Defence Industry White Paper

Members of the Department of Defence discussed some of the issues that will be covered in the Defence Industry White Paper, which has not yet been finalised. Issues discussed included a review of the defence industry and an assessment of strategic technologies and capabilities. A draft version of the white paper should be available by the end of March.

The Chair, Ms Modise (ANC), opened the meeting and asked Mr Shaik of the Department of Defence (DOD) to begin his presentation.

Mr Shaik gave a history of the white paper development process. Development of the white paper was tasked in August 1996. Beginning in March 1997 many drafts and iterations of the white paper had been prepared, which have been shared with the National Conventional Arms Control Committee (NCACC) at various stages. The white paper covers an overview of the defence industry and its economic viability, as well as what critical capabilities are required to support the DOD. Other issues to be covered include industrial policy, governance of the industry, restructuring of parastatals, acquisition management and civil control over acquisition management.

Major-General Kriel spoke briefly on the general review of the defence industry. He said normally a white paper would not include a review of the industry, but the NCACC had asked them to include one. The defence industry was created during World War II and then basically shut down after the war, returning to civilian production activities. It began expanding again from the mid-1960s as a result of the international arms embargo, and peaked in the late 1980s. Since 1989 the decline of the industry has been significant. The government’s defence budget has decreased by 50%, and the capital budget – the amount allocated to new purchases and capital expenditure – has decreased by 80%.

In 1992 Denel was formed, and in 1995 the NCACC was created to take over the arms control function of former state bodies. Today the defence industry is fairly small and is not represented by many companies. About 50% of the industry is state-owned.

Mr N Sendall said he would not deal with the chapter in the white paper dealing with acquisition management as he knows the Committee is familiar with the issues. He described the chapter that discusses strategic technologies and capabilities. Financial constraints have forced the DOD to focus only on those things that are truly strategic. Based on the white paper, the defence review identified a wide list of key systems and technologies. An analysis of future defence scenarios required a re-look at what technologies and capabilities are really essential for the SANDF. Through this analysis, a clearer picture of SANDF’s future key capabilities and requirements became visible. This precipitated a move from a product focus to a future technology and capability focus. Identifiable clusters became visible of those technologies and capabilities strategic to the national defence interest.

Categories of technologies and capabilities include:

1. Outsourced logistic support, repair, and maintenance

2. Systems integration

3. Command, Control and Communication Systems

4. Sensors, Signals, and Data Processing

5. Combat systems software and support

6. Simulation and war gaming

SANDF requires a balanced core-technology base to support the core-force concept. Strategies include:

1. Matching acquisition policies with key technologies and capabilities

2. Matching R&D funding with key technologies required

3. Support cardinal long-term technology projects to retain skills and expertise

4. Establishment of a Defence Evaluation and Research Institute

5. Outsourcing of logistical and maintenance support

6. Building up levels of expertise with preferred suppliers

7. Defence Industrial Participation Programmes during new acquisitions which focus on building and maintaining core technologies and capabilities

8. Government facilitation of industrial marketing abroad

An MP asked if the issue of outsourcing maintenance functions becomes a concern in an actual conflict situation. It would seem one cannot eliminate the internal competency to do certain maintenance functions.

Mr Shaik said that outsourcing entails contracting support for a system wherever it is. In that contracting process there must be a guarantee that maintenance will be supplied wherever it is. These types of arrangements are not new.

An MP asked whether outsourcing would mean the department would lose any other types of internal capabilities.

Mr Shaik said that the DOD already does R2-billion of outsourcing annually, so there is no risk of losing major capabilities. There are some other concerns that would need to be addressed, such as whether it is even legal to employ civilian personnel in a conflict situation.

An MP said that the DOD has said that the defence budget basically supports and sustains the defence industry. Outsourcing certain functions means an outflow of money from the industry, which means the defence industry would decline even further.

Mr Shaik replied that in fact the defence industry would be the major beneficiary of increased outsourcing, because functions would be outsourced from the department to the industry.

Mr Mashimbye (ANC) asked about international joint ventures in the defence industry. He also asked what steps were being taken in the area of affirmative procurement.

On the issue of international co-operation with other suppliers who want to come into South Africa, Mr Shaik said that is addressed in Chapter 7 of the White Paper. The DOD welcomes international joint ventures, while staying away from stating how and with whom those joint ventures should take place.

Regarding affirmative procurement, Mr Shaik said the subject is also addressed in Chapter 7 of the White Paper. It is very difficult in practice to use affirmative procurement to try to benefit companies whose major stakeholders are members of previously disadvantaged communities, because there are so many issues to consider in awarding a contract. Even if a "disadvantaged" company is given a 10% assessment headstart, they can still lose in an evaluation of competencies or skills.

An MP said the DOD still seems to have an obvious and predominantly white focus, in terms both of its personnel and the awarding of research or development grants. What is the DOD doing to rectify this, and are there plans to build up the capabilities of black scientists and institutions?

Mr Shaik replied that technology expenditure has been reorganised to make sure that universities, scientists, and aspiring scientists who may not have received any focus previously would benefit from DOD spending.

It was suggested that it might be helpful to give the Committee a better sense of the issues covered in the White Paper, specifically in Chapter 7. The key issue raised in Chapter 7 is the restructuring of the defence industry. The restructuring of Denel is largely the responsibility of the Department of Public Enterprises but the DOD will obviously be involved in the process. The white paper tries to lay out guiding principles to be followed in restructuring situations. It also addresses the issue of procurement policy, linked to which is the empowerment of previously disadvantaged individuals and companies. The document also provides policy guidelines around international joint ventures.

The Chair asked when they could expect to receive the completed draft.

Mr Shaik said as soon as it has been approved by the NCACC they will distribute it to the Committee. The DOD is also aware that certain NGOs have been anxiously awaiting the report, so that they can hold their own discussions and workshops. This is an important part of the civil process that the DOD encourages, and they will be sure to make the white paper available to as broad a community as possible when it is approved by the NCACC.

The Chair asked for further questions. As there were none, the meeting was closed.