinks it does and makes out a strong case that it could have a positive economic impact in this article. – Linda van Tilburg
The Defence Industry
By Helmoed Römer Heitman
South Africa built up an impressive defence industry in the 1970s and 1980s, with a surprising breadth and depth of capabilities. That industry is today on a slippery slope, largely because of underfunding. Some argue that because it was built out of necessity, it should now be left to die; that there is no need for such capabilities. They have not applied their minds as seriously as the subject deserves.
A defence industry is first an element of defence capability: It provides a measure of strategic independence, reducing dependence on others for equipment, munitions and technical support. It also enhances the effectiveness of the armed forces by providing equipment optimised for the theatre and their operational style. And a defence industry can be a diplomatic asset, in part because of the strategic independence it provides, but also because it brings the ability to assist friendly countries. Unless one believes man has outgrown armed conflict, those are important considerations.
Now a key question: Does a defence industry make economic sense independently of strategic considerations? It does, for all but countries with miniscule armed forces or that can acquire equipment cheaply from allies. For all others a defence industry can have a positive economic impact by means of:
- Import replacement;
- Export revenues;
- Employment;
- Skills development and diffusion; and
- Technology development and diffusion.
If a country is going to have armed forces, in most cases it will make economic sense to have some level of defence industrial capability. The alternative is to export hard currency and jobs in order to equip the armed forces.
South Africa’s defence industry developed and manufactured equipment that would otherwise have had to be imported and then supported by foreign companies; it generated export revenues (R110bn alone from mine-protected vehicles); it created employment (130,000 directly, others in the supply chain); and it established skills, processes and technologies in South Africa that have migrated to other sectors.
In some respects, the defence industry transformed South Africa’s economy into an industrial, ‘high-tech’ manufacturing economy. Would exports of premium cars be possible without the quality engineering established as part of the G5 artillery project? Would we have electronics and software capabilities without the communications systems and electronic warfare systems developed by the defence industry? Probably not; few in other sectors were willing to invest in educating and training the necessary scientists, engineers and technicians, let alone invest in new technologies.
Back to exports. The often maligned Rooivalk attack helicopter project did not see any exports of the aircraft, but the R 9 billion cost delivered an attack helicopter ideally suited to the theatre and resulted in R 18 billion of subsystem exports by 2013 (and exports continue) and the ability to execute R10.5bn of work on imported equipment. Had we imported a helicopter, we would have saved some money up front, but lost the exports and the capabilities that grew out of this project.
Other exports have also demonstrated a very interesting return on investment for South Africa. One project saw investment of R700m translate into a first export order of some R4.2bn. Guided weapons that cost some R460m to develop have generated exports worth R4.75bn and electronic systems that cost R386m to develop generated exports of R5.1bn, and exports continue. Another example is the Husky mine-detection vehicle, which has so far brought export revenues of R7.2bn.
Interestingly this industry has received very little support from government, bar recent support for Denel after it was managed into the ground. The funds it has received from the defence budget have been for equipment and for research and development in respect of new equipment and related technologies. It has not, for instance, received the favourable treatment provided the motor industry.
The industry is today at grave risk, largely because the Defence Force lacks funds to buy new equipment and support R&D. That reduces industry turnover and export potential: Countries are reluctant to buy equipment not used by the manufacturing country, and the industry will soon have few new products to take to market. Then, in quite short order, South Africa will have to import equipment and rely on foreign firms to support it, in effect exporting currency and jobs in the process.
That can be avoided: Give the Defence Force acquisition and R&D funds to spend locally, give exports full government support, as in every other country with a defence industry, and support international joint ventures and partnerships. That will see the industry stabilise and grow. Add some of the perks provided the motor industry and the defence industry could soon approach its former strength, again be a technology leader and greatly expand its exports.
