South Africa's policy of using its defence re-equipment spending programme to sustain and develop its aerospace capabilities is hardly unique. But will it lead to a sustainable industry in the long term?
Like many others, South Africa demanded a significant offset package from the winners in its R30 billion ($4.9 billion) procurement programme, which not only includes aircraft but also submarines and corvettes. The offset requirement is aimed at sustaining indigenous capabilities and, more importantly, providing employment within a country still trying to get to grips with the social and economic difficulties created by political transition.
Significantly, the split between the defence and non-defence related industrial participation programmes is huge, the latter being worth around R70 billion, nearly five times the size of the R14.6 billion defence industrial participation package. This resolve by South Africa's new political leaders to concentrate on wealth and employment creation rather than use the defence procurement plan as a means of kickstarting a mainstream defence re-industrialisation marks a departure from other countries.
For while still a developing country, South Africa has devised an economic model that appears to have learned the harsh lessons dealt to other nations which have insisted on developing a high degree of defence self-sufficiency as part of grandiose plans. These have had to pay a high price, both financially because of cost overruns, and because their armed forces have inevitably been saddled with inferior and out-of-date equipment by the time it enters service.
In South Africa's case, defence offset means targeting areas to give its armed forces an independent and strategically important capability, such as electronic warfare and smart electronics, avionics, electro-optical and missile systems. And should South Africa ever find itself politically isolated again, sustaining important aerostructures work through, for example, Denel's contract to become a long-term low-cost supplier to BAE for aerostructures for the Hawk, Saab/BAE Gripen plus Eurofighter Typhoon, Airbus and BAE Nimrod, allows it to retain capability to support its own needs.
And unlike even advanced defence producing nations, this focus on strategic capabilities for both civil and defence manufacturing means that South Africa will be able to negotiate lucrative international business through technology transfer. High level talks with China are part and parcel of a pragmatic view that a market the size of China cannot be ignored. South Africa's bargaining chip is the exchange of its new 'diamonds' - high technology - for market access.
ÊÊBut the country's team of politicians, business entrepreneurs and international partners is not expecting overnight success. Instead, the model maps out an economic transformation campaign spanning 15 years.
To support the long campaign, the country's leaders are driving a hard bargain with its new aerospace and defence partners to make sure that a solid foundation is being laid. Evidence of the hard bargaining are the hoops through which BAE, Saab and Agusta Westland are being put to ensure they meet early milestones in providing the promised level of industrial offset, both in defence and non-defence related sectors.
The other element of the pragmatism is the contract clause that allows South Africa to withdraw from, or scale back its purchases, should the economy collapse. The situation could become a Catch-22: if South Africa does not get its demanded industrial participation it will not be able to afford further purchases and then no-one can win. On the contrary, if the offset promises are met the economy will bloom and it will be in a position to modernise its armed forces to act as guarantor of security and stability in the region as well as be a long-term partner with international industry.
An extra challenge is to ensure that the promised social and economic advances are delivered because if not, the country runs the risk of further political upheaval, leading to regional instability, the very thing the armed forces programme seeks to defend the nation against. South Africa's innovative defence business model is poised on the edge of a precipice from where it will either take off and soar like an eagle over the high veldt or plunge ignominiously with potentially deleterious results.
Source: Flight International