AMD briefing on industry challenges and opportunities, Uptake of NCACC electronic permit application system; with Ministry

Meeting report

The Chairperson experienced connectivity problems due to loadshedding. In the absence of the Co-Chairperson, Mr T Mmutle (ANC) briefly took over proceedings in the capacity as acting Chairperson and invited the Minister to make her opening remarks.

Minister’s opening remarks
Ms Thandi Modise, Minister of Defence and Military Veterans, acknowledged the contribution of the Department to the survival of the industry. She had not seen the presentation and would welcome any proposal for improvement. A Lekgotla was scheduled to take place between December 2022 and early in 2023 although she was unsure about the feasibility thereof. She felt it was important to review issues concerning the National Conventional Arms Control Committee (NCACC). 

Mr Mmutle said it was the responsibility of the Department to create a conducive environment to ensure that the AMD and NCACC are able to thrive. He encouraged the industry to work with the Department to ensure that the transition is realised.

AMD Presentation
Mr Sandile Ndlovu, Interim Executive Director, AMD, was tasked to lead the presentation. He advised that the Committee had been provided with supporting documents to augment the presentation. The scope of the presentation was in line with the directive from the Committee, i.e. on industry challenges and opportunities, cooperation with the NCACC, and the uptake of and training on the NCACC electronic permit application system.

Industry challenges
Due to the declining defence budget, 85% of the revenue is being generated through exports and the remaining 15% by local means.

The delay in processing permit applications is an existential issue because it was making it difficult to compete globally. A programme of re-engagement was needed with countries affected by the delays.

Administrative and operational challenges within the Directorate of National Arms Control (DCAC) were negatively affecting the industry. The relocation of the DCAC required serious consideration.

The delay in the review of the NCACC Act was perpetuating the implementation of a policy that was no longer aligned with current priorities. The Act was not taking into account the highly export-reliant industry and was not pro-economic development and growth.
 
Changes at Cabinet level were having a delaying effect on the filling of positions. In addition, the disruptions caused by elections were impacting the entire value chain.

Industry opportunities
To resolve some of the most pressing challenges, the AMD proposed to provide the SANDF with long-term solutions to key capabilities including logistics and armoured vehicles to improve mobility, and fixed and rotary wings to enhance airlift proficiencies.

Considering the funding issue, the AMD planned to introduce discussions around public-private partnerships for defence infrastructure projects. The AMD implored the Committee to consider benchmarking exercises in this regard. The AMD had the potential to generate income of between 15 to 20 billion dollars per annum industry if all options were to be considered and all opportunities explored.

NCACC cooperation
Industry representatives had a meeting with the Chair of the NCACC in February 2022. It was agreed to improve communication and interaction between the two structures. While meetings were taking place, it was not as regular as mandated by the Act.

NCAAC electronic permit application system
Training had not taken place because the system was not yet operational. The DCAC would be better placed to provide an update on the status of the electronic permit application system.

(See Presentation)

Discussion
The Chairperson noted that matters had not changed since the previous engagement. It seemed that the hope was on the Lekgotla to produce a coherent view. The Lekgotla that was planned for May 2022, had been postponed. The Minister promised that it would take place early in the new year. He emphasised the urgency of the Lekgotla to bring to the fore issues for discussion and resolution. The business is highly competitive and the AMD could suffer reputational harm if the system support was not in sync. Losing market share would affect growth in the industry. It was necessary for regulators to improve the environment for the business to thrive. He drew attention to the comment by ARMSCOR about the entity being able to procure small-calibre weapons and ammunition for all entities in the security cluster. It seemed that this was not yet happening as entities were still procuring from companies overseas. He asked whether opportunities to provide long-term solutions including maritime vessels and airlift capabilities were not available to local companies.

Mr S Marais (DA) found the presentation and the supporting documents valuable. He noted a big difference between the NCACC’s response on the permit application system and the process of delayed applications. He required the NCACC to respond to the AMD presentation and supporting documents. The red tape needs to be addressed to make the application processes easier and more predictable. He wanted to know if the delays were related to high-value products. The industry comprises of five to eight big companies and a huge number of small businesses. He asked for an indication of the membership that was dependent on the industry. The industry had the potential of becoming a 15 to 20 billion dollars per annum industry. The Committee could play a role in ensuring that growth in the industry leads to job creation.

Mr M Shelembe (DA) observed that the AMD relationship with the security cluster was not improving. He questioned how the country would be protected if something were to go wrong. The July 2021 riots revealed that the security cluster was not combat-ready. Citizens were questioning the reliability of SANDF vehicles due to the number of breakdowns that were reported. He wanted to understand how the communication process with the President works and what line of communication is being used to communicate with the SANDF. The July 2021 riots had been a revelation. Therefore, he failed to understand why people engaged in the Defence Industry were not taking the matter seriously.

Mr D Ryder (DA, Gauteng) said the AMD had confirmed what the Committee had been told and experienced during interactions with industry players. The industry was also crying out for a hearing. He understood that the industry must be highly regulated but the manner in which regulations were being applied was causing frustration. He requested the executive to share their plans in terms of the review of the legislation.

The Chairperson felt that it was urgent to thrash matters out at the Lekgotla. He found it regrettable that the Lekgotla had been delayed. Issues have continuously been brought before the Committee without it being resolved. The A&D Master Plan had not been implemented since its adoption in 2020. The Master Plan was meant to give effect to the strategy. He asked what was preventing the Lekgotla from happening and sought a commitment on when it would be taking place. The suggestion that the DCAC should be relocated must be reserved for further consideration. He expected the Minister to respond on the issue of the Lekgotla which would provide a platform for all role players to deal with matters.

AMD response
Ms Nombasa Ndhlovu, Acting Chairperson, AMD, said the DCAC was on board with the amendment. It was difficult to implement the digital platform when legislation is not aligned with the current situation. Issues, including the transition to the fourth economic wave, need to be discussed at the Lekgotla.

The interim Executive Director, AMD, said the entity was aware that the delay in implementing long-term solutions was due to budgetary constraints. For this reason, the AMD was pursuing an alternative approach to funding. It would serve the Defence Industry well to find a way for local players to participate in the manufacturing of prime equipment. He found the location of the DCAC in the ARMSCOR building challenging. The DCAC, as an enabler to the industry, should be accessible and interactive on a continuous basis but the working environment was found not to be conducive and user-friendly.

Mr Ndlovu explained that when the Act was originally drafted, tight control was needed and the industry was not engaged in exporting. Times have since changed and the industry was now involved in exporting but the policy was creating red tape. The AMD would submit solutions that would not render the regulation process ineffective. The application of regulations must be responsive to the current South African position. He questioned whether it was necessary to wait for approval from the Minister when the application had gone through the Security Committee. The products should be categorised in terms of what the Minister needed to approve and others that could be authorised without delay. Competitors are able to get permits within six days while it could take the AMD up to eight weeks. The AMD could do with less red tape because the equipment was not of an offensive nature and relationships with exporting countries were friendly. The impact on the value chain is substantial because not all companies are operating within the Defence Sector but are spread across the economic sector. The Rheinmetall value chain of 1 500 companies gets affected by the red tape. Nearly 600 companies were impacted when Denel was experiencing challenges.

On engagements with the President, Mr Ndlovu replied that the AMD resolved to work through special advisors. The AMD submitted a motivation for the re-opening of the previous position within the Presidency to be considered, to allow access to the office of the President. After the July 2021 unrest, the AMD wrote letters requesting engagements with the security cluster about its capabilities available to prevent further riots from happening. The SAPS responded but State Security and other security agencies did not reply. He welcomed the improvement in the relationship with the SAPS.

The Chairperson called on other industry role players to comment on the issues discussed.

Retired Admiral Robert Higgs, Board Member, AMD, drew attention to the Seriti Commission hearings of August 2013 where he participated under oath for two full days. At the time, the Defence Budget Vote was highlighted as a concern based on the understanding that a budget decrease of 1.2% below GDP would present a difficult situation for the country. A number of events happened in the country since 2013 which meant that the Defence Budget should have gone in the opposite direction. He questioned how the Defence Industry would be able to support national security with a declining budget. The DCAC was doing a great job but could not be expected to operate within an environment that was not conducive. He argued that the people within the DCAC must be empowered. National security was being undermined by the huge number of companies in the supply chain. SMMEs would be allowed to breathe if global companies do well. He was inspired by the comprehensive presentation but claimed that the industry could do a lot better to make the country proud.

The Chairperson agreed that administrative issues could be solved immediately without having to wait on the Lekgotla. Industry players had an important role to play in the defence capabilities of the country. Everybody wants the industry to succeed.

Dr Moses Khanyile, Director, Centre for Military Science (CEMIS), said he would have better guidance to communicate with the industry after the Council meeting that was scheduled to take place in the following week where issues, including the Lekgotla, would be discussed.

Minister’s closing remarks
The Minister was not sure which Lekgotla Dr Khanyile was referring to. She thought that she might have offended the AMD representatives in the only meeting that she had with the entity. She had raised the issue of Intellectual Property (IP) flight and challenged them on the state of affairs. She did not deliberately delay the Lekgotla. Her priorities as the new Minister were to focus on the Defence Industry. Rebuilding the industry must be done correctly. She denied that the capabilities of the AMD had not been promoted. The Department fought hard to put defence agreements back on the table on visits to India, Saudi Arabia and the United Kingdom. She advised that the Minister becomes the advisor when the President is not available. She was hoping that the Lekgotla would happen before the end of this year to also review the innovation aspect of the entity because other Defence Industries had been investing in innovation.

She advised that ARMSCOR had intervened to get the lifts working and to mitigate loadshedding. She would like to see the proposed amendments, which would have to go to Parliament via Minister Gungubele. At the time when the Act was drafted, strict licensing requirements were introduced because of our terrible past. The new government did not want South African weapons to be used in civil conflict. She said the industry had beautiful equipment but the soldiers were looking sloppy. Since she became an NCACC member, the Committee had met when it was required. She had raised the issue of research and development (R&D) within the Department at Cabinet. The Department was not running away from its responsibilities and wanted to ensure that soldiers get opportunities to promote their equipment. But there was not enough money in the kitty to update the systems and address all of the challenges.

She agreed that it was necessary to use the Lekgotla as an opportunity to re-imagine the South African Defence Industry but cautioned that it should not be used as a crying session. She was unaware of calls for help because they did not reach her office. She undertook to have a planning session before the end-of-year break and to meet again after Christmas and before the SONA. She was holding the Defence Industry responsible for not informing the Department about progress on innovation initiatives so that the Department did not have to beg for upgrades from other countries. She questioned why the AMD was not exploring ventures with universities to assist with innovation projects. If it was happening, she was not aware of it. All resources should be gathered to put plans on the table instead of complaining. The Department had been insulted by the lack of equipment to manage border control. She did not know what the capabilities were and had to go to India to beg for assistance.

Chairperson’s closing remarks
The Chairperson was pleased that the Lekgotla would be taking place before the end of March 2023. It was critical for all role players to talk with and not past each other. He welcomed the Minister’s comments because it was of assistance to the Committee and showed that she had her eyes on the ball. He was concerned about the Master Plan that had been launched with much fanfare but after two years, nothing had happened. Matters remained largely unchanged since the previous visit by the AMD. He was satisfied that systems at the ARMSCOR building had been improved to create an enabling environment. The Committee was pinning its hopes on the Lekgotla.

Mr Marais was pleased with the commitment from the Minister. It gave him confidence about what could be achieved when all role players work together.

Adoption of Minutes
The minutes of 27 October 2022 were considered and adopted without amendments.

The meeting was adjourned.