As government continues to promote localisation and support for small, medium-sized and microenterprises (SMMEs) through various incentive schemes and overhauled procurement legislation, the local defence industry argues that its contribution to propping up local industry often remains under acknowledged.

Addressing representatives of the various industry export councils and representatives of the Department of Trade and Industry (DTI) on Wednesday, Aerospace, Maritime and Defence Industries Association of South Africa (AMD) executive director Simphiwe Hamilton said the specialist manufacturing nature of the sector meant that the existence of locally produced components in larger exported products, such as vehicles, were often overlooked.

“From an SMME point of view, most export [their component products out of the country] through an original-equipment manufacturer (OEM); so the top ten players [in the local defence industry] are very visible, but you don’t see the supply chain that supports them.

“The DTI needs to understand this, as we don’t want to look to be not supporting SMMEs and localisation,” he told a DTI session on Wednesday that aimed to provide feedback from export credit bodies on government’s proposed Export Development and Promotion Bill.

The Bill aimed to contribute to improving South Africa’s export culture, export environment and international competitiveness and to coordinate government’s efforts in driving the export agenda.

This was expected to lead to an increase in South Africa’s export volumes and a diversification of both export markets and products.

EXPORT-HEAVY
Commenting on proposals within the Bill, Hamilton emphasised the local defence-related manufacturing industry’s contribution to South Africa’s balance of payments, noting that it grew exports to R9.1-billion in 2014 – around 60% of overall sales – while the cost of imported components amounted to only R1.45-billion.

Stating that exports remained crucial for the sustainability of the sector, he reasoned that trade within the defence industry, however, remained political and was, thus, subject to intense regulation.

Moreover, the sector’s reliance on international component imports, as a result of limited local manufacturing capacity, rendered it vulnerable to international currency shocks and the devaluation of the rand.

“We are a sector that predominantly manufactures electronics-based products that need to be integrated into larger items. An example here is a radio that is installed in a vehicle.

“If [we remain] reliant on foreign OEMs rather than local ones, we have to rely on outside markets, which are [often] difficult to access,” he commented.

Local defence manufacturers also battled with the airfreight of their products, as national carrier South African Airways (SAA) was often unwilling to transport them.

“We struggle to get our products onto SAA as they won’t carry weapons, so we have to rely on foreign airlines, such as [German airline] Lufthansa.

“This, however, creates other problems from a sensitivity point of view, as the Germans are then aware of who we’re selling to,” Hamilton held.

AMD called for further regional support for its products, outlining that, despite South Africa remaining the only country in sub-Saharan Africa with a fully fledged defence industry, Southern African Development Community counterparts often chose to import defence products from other countries in the Brazil, Russia, India, China and South Africa, or Brics, grouping.

The competitiveness of these international players was further boosted by the amount of funding they received from their respective banks, while South African aerospace, maritime and defence companies often struggled to secure the requisite financing.

In terms of appropriate export policy, the industry further called for the establishment of a defence industry council to coordinate policy between the industry and the relevant government departments and develop a stronger coordination mechanism.

“At the moment, the industry falls between the cracks [in terms of the policies of the various departments] . . . [there is a] need to align government activities in defence and aerospace export promotion,” he argued.

The industry further lobbied for improved infrastructure in the form of test and evaluation facilities, saying that existing test sites were insufficient.

The DTI was preparing a White Paper on the proposed Bill, taking guidance from various stakeholders and drawing on the objectives of the National Development Plan and the New Growth Path.