South Africa’s arms industry will be discussed in Parliament next week. Armscor spokesman Krish Naidoo looks at the industry’s options
IN the hope of reaping a peace dividend, the form, composition, and even the need for an indigenous arms industry has predictably come under public scrutiny.
Some 800 companies make up the defence industry in South Africa. Denel, a parastatal with 16 divisions, is accountable to the Minister of Public Enterprises. The overwhelming balance is located in the private sector. Armscor, as the acquisition wing of the Defence Ministry, is dependent on the Defence Budget for its funds.
Opposition to the arms industry comes in three main forms. One view is that an indigenous arms industry diminishes the opportunity cost of valuable state resources. In other words, for every rand spent in the arms industry, more value could be obtained in the civil sector.
A second is that an indigenous, subsidised arms industry constitutes a burden on the economy, as the very equipment being produced could be purchased cheaper off the shelf overseas.
A third view is that arms production per se does not contribute positively to the social welfare objectives of the state. Conversely, some analysts maintain that an indigenous defence base affords a country security of supply, economic growth, employment and skills development, and that reduction in defence production does not necessarily translate into more development.
These debates are not new nor confined to South Africa. Every state has undergone an agonising process of determining the political economy of arms production.
South Africa has the main ingredients of a domestic defence production base — an overall level of industrialisation, adequate infrastructure, skilled labour, state support and subsidies to the parastatals, and backward and forward linkages with other industries for the supply of raw materials, subcontracting and the marketing of spin-off products. On the downside, the country has a very restricted domestic market and only 0,4 percent of international trade.
The decision to continue with an indigenous production base in South Africa, as in most newly-industrialised countries, implies that the politics of sovereignty, power, prestige and anxiety have overshadowed economic priorities.
The sea change in technology, especially after World War II, has introduced a new pecking order among states in relation to arms production and the international arms trade. States have been stratified into three tiers.
The United States, the sole holder of first tier status, is at the frontier of the technological barrier. To maintain its position, the US invests tremendous resources in research and development. The cost of this investment is offset somewhat by its large domestic market and control of forty-eight percent of the international arms trade.
Second tier states such as France, Germany and the United Kingdom have a much lower technology threshold and are dependent on exports and state subsidies because of their restricted domestic market and smaller share of international trade.
Third tier states, comprising the majority, are subject to treble jeopardy. They are dependent on first and second tier states for technology transfer, have restricted domestic markets and are very dependent on arms exports to maintain an indigenous production base.
South Africa’s arms industry was stepped up in the 1960s primarily to overcome the effect of military embargoes and to adequately equip the defence force in its fight against the liberation movements. Those conditions have since been replaced by new priorities in a new environment.
The cardinal issue is what form should our defence industry take.
Taking into account technological disparities, the emphasis of domestic production in South Africa may lie in proven niche products which are at low cost, easy to operate and based on low research and development investment.
South Africa’s defence industrial base, by virtue of its skewed development, has characteristics of both second and third tier states. Although South Africa does not have a viable market, it has all the other qualifications for the industrial process of arms production. It also has advanced capabilities in the avionics and electronic sectors and niche products and services in the form of the G5 and G6 cannons, tanks, frequency-hopping radios, anti-mine capabilities and electronic warfare.
In determining the cost-effectiveness of our indigenous arms production base, we have to take into account, inter
* society’s willingness to pay for peace, protection and
* the extent to which we wish to advance the comparative advantage of our niche products and technological
* the size of our defence industrial base;
* whether and the extent to which we wish to subsidise niche industries in the private sector; and
* the efficiency of our public arms production sector.
We could reorganise our defence industrial base in one of two ways. The free market approach, which places the responsibility of reorganisation on the individual companies, will eventually settle the industry in a particular fashion. In the face of uncertainty, many private companies have already embarked on desperate acts of reduction of arms production and conversion of their industries with no clear long-term planning. Others are holding out for a directive from government on the future of the defence industry.
Although both cases involve private funds, an unco- ordinated approach could have a negative impact on the economy and our defence asset. It could result in the loss of the very qualities we are hoping to preserve — skilled labour and advanced technologies. Insecurity would lead to many technicians moving either out of the defence sector or abroad, and private companies being reluctant to invest in research and development.
The preferred approach is government intervention in conducting the performance analysis and providing recommendations on the cost-effectiveness, size, composition and form of our defence industrial base.
In essence, what is required is a new relationship between the state, technology and the defence industry based on existing realities.