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A Trade Unionist Perspective on the Future of the Armaments Industry in South Africa*
INTRODUCTION
The arms industry in South Africa has until very recently been a closed book to most South Africans. Having, for instance, read the 1991 Annual Report of Reunert, probably the largest private sector company in terms of contract value involved in the South African armaments industry, one would be justified in concluding that Reunert has very little interest in armaments.
The trade union movement, in particular, has not had access to information on the industry, and has been denied trade union recognition and basic rights in most plants. NUMSA has, for example, been refused recognition for more than four years by Pretoria Metal Pressings (PMP), a division of Denel (Pty) Ltd and responsible for smaller calibre ammunition production.
It is extremely difficult, therefore, to write with any authority on the future of an industry which is still largely secret. This paper reflects general considerations and is written with little knowledge of the actual resources and capabilities of the industry.
If there is to be a serious debate on the industry's future, it must include the labour movement. As for most other industries in this country, it will not be possible to map out a clear path for the future unless some consensus is reached between government, industry and labour. In a new democratic South Africa, such consensus is essential. The debate cannot take place without much more candour by the industry.
THE MORAL ISSUE:
RE-ARMING THE ARMED FORCES
The majority of South Africans retain a legacy of hatred and distrust of the South African Defence Force (SADF) and the South African Police (SAP). Serious discussion of whether and how to re-arm in the future must pre-suppose a change in the nature of these forces. Since that is not the major thrust of this paper, I will simply present what I believe are fundamental prerequisites.
- The armed forces must be under the actual control of parliament. The committees which control the forces must be independent and must not be set up in terms of any Defence Act. Control should include actual management of expenditure and auditing, as well as the power to veto projects and actions.
- Civil society should have access to a high level of information regarding conditions in the forces, their projects and activities.
- Strict limits on the activities of the forces should be laid down in the Constitution.
- Members of the forces should retain as many as possible of the normal human and trade union rights compatible with their position. In particular, they should have access to remedies should their rights as set out in a Bill of Rights be infringed upon.
- The armed forces must be strictly constrained to act within the limits of international law and convention (see, for example, the article by Kader Asmal, The Role of the Armed Forces in a New South Africa in the context of International Law, in South African Defence Review, Issue No 3, 1992).
A debate on the type of armaments and the level of expenditure required can only appear within these parameters. We will expect this discussion of the role and arming of the forces to be a public debate, and to be a part of the debate on socio-economic priorities (which is of course never completely divorced from political considerations).
The debate on the role of the armed forces cannot take place in isolation from the broader debate, as has been the case in the past in South Africa and is still the case in most countries: while the Peace Dividend has meant that there is more open discussion of the need for weapons, it appears that the discussion is generally not really integrated with the broader discussion of socio-economic priorities. Given South Africa's history, and the traditions of openness and grass-roots control which have characterized the labour movement, we would not accept that the future of the forces and of the industry should be resolved behind closed doors.
If there is to be re-arming, it would obviously be preferable to have a domestic supplier. That means keeping some parts of the industry alive and healthy. It would be extremely difficult, however, to insist that this apply indiscriminately to all aspects of the industry, or even (at this point) to pinpoint which parts. The armaments industry around the world is heavily subsidized. Keeping the South African industry alive, if by this we mean maintaining some or most of its ability to develop and manufacture arms and weapon systems, assumes that the State will spend - and subsidize. The sooner an open debate can be held, the sooner it will be possible to resolve this question. In effect, then, policy on the future of the arms industry in South Africa is seen within the broader political and moral considerations as a part of general industrial policy for manufacturing in South Africa and of the allocation of sparse resources, and only secondarily as a special case because of the need to retain a capacity to produce weapon systems domestically. It is by no means a given that the industry must be maintained at all costs, or that it should be encouraged to export.
The above considerations apply also to the nuclear industry. Because of its nature, the need for complete openness and strict adherence to international conventions is all the more important.
INDUSTRIAL DEVELOPMENT AND THE ARMS INDUSTRY
I shall argue below that the arms industry in SA represents a huge resource of skills, technology and machinery, paid for by public investment. As such, it cannot be allowed to simply fragment or collapse.
If our primary consideration is how the arms industry fits into the growth path of the South African economy, and especially into the growth path of manufacturing, we are able to identify certain key issues.
By its nature, the arms industry in most countries is not cost concerned. Such industries generally have a major, more - or - less captive customer - the government of the home country. The customer uses tax revenue to pay for the development and production of weapons systems. More often than not, contracts are "cost plus". There is no incentive to contain costs, and the $1 000 ashtrays paid for by the Pentagon are the logical result. Indeed, some observers argue that the enormity of the military-industrial complex in the USA may have been an important influence in the decreasingly competitive US manufacturing industry, as it generated bad habits arising from the lack of incentive for efficiency.
It appears that governments usually don't specify what they want: companies develop weapons systems paid for by government through R&D funds and cost - plus contracts. Government subsequently has to buy them because it has invested so heavily in their development, and not necessarily because they are essential. Armaments which are exported are therefore in reality exported at subsidized prices.
The armaments industry in South Africa has been responsible for a very large proportion of South African manufactured exports. It is by no means clear, but is obviously a key question, whether the industry could still export so effectively if it were not subsidized by government R&D funds and cost - plus contracts. It is almost certain that the cost-plus system applies in the arms industry, given the situation in another strategic industry in South Africa, the telecommunications industry, which functions almost entirely on a cost-plus contract basis. It could be that exports would be possible for a short period, given the hang-over of subsidized development, but exporting arms is very competitive and the technology develops very rapidly. How long could South Africa's industry retain its edge without subsidies? It is inevitable (as has already happened) that changing political and expenditure priorities in South Africa will lead to vastly decreased subsidies (if any) for the arms industry.
The industry should therefore move quickly towards full cost accounting, and should subsidies be given, they should be obvert and transparent.
The international arms industry is presently characterized by extensive dumping. The USSR in particular formerly had huge armaments manufacturing complexes. The CIS states are now dumping these products on the export market, and are also selling very advanced weapons technology and expertise. This must certainly apply to other manufacturers hit by the "Peace Dividend" and the downturn in the world economy. It is likely to become extremely and increasingly difficult to succeed in the export market.
Indeed, the challenge to South Africa's arms industry is to retain the domestic market in the face of foreign competition (GATT will ensure that protection is not the answer). After having proved itself domestically competitive, the industry will have to seek niche export markets. The vast expertise and skill in management, development and manufacturing available in the industry should make the development of efficient production possible, but this presupposes continuing high levels of investment, which may not be available.
In the past, then, cost was unlikely to have been a problem - but quality and creativity were. Now, all three must be taken into account. Can the industry make this transition, in military and non-military production?
THE INDUSTRY AS A RESOURCE
I shall argue in what follows that the arms industry has capacities which can be tremendously beneficial to the SA industry. However, the benefit may lie in the use of capacities in technology and product development, project management, expertise and skills and so on, rather than directly in manufacturing. Given that the arms industry was quality and innovation conscious, but almost certainly not cost-conscious, it may not be appropriate to look to converting the industry wholesale into an efficient manufacturer of various products. Certain sectors of the industry may be able to do this, but we should concentrate on the utilisation of other features. It would be appropriate for the industry to rather sell technologies, act as consultants, provide sophisticated testing facilities, provide high-tech machining facilities, and so on.
South Africa has allowed its R&D, skills and technology base to decline almost everywhere outside the arms industry. Investment in R&D by South African business is notoriously low - except apparently in the arms industry. Investment in new machinery and technology is also generally poor. It is only in the arms industry that there has been substantial investment in R&D, technology, plant and skills. The level of management skills is probably also higher, because the arms industry could not afford low-quality management.
In this respect South Africa is very different from countries such as Japan and Germany which have invested heavily in high level manufacturing and not in a parastatal arms industry.
Because of the high expenditure on R&D in armaments and the low R&D expenditure elsewhere, the industry contains a high proportion of the R&D skills available in SA. Further, the technologies in which these skills exist are highly adaptable and marketable: guidance systems, telemetry, secure radio systems, avionics, hydraulics and so on.
The South African arms industry, in both the public and private sectors, therefore represents by far the largest reservoir of advanced technology, advanced skills and expertise, advanced machines, tools and advanced development capability available in South Africa. It has high-level technical, managerial and training skills. This resource represents a huge investment of public funds, and it must therefore be available to assist in the rebuilding of South Africa's technology base and its manufacturing industry. In our experience, most South African manufacturers, even in the car industry, have plants and technology which were amortized long ago. Further, management may understand the technology of the product, but usually understands little of the technology of manufacturing. Japan and similar economies demonstrate clearly that the ability to develop manufacturing technology is vital for success - and workers and management must have the skills to continuously develop these processes. South African industry almost always buys in both product and manufacturing technology, and has little impetus or ability to develop and upgrade its production technology.
A condition for joint ventures or other initiatives to be successful is for Denel and the rest of the arms industry to open the books, so that both industry and policy - makers can see what is available. It would not be wise or desirable to leave the decision to Denel only as to what should be made available and what could be exploited, and what shouldn't. At present, Denel appears to take sole responsibility, as witnessed in the recent Denel supplement in Business Day (7 October 1992). Most military technology is not ultra - secret in itself. By their nature, weapons systems must utilize tried, tested and reliable technology, so the limitations on being open should not be too severe.
This does not imply at all that commercially valuable information should be handed out free. Given that Denel represents a huge investment of public funds (as do Reunert, Grinel and other private sector companies), technology transfer joint ventures or other initiatives to upgrade South African manufacturing must take place on a commercial basis. Exactly what that basis should be like, is a matter for discussion in the debate on South African industrial policy.
WHAT CAN THE ARMS INDUSTRY DO?
The crucial challenge facing the South African manufacturing industry is to retain the domestic market in spite of foreign competition. Exports into niche markets can and should develop from this effort. Military technology is well - geared to adapt to market opportunities. This approach could provide a guide to areas of interest. For instance, the Japanese designed minibus taxis used so widely in South Africa were not really designed for large - scale commuter activities. They are in fact quite inappropriate: access is relatively difficult, they are not very comfortable, and they are not designed for the very poor roads on which they are often used. The South African arms industry has very wide experience in developing successful military vehicles such as the Casspir, the Ratel etc., and would be ideally suited to work with the auto industry in such a design project. The extensive capability in avionics, aerodynamics, engineering of light structures, telemetry, guidance systems, self-diagnostic systems etc. also suggests areas of synergy with the auto industry.
The mining industry in South Africa is a world leader. However, there has been relatively little development of mining equipment by the mining houses or their industrial offshoots. In countries such as Sweden and Finland, state policy encouraged the development of mining equipment manufacturers by the mining companies. In South Africa, however, most major equipment for mining or quarrying is at best manufactured under license to companies such as Dowty, Atlas Copco etc. Hydraulics plays a major role in most of this equipment. Denel must surely have a great deal of expertise and technology available in this area, as well as the skills and technology to develop products. OMC and other companies have extensive experience in producing tracked military vehicles. The synergy with earth - moving and mining equipment is clear: harsh terrain capability, extreme reliability, highly - developed hydraulics technologies. This synergy would not be new - Dowty, for instance, learnt to build some mining equipment from its experience in building aircraft undercarriages in World War II. The problem will, however, be to manufacture such products competitively.
Telemetry is now replacing fibre optics in plant control systems in large-scale plants, such as oil refineries. The self - diagnostic avionics of modern aircraft are obviously also applicable to manufacturing systems.
The arms industry generally uses very high quality and sophisticated machine tools adapted for one - off type production. The Denel companies could therefore provide centralized machining centres for specialized contracting, so that other companies would have access to highly sophisticated machine tools without having to import them. This asset should not be under-utilized.
The industry presumably also has very expensive and sophisticated test equipment, such as wind tunnels. Again, this is a resource which would benefit industry in general by providing a contracting service.
Denel presumably also has the capability to improve products. The successful development of the R4 rifle from the FN and the R1, and of the Cheetah, bears witness to this. This development capability could be extremely valuable in efforts to upgrade SA manufacturing, for instance in improving and adding value and quality to products.
Training is an area further to be explored. The arms industry employs many of South Africa's most skilled people, who could make a major contribution to training for high-level skills. This would be associated with technology transfer, testing and similar ventures.
All of this assumes, of course, that South African industry wants to redevelop its R&D, its technology and its skill base, and wants to develop new or higher value-added products, manufacturing systems and so on. South African investors have an extremely poor record in this respect, however. They are obsessed with short-term returns, and are very reluctant to invest in development, especially of new products or new technologies. It is clear that South Africa cannot compete in every area - but an ultra-conservative approach is one of the problems which has led to the continuing contraction of our manufacturing industry.
The arms industry obviously cannot sell services, technologies, expertise or anything else to an industry which does not wish to buy. That is one of the major reasons why the future of the arms industry is inextricably linked to the broader industrial strategies of South Africa as a whole, and to the investment and fiscal policies and resource allocation priorities.
RESTRUCTURING
Armscor and Denel are parastatal corporations. As such, their control should be far more representative of the SA population than is now the case. In another parastatal which is equally strategic, Eskom, discussions on the role of trade unions in decision-making are at an advanced stage. This should also be the case with Denel, which should allow and facilitate unionisation after years of refusing it in terms of the statutes. This would require rapid changes to the statutes. Obviously, however, policy control of Denel and Armscor would need to be restructured to be more widely representative than simply inclusion of representative trade unions.
Changes to the structure of the industry must be negotiated with the employees and trade unions. It would certainly not be acceptable to see unilateral restructuring continue, especially if this were to imply further retrenchments.
All the discussion of the need for public debate raises the question of what should be done now if the industry were to be saved. There are really no short-cuts in an industry which is associated with repression and apartheid, but it is undoubtedly possible to discuss and agree on interim measures if the industry were prepared to open itself to a debate with the major players in the arena of economic and industrial policy, which would presently be the business community, the ANC, the labour movement and the government.
CONCLUSION
Although it may be advisable to retain a capacity to produce some armaments domestically, it is by no means a given that this would be sufficient to lead to the propping-up of the arms industry, which is in crisis. It is also uncertain whether the industry could be a cost-effective exporter of armaments, even if it were morally acceptable. However, there is a strong argument for retaining the industry in a modified form because it represents a very large public investment in what is virtually the only major resource of technology, high level skills and sophisticated plant. It can thus play a decisive role in upgrading South Africa's manufacturing sector.
The future of the industry must be submitted to an open and public debate, which should consider policy as part of the general socio-economic and industrial policy requirements of the new South Africa.
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