South Africa : Local defence industry needs consolidation, support

Secretary for Defence Dr Sam Gulube

28 June 2013 by Guy Martin - defenceWeb

The South African defence industry needs to be strengthened, particularly through consolidation and domestic orders, according to industry players and the Secretary for Defence.

“A vibrant, focused and successful defence industry is a major asset to our country,” Secretary for Defence Dr Sam Gulube said. “The defence industry is important in supporting the foreign policy of government and supports the national development agenda of our country.”

He was speaking yesterday during the official unveiling of DCD Protected Mobility’s new factory in Isando. Gulube said it was as an example of a proudly South African company that could meet the needs of the SANDF and contribute to socio-economic development.

“As the Department of Defence, we understand that we need to urgently stimulate the defence industry in this country…by ensuring that contracts are placed timeously to meet our objectives.” Gulube said the four main objectives of the Department were border security, anti-piracy patrols/maritime security, peacekeeping operations and the protection of South Africa’s people and resources.

In the short term, investing in local capacity is expensive but it pays off in the long run, Gulube pointed out. “From a government standpoint, we have learnt lessons from the Strategic Defence Package. I think despite all attempts to emphasise industrial participation, we could have done better. We could have gone for better local content,” he said, noting that the submarines, fighters and frigates were “forklifted” into South Africa and that they are proving expensive to maintain because when they need to be serviced, components have to be shipped outside the country. “It is not always cheaper to buy overseas as maintenance is very expensive.”

DCD Protected Mobility General Manager Andrew Mears yesterday said that his company was ready to support the South African National Defence Force’s (SANDF’s) requirements for military vehicles. DCD Group Managing Director Rob King said that, “We can support Denel, Armscor, and the Department of Defence in consolidating South Africa’s defence industry by enabling SANDF contracts to be awarded to local manufacturers.”

Mears emphasised that creating a sustainable global business needs cooperation with the state, suppliers and traditional competitors. “This will likely result in industry consolidation,” he said. “If we realistically look at the South African market, it is too small for existing players,” Mears said and pointed to Paramount’s acquisition of ATE as an example of industry consolidation. “This industry is not going to work in the future without partnerships.” This is especially true given the global economic situation, as going it alone will be difficult. “Due to the global economic downturn…there are challenging times ahead,” he said.

Mears applauded the draft Defence Review, which supports local industry. “We are excited by the Defence Review…The Department of Defence is going to guide the restructuring of the South African defence industry. We stand by with the government and international industry to revive South Africa’s defence industry.”

The comments on industry consolidation were echoed by Paramount Group Executive Director Ivor Ichikowitz, who said earlier this month that South Africa has to present an SA Incorporated face to the rest of the world. “The defence industry really isn’t a place in some countries like South Africa for a huge amount of competition,” he said, adding that it didn’t make sense for companies to duplicate efforts. If companies competed against each other, they would lose business.

“It is absolutely imperative that big players in South Africa look at consolidation. There is no option to compete in the international market,” Ichikowitz said. The Executive Chairman told journalists that Paramount will work with Denel to consolidate the rest of South Africa’s defence industry – not necessarily through acquisition but also by supporting smaller companies.