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South Africa Defence and Security Report Q4 2010
Business Monitor International, Sep 2010, Pages: 84
South Africa Defence and Security Report provides industry professionals and strategists, corporate analysts, defence and security associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on South Africa's defence and security industry.
The South African arms industry has yet to recover from the decline brought on by the momentous events in the 1990s, including the end of Apartheid. In 1993, there were 122 firms gaining more than half their revenue from defence; in 2007, there were 49 suppliers in the industry. Before the 1990s, the industry had been heavily protected, and catered mainly to the domestic market. From the 1990s on, the industry has to compete in order to survive.
The Aerospace, Maritime and Defence Related Industries Association (AMD) said in 2007 that the local defence market is small and has many sub-scale capabilities because of industry fragmentation. Also, Research and Development spending has declined. In February, Johan Steyn, MD of BAE Systems Land Systems South Africa, said that the local defence industry has been ‘too dependent on South Africa’s defence acquisition, disposals, and research and development agency Armscor and local customers to provide funds and retain professional skills in the past’, and that ‘the industry must now focus on securing business abroad.’
The defence industry should begin to stabilise, as initial procurement packages and follow-on maintenance bring work to the sector. However, the number of South African defence companies will most likely continue to decline, while overall export figures rise, as attempts to break into the international market in order to survive will inevitably have mixed results. Successful companies will probably be those finding a (high-technology) niche market with which to attract customers.
The significant players remain Denel, the former manufacturing divisions of Armscor, and the subsidiary of BAE Systems, Land Systems South Africa. Others are Thales Defence Systems (TDS),, Saab Grintek Defence & Technologies, Reutech, and the civil and military aviation industry specialist, Aerosud.
The highly successful hosting of the FIFA World Cup in July boosted South Africans’ pride and morale, and acted as a powerful unifying force, cutting across deep-seated racial divides in a similar fashion to the famous 1995 Rugby World Cup, which was the first major sporting event to take place in South Africa after the end of Apartheid. However, despite the euphoria after the World Cup, South Africa’s key political challenges remain – high levels of industrial unrest involving powerful trade unions, the inequalities stemming from the Apartheid era, poverty, joblessness, political unrest in neighbouring Zimbabwe, and the high prevalence of HIV/AIDS.
South Africa’s economy continues its recovery from the 2009 recession, having grown by 1.1% quarteron- quarter in Q110. We expect the economy to expand by 3.0% in 2010 and 4.1% in 2011. Growth will be driven by a recovering export sector as well as continued accommodative fiscal and monetary policy. For 2010, the economic benefits to be gained from the successful staging of the football World Cup are counterbalanced by the effects of recent strikes in the transport sector, weakness in the consumer sector, a small contraction in private investment and a rebound in imports. Looking beyond 2010, we see annual economic expansion accelerating to average 4.4% over 2011-2014, thanks to a stronger consumer sector and the opportunity to leverage off rapid growth in emerging markets through the export sector.
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