Challenges Facing the South African Defence Industry - South African Defence Review No 7, 1992


	Challenges Facing the South African Defence Industry* Helmoed Römer-Heitman, MA Author and military correspondent for Jane's Defence Weekly Edited version of a paper presented at a conference on Changing Dynamics: Military-Strategic Issues for a Future South Africa, hosted by the Institute for Defence Politics in conjunction with the Hanns Seidel Foundation, SCIR conference centre, Pretoria, 6 August 1992 Published in South African Defence Review Issue No 7, 1992 INTRODUCTION South Africa's defence industry has experienced a very difficult three years. Defence funding was dramatically cut in the wake of the settlement in south-western Africa, leading to an equally or more dramatic cut in ammunition, stores, and equipment purchases by the armed forces. Great hopes of "peace in our time" brought further defence funding cuts, leading to stretched-out equipment delivery schedules, and to the slowing down, "freezing", or even termination of many development projects. The continuing financial difficulties facing government, suggest that there may be yet further defence funding cuts in the offing - if only in real terms. The prospects for the defence industry do not, therefore, appear to be very exciting at first glance. A thorough analysis, however, offers a rather less gloomy picture for this important element of south Africa's economy. The political developments of the past few years will prove not to have brought the end of war in its many forms. There will, therefore, continue to be a need for armed forces, in southern Africa and elsewhere. Equally, therefore, there will continue to be a need for defence industries to develop and manufacture equipment for those forces. The South African defence industry is geared to meet South Africa's own defence equipment needs, and to supply equipment to meet the legitimate defence requirements of friendly countries. To do that, however, it will first have to survive its present crisis. That will require a much gentler run-down in defence procurement funding, to ensure that the industry is not killed off before it can move to ensure its own survival. Given a reasonable run-down period, it can penetrate the wider defence market, and apply its skills efficiently in other technology fields. If South Africa acts promptly to draw the maximum advantage from the inherent potential of this industry, it can ensure its survival as a functioning and viable industry. South Africa will then continue to enjoy the strategic independence resulting from being able to source most equipment locally. South Africa will then also be able to further develop the industry as a true economic asset, driving technology and bringing valuable export earnings. Against this background, this paper makes two core assumptions: That the government understands the importance of maintaining effective armed forces and the industrial capacity to support them. That the defence industry understands that the days of the armed forces being a captive client are over, that it must work actively for its own survival and long-term prosperity. Given a reasonable degree of vision and future planning by the government, the armed forces and industry, there is no reason why the defence industry should not survive the present crisis with its core capabilities intact, and with considerable potential to expand its capabilities from this smaller peacetime base. PRESENT PROSPECTS The core of present prospects for the defence industry lies with the South African armed forces and with other existing clients. Satisfying the needs of these two client groups should, if handled properly, lay the foundation for its ability to break into other markets. There is also a present prospect of some "gravy" to be earned by the imaginative marketing of current products to new clients. The South African Armed Forces The South African armed forces are the core client of the South African defence equipment industry, and this must continue. From the national point of view, the primary purpose of the industry is to develop, manufacture, and support equipment for the South African armed forces. The quid pro quo is that this work forms a solid foundation for the industry to expand into other markets, to the wider economic benefit of the country and, of course to its employees and shareholders. There are five general areas in which the industry can serve the South African armed forces: Maintaining existing equipment Refurbishing existing equipment Upgrading existing equipment Converting existing equipment to new roles Developing and supplying new equipment With defence funding limited, the emphasis will for the time being have to be on the first four areas. Maintenance The concept of industry maintenance of major equipment items is well-known to the Air Force and also to the Navy. Given that the South African Army's main combat forces are to a large extent manned by the Citizen Force, with only a small standing element, a valid argument could be made for a programme of industry-run maintenance of the Army's heavy equipment. While this is already the case in some of the more complex systems, the concept could well be applied far more widely. The advantages of this would be: Dedicated maintenance teams would keep the equipment in far better condition than is often the case at present. Citizen Force "man-days", always in short supply, would be left free for purely tactical and operational training. Technical personnel in the defence industry would be kept in service and usefully occupied. This wider application of the industry maintenance concept would only, however, be attractive to the Army if industry could offer its services at a viable cost. No matter how efficient this may seem, if the Army does not have the finances, it will not be able to make the change. The same concept could also be more widely applied within the Air Force and the Navy and also by the Medical Service. Refurbishment Industry refurbishment of existing equipment is a concept already widely applied by the armed forces. In some cases the refurbishment programme is simultaneously used to bring an item of equipment up to the latest standard. This has the major advantages of not only improving its combat performance or its maintainability, but also of improving its supportability by standardising sub-systems and components. Two examples that come to mind immediately are the Ratel refurbishment programme, which is simultaneously creating the Ratel Mk III, and the programme to refurbish Samil-50 and Samil-100 trucks, while simultaneously bringing them up to Mk II standard. This essentially amounts to a vehicle equivalent of a basic warship refit. Given that the armed forces will have to make do for many years with much of their current equipment, this is a concept which not only makes excellent sense, but one that should be extended. South Africa should also look beyond merely refurbishing current first line equipment. There are many older equipment items still held in equipment and vehicle parks or in stores, that could be brought back into service in a less demanding role than originally designed and purchased for. While this approach is not viable in all cases, it would be at least worth considering rather than letting the equipment rot or selling it off at what are essentially scrap prices. A variation on this theme would be to consider fitting standard sub-systems and components of current first-line equipment to the equivalent older vehicle or system. That would allow the older item to be kept in second line service without placing excessive strain on the maintenance system. The key question here would, of course, be whether the cost of this refurbishment and standardisation would not outweigh the benefit. There are also some more recent items that the armed forces could look at more closely before disposing of them. One example might be the Eland series of armoured cars. While they are certainly no longer first line reconnaissance vehicles, they could be put to excellent use in a modified and refurbished form. Finally, where equipment is to be sold off, the industry might do well to look into refurbishing and then selling some items to selected markets. Upgrading Industry upgrading of existing equipment is, again, well-known to all of the services. Two good examples here would be the Cheetah programme of the Air Force, and the successive Olifant Mk I and Mk II upgrades of the Centurion. An example of what is in train, would be the new surface-to-air missile that can replace the now rather elderly Cactus, as well as being part of a new system in its own right. A rather different example is the very old 5.5 inch gun (BL 140mm G2), which has been given a new lease on life by the development of a base-bleed projectile. Upgrading can take a wide variety of forms, ranging from an almost total rebuild, via adding new sub-systems, to merely providing new ammunition. As with refurbishment, this is a potential growth market, given the lack of funds for totally new equipment. The greatest potential lies in current Army equipment, if one looks beyond the work already in hand for the Air Force and the Navy. While both services will have to replace their major equipment soon, the Army has several systems that are still functional but would benefit from upgrade programmes. One obvious area with great potential is that of fitting new and vastly more capable command and control systems to Army armoured vehicles. Another is night vision equipment, the need for which was very clearly illustrated by the ground operations of the recent Gulf War. On the programme level, there is enough life in the Ratel ICV family to warrant a major upgrade of these vehicles. Such a programme could include a new gun, fire-control and gun/turret control systems, as well as night vision systems. The G-6 system, as another example, could be further developed to incorporate the latest navigation and fire-control technology thereby bringing it to "autonomous gun" standard. Conversion The armed forces and the industry should also look more closely at the possibilities inherent in converting older systems for use in totally different roles. To take one example: Some of the older mine-protected vehicles that are no longer tactically adequate for Army operations, are still perfectly able to move on a smooth surface and still offer adequate protection against blast, debris and fragments. Some of these vehicles could be converted for sweeping runways for mines and unexploded bomblets after an air strike. Sweeping would not, in this case, have to be done literally. The most likely modus operandi would be to carry out a visual sweep, destroying such munitions by means of heavy calibre rifle or disruption charges. It should not prove beyond the capability of industry to come up with a system that allows such charges to be placed from within the vehicle by remote control. Summing Up The four areas addressed above are not novel. They can, however, all be applied rather more rigorously and extensively that has been the case to date. There are three major benefits to be derived from this: The armed forces will have more efficient funding and use of their major equipment; The industry will have additional work that can be streamed effectively, and be planned to fit between production batches as and when new equipment is purchased; and With more efficient funding, the armed forces will be in a better position to carry out upgrades, and to fund the development of new equipment. If both the armed forces and industry are to gain maximum benefit, they will have to work together to plan a proper system of streaming equipment through major maintenance, refurbishment, upgrading and finally conversion to other roles. If these programmes are carefully and imaginatively addressed, they will go a long way towards stabilising the defence industry and towards laying the foundation to seize future opportunities. Care will be needed to ensure that limited funds are not allotted to programmes with no future. Imagination will be needed to develop ideas that will draw the best out of programmes of this type. If these opportunities are ignored by the armed forces - be it for lack of imagination or of funding - or by the industry, large elements of the industry will founder. New Equipment While there are limited funds available for purchasing new equipment today, there are several requirements that must be met very soon if the armed forces are to remain effective. While these fall into the area of future prospects, they will be addressed here for convenience. Some of the major areas that the armed forces will need to address include: The Army has no modern air-defence systems, no modern armoured personnel carriers, very few of the effective Rooikat armoured cars and G-6 self-propelled guns. It must also soon replace its Ratel infantry combat vehicle and the Olifant battle tank. The Air Force faces block-obsolescence of its Mirage F-1s and Cheetahs beginning around 2000 at the latest. It lacks modern maritime patrol aircraft to cover the 3 000 km coastline, its transports are elderly, and it has no combat helicopters to provide effective close support to the Army. The Navy has no real "blue water" capability, and must replace its strike craft and its submarines by 2005 at the latest. If South Africa is still to have effective armed forces by 2010, it is, therefore, essential that at least most of the equipment problems be addressed over the next ten years, in order to have the necessary programmes running in time to field the equipment in useful numbers from 2010 onwards. Considerable amounts of equipment will, therefore, have to be purchased over the next decade and a half. Much of this equipment can be developed in South Africa. Other items can be developed in co-operation with countries that have similar, if not necessarily identical, requirements. Yet other equipment can perhaps be manufactured in South Africa under license, once the arms embargo has been lifted, although that may be rather further into the future than many would seem to think. In this respect, it is salutary to bear in mind that the arms embargo against the Namibian Defence Force has yet to be lifted. South Africa should develop and manufacture as much of this new equipment locally as possible. There are valid strategic, financial and economic reasons to concentrate on local defence manufacturing rather than relying on imports. Given that this is fully understood by government and industry, and that they act to ensure the survival of the industry through the current difficult times, these re-equipment programmes will ensure the South African defence industry's medium-term future. That should enable it to ensure its own long-term future. Existing Clients The next area that should receive immediate attention, is the existing client base of the South African defence industry. Not only do these countries represent an existing market to which the industry already has a measure of ready access, it is very important to retain favourable relations with existing clients, if only to demonstrate to potential clients that the industry will support its equipment and seek to assist its clients wherever possible. A cardinal point in this respect is that firms that have access to an existing client should look beyond their own products. The industry is too delicately poised for its firms to look only to their own immediate interest: It will survive only if all of its constituent elements co-operate and support each other. If it doesn't survive as an industry, few of its constituent firms will survive in the defence business. The starting point here is for the firms in the industry to liaise much more closely with each other. What can the South African defence industry do for its existing clients, apart from selling additional or new equipment ? The obvious areas are those already discussed in respect of the South African armed forces - major maintenance, refurbishment, upgrading and conversion programmes. Perhaps less obvious, is the potential for doing the same work on other equipment in service with these armed forces. There is no reason why the South African industry should not be able to carry out major maintenance, refurbishment, and upgrading of the many Western and Warsaw Pact items of equipment that are used by these armed forces. A problem many of these armed forces experience, is a lack of component and sub-system standardisation, particularly when purchasing from several suppliers on both sides of the old Iron Curtain. It is well within the capability of the South African industry to address this problem. The possibilities will range from standardising communication systems through secondary weapons to the replacement of engines and transmissions. Smaller items might include fire-extinguishers and basic tools. Once the concept of standardisation is understood, the potential is vast, and will be open to whoever has a package ready to offer. Finally, there is of course the potential of selling other equipment to existing clients. That is where co-operation is so necessary. Several of the existing clients still have requirements which the South African industry could meet. There is also some potential in the areas of developing equipment or variants to meet specific needs of an existing client. Most importantly, the defence business has one thing in common with other endeavours: Firms that look after their clients will generally do better than firms that take the money and run. This is not an infallible rule, given the political element involved in defence matters, but it does apply generally. FUTURE PROSPECTS The South African armed forces and the existing clients form the core of the industry's present prospects. They naturally also offer interesting future prospects, as outlined above. The South African defence industry will, however, have to look well beyond those two client groups, if it is to remain a viable industry in its own right and expand. The following paragraphs consider some possibilities. In some of these areas there is an immediate potential. Most of them offer interesting long-term prospects. There are eight general market areas that should be considered. While there is considerable overlap between them, in terms both of equipment and of timing, they should be considered separately if their needs are to be properly understood: Other African armed forces "Third World" armed forces "Second World" armed forces "First World" armed forces Other defence equipment manufacturers Other governmental security forces The private security industry Other markets altogether Before considering the individual market areas, it is advisable to consider the defence equipment market as such. There is a widely-held view that recent political and strategic developments have permanently crippled the international defence equipment market. This seems highly unlikely. The end of the Cold War has effected considerable cuts in defence spending by the major powers and by some of their client states. This has been partly in response to a real lowering of the need to expand or upgrade armed forces for the time being, and partly in response to public perceptions that there should be a "peace dividend". Perhaps more importantly, this has come as a heaven-sent opportunity to trim government expenditure at a time of economic recession. None of the major powers have, however, made significant cuts in long-term research and development spending. Not even the former Soviet Union. The picture among the smaller powers is more varied, although it is clear that the fond notion of "peace in our time" is already wearing a little thin, even with those few governments which clung to it for a time. Governments in those regions where economic, political and sociological stress and tensions are very clear, have not halted their defence programmes. Governments in some other areas are using what they see as a breathing space, to gather their resources or to address urgent needs in other areas before upgrading their forces. As discussed above, the first signs of a resurgence of regional conflicts are already clear in several parts of the world. There are also clear signs of some potential new tensions, which could develop to a level of hostility if not actual armed conflict. It is an old truism that one should prepare for war if one desires peace. Another old saying has it that "every country has an army - either its own, or somebody else's". A country that lacks the means to defend itself effectively, will sooner or later attract hostile attention. Most governments understand this. Thus, while there clearly is a break in the purchases of defence equipment, it is merely that: a pause, a break. The initial pause will be followed by a phase of lower purchases of new equipment, as equipment "cascades" down from the super and major powers. This will overlap with a period during which their producers sell new-built equipment at keen prices to keep their production lines open. Both of these trends are already visible, particularly in the naval and aviation areas respectively. The second of these two trends will last only while the current equipment items remain first-line equipment with their original users. Once new equipment comes into production for the forces of the major powers, their producers will find it difficult to compete with those on the "third tier" of producers, such as the South African defence industry. They will still have to supply "gold-plated" equipment to their armed forces, but in smaller quantities. That will make it well-nigh impossible for them to offer it at prices that smaller countries can afford. At the same time, these major producers will no longer have the financial resources to develop a second line of simpler, cheaper equipment for export. Nor, with the Cold War competition to win clients and friends over, will their governments be inclined to fund the development of specifically export-orientated equipment or its purchase by friendly states, as was done in the past. The "third tier" of defence industries could then find that they have the "smaller nations" defence market largely to themselves until the next round of second-hand equipment sales. Given the cost of modern equipment, that should be considerably into the future. The South African defence industry is favourably placed to win a sizeable portion of this "smaller nations" market: It has an excellent reputation for producing equipment that actually works under operational conditions - equipment that is effective, tough, and simple to use and maintain. In many areas it offers a unique blend of "high-tech" concept and practical engineering, resulting in tough, reliable items that offer performance on a par with more complex and fragile equipment from other producers. It has the technological capacity to develop equipment on the basis of existing items, or even new items to order. It is one of the few "third tier" producers which has an actual capability to develop and bring to production status complete weapons systems. It enjoys the advantages of a weak Rand. It will, however, have to work at winning this market portion: There are still political difficulties linked to the embargo on arms sales to and purchases from South Africa, and there is still some political stigma attached. There is going to be very stiff competition from every other defence industry, not all of whom will "fight fair". New restrictions on arms sales will be imposed by the United States and her allies, ostensibly to limit arms transfers as such. It still has much to learn about offsets, local manufacturing contracts, and barter and counter-trade arrangements. Nonetheless, careful market analysis, careful planning, followed by imaginative and aggressive marketing should produce results. The overall situation suggests a three-phase approach, beginning immediately: Phase 1. Market items of existing production to countries that have immediate needs. This will involve existing equipment items and will probably concentrate mainly on "low-tech" equipment and some sub-systems and components. Attempts to market major weapon systems at this stage, could run into the problem of potential clients hoping to obtain equipment being phased out by the major powers at bargain prices. It may also encounter political opposition in the wake of the Gulf War. Phase 2. Market sub-systems and components suited to upgrading older Warsaw Pact and Nato equipment that is being "cascaded" to third world armed forces. Market the major South African systems that fill the gaps in the range of equipment that will actually be provided in the "cascading" process. There are several items that would be well-suited to closing otherwise embarrassing gaps in forces that have largely re-equipped themselves with phased- out items from the major powers. Phase 3. Market major systems and look for development partner arrangements to develop new major systems, and to help establish defence industries in other countries. These phases will naturally overlap considerably. Taken in order they will, however, give both the South African industry and the international equipment market a graduated introduction to each other. The market can get to know the South African products and capabilities, digest the first "user feed-back" regarding South African equipment, and consider how South African equipment will merge with their operational style and support philosophy. The South African industry can identify and study new market niches, get to know potential clients, and structure itself to meet their requirements - not least concerning offset arrangements. Carefully executed, this should see the South African industry poised to seize the initiative in its selected market niches and areas once the market begins to liven up again. African Armed Forces The armed forces of sub-Saharan Africa are a natural market area for the South African defence industry: South Africa is geographically well-placed to serve them and to support their equipment once in service. South African equipment is very highly regarded, despite the political differences of the past - as are the South African armed forces, which is an important marketing advantage. South African equipment is designed for use by a small armed force, manned mainly by conscripts/reservists with limited training. That makes it well-suited to operation by African armed forces which are all plagued by training difficulties. South African equipment is designed from the outset to take the geographic and climatic factors of Africa in mind. The South African armed forces understand warfare in Africa, which means that they are uniquely placed to assist industry to translate the requirements of an African armed force into hardware. The opportunities in Africa range from the sale of major systems such as the Rooikat armoured car and the G-5 or even the G-6 artillery systems, to assisting African armed forces with the developing, setting up, and running of proper maintenance programmes. Almost all of the items currently in production for the South African armed forces could also find markets in Africa, although the emphasis would be on the less complex items, given the low technology-intensity of conflicts south of the Sahara. The South African industry would also enjoy a very considerable advantage in wheeled combat vehicles, which are better suited to the needs of many African forces than are tracked vehicles. It has vast practical experience of developing, fielding and supporting a wide variety of such vehicles. This is backed up by the very considerable operational experience of the Army, which can be involved to support both the marketing of existing vehicle families and the development of vehicles according to client requirements. There is no other defence equipment industry with a comparable experience base. There is also some potential in developing armoured and logistic vehicles on the basis of existing dynamic sub-systems, to meet a specific requirement of an African client. Many African states, for instance, have immensely long borders, running through more or less uninhabited regions, that must be regularly patrolled. A basic APC along the lines of the Casspir, would be a very useful vehicle for such tasks, offering adequate armour and mine protection, mobility, reliability, and simplicity. Another vehicle type with potential in the African market, is the Mamba in its various guises. There is no vehicle on offer which really addresses the need for an "African" utility APC cum long-range patrol vehicle. There is no industry better placed to develop such a vehicle than South Africa's. The many mines littered around much of Africa, and the strong likelihood of continued banditry in much of the continent in the near and medium-term future, suggest another possibility: Many older armoured vehicles that are no longer suited to operational use, would certainly still be suited for road patrol, convoy escort and protected transport roles. Refurbishing these vehicles and converting them to some specialised civilian roles, could provide useful additional income. Various items of military engineering equipment may also prove worth converting to civilian applications. Looking beyond purely defence equipment, Africa's armed forces also require a wide variety of equipment that can survive the rigours of military service in rough terrain. Such equipment could include generators, pumps, power tools and earth moving equipment as well as tough "soft-skin" trucks. Much of this equipment would, in fact, be needed for the military's application in its non- military civic-action roles. The South African defence industry is also well-placed to assist African armed forces in standardising their equipment holdings, refurbishing and upgrading existing equipment. "Third World" Armed Forces The South African defence industry is similarly well-placed to serve other "Third World" armed forces, although it would come up against some well-entrenched competition in this area. The South African defence industry enjoys one core advantage over its competitors in this market : It is virtually the only industry that actually produces "basic" equipment - simple and tough items well-suited to even the poorest, least-trained third -world defence force. This area has few real competitors. Much of the equipment offered in this category is barely usable rubbish, or not as simple, tough and reliable as claimed. South Africa is well-placed to meet the need for simple equipment that "works as advertised". Much of the South African defence equipment will more than meet the requirements of most "smaller nations's" armed forces, without placing undue strain on either their budgets or their technical support capabilities. As with the African armed forces, there is a potential market for almost the full range of products, albeit with emphasis on simpler systems in most cases. Turning to the more advanced of the "Third World" countries, the South African defence industry could well make a profitable contribution in assisting them with developing their own overhaul, upgrade, and finally manufacturing capabilities. It would enjoy much the same advantages in this area as in that of supplying equipment. Several of these countries - notably some in the Middle East and in Asia - could also be markets for the more complex systems in service with, or under development for, the South African armed forces at present. Some examples might be the Rooikat, the G-6, the new air-defence systems and the Rooivalk. "Second World" Armed Forces The armed forces of the old "Second World" - those from behind the Iron Curtain - are experiencing very difficult times, not dissimilar to those currently experienced by the South African armed forces. Once these countries have stabilised sufficiently to once more give concrete attention to their armed forces, they will find it very difficult to upgrade their existing equipment at affordable cost. This problem could offer the South African defence industry an interesting opportunity to market various high-tech components and sub-systems to enable these armed forces to make their equipment viable on the modern battlefield. Competition will be tough - the market is after all an obvious one - but the potential is there. Some of the smaller of these countries might even be interested in direct assistance with the actual upgrading programme itself. Another area of potential opportunity lies in developing a series of joint development programmes combining the basic heavy equipment - such as armoured vehicles - manufactured by one of these countries, with South African sub-systems for marketing to other "Second" and "Third World" armed forces. This approach could be handled as a straightforward upgrade and westernisation programme, or on a requirement-specific basis. Again this is an area of potential that has already been recognised by others in the defence business. Nonetheless, the combination of the weak Rand and the fact that South African equipment is based on very extensive operational experience, may enable South African firms to carry the field in some markets : Neither the manufacturers in eastern Europe, nor the "Third World" customers, can afford the equivalent items from the major western manufacturers. Both ends of this market should, thus, still hold potential for the South African industry. The South African industry could also contract to assist some of the defence equipment manufacturers in these countries to bring their equipment to ergonomic, operability, maintainability, and servicability standards that will allow them to compete against equivalent Western systems. Anyone who has, for example, looked closely at Soviet armoured vehicles, will have some idea of the degree of re-engineering that is required. Fire- extinguishing systems that simultaneously extinguish the crew by using lethal gases, for instance, will not prove popular outside the former Warsaw Pact armies and their immediate clients. There is also very considerable potential in refining their production engineering, as is illustrated by the very short timespan between overhauls of much "Second World" equipment. While South Africa is certainly not the only country that could offer assistance in these areas, the weak Rand should give a useful edge. "First World" Armed Forces At first glance, "First World" armed forces would seem unlikely to hold any potential for the South African defence industry. That is not necessarily the case. There are some areas in which the South African industry is competitive, particularly when the cost of small batches is taken into account. South African communications equipment has, interestingly enough, shown up in some very surprising places. The fact is that South Africa has developed some niche products in which its industry is at the leading edge of the relevant applied technology. There is still, in fact, potential in tactical military communications. South African firms have also developed concepts that are much more efficient than anything available from the "First World" manufacturers. A good example here would be the anti-radar bomb being developed at present, which offers much of the capability of the vastly more costly anti-radar missiles that proved so effective during the recent Gulf War. While the BARB (Boosted Anti-Radar Bomb) is not a replacement for the longer-ranged missiles, it would be a very useful complement to them in any air force. Even the basic boosted pre-fragmented bomb which it uses as its basis, would be a useful weapon in many air forces. The South African defence industry should also look into the potential in co-operating with some of the "First World" producers in re-manufacturing some of their older products for "Third World" clients, incorporating selected South African subsystems. Finally, most of the major powers run various special operations forces. These require small batches of deniable or "sterile" equipment. This is a niche area with an interesting degree of potential. What is considered a small batch by them, is not necessarily a small batch for a South African manufacturer who has suitable equipment in production or can combine existing components to produce what is needed. Other Defence Equipment Manufacturers Regarding the longer term, the South African defence industry should investigate co-operation with foreign defence firms. The South African industry is among the top industries of the "third tier", and is in some areas not far behind the "second tier". It has indeed something to offer, and should exploit this opportunity to expand its capabilities and markets. Other manufacturers are not only competitors, they can be partners. Some, indeed, do not compete in the same areas at all, creating useful opportunities to complement each other. This argument applies principally to "third tier" manufacturers, but there is considerable potential for co-operation with some of the "second tier" manufacturers, and some mutual interest could even exist with "first tier" manufactures in specific areas. Among the prime opportunities that could prove worth some study, would be mutual standardisation - beyond the MILSPEC level - and the integration of each other's sub-systems and components into own weapon systems, to facilitate joint "mix and match" tailoring of equipment to suit the needs of a particular client. This could then also lead to joint marketing of "package deals", combining South African and other manufacturers' equipment in a package tailored to suit the particular client. The final step should then be to seek joint ventures to develop major weapons systems optimised for the "smaller forces" of the world. The Rooivalk would be a good example of a project that could have potential in this area, offering capabilities that are comparable with equivalent combat helicopters coupled with a strong degree of commonality with the Puma/Super Puma family of tactical helicopters. Other projects that would benefit from the joint venture approach would be a new battle tank and a Ratel replacement. A long-term project might be a combat aircraft that is suited to the needs and capabilities of countries similar to South Africa. Governmental Security Forces There seems to be a growing tendency towards unrest and public violence in many parts of the world. This will lead to a growth in police and internal security forces, and in the demand for a full range of police and internal security equipment. While the major countries are able to source that equipment from their own industries, most of the smaller countries will have to import at least the more complex items of equipment. While this market is one that will be contested by a very large number of firms, the South African industry should be able to secure some selected sales in countries that face similar climatic problems. The one area in which the South African industry has an immense advantage and lead, is that of mine-protected and mine-detection vehicles. This could become a growth area over the near to medium term - the use of mines by terrorist and guerrilla organisations is increasing world-wide, and no other country has really addressed this aspect of mine warfare. Private Security Industry Finally, as far as defence and security markets are concerned, there will continue to be an interesting market for equipment for private security firms. Like the official security market, this will be heavily contested. As in other markets, however, there will always be potential for innovation. South Africa has a long record of innovation in many fields, and there is no reason why elements of the South African industry should not find a niche in this market. Other Markets Altogether The wider defence equipment industry is also more than a merely logistic support organisation for the armed forces. It holds very considerable potential to take South Africa's wider industry into high-tech development and manufacture. This is far too valuable a potential to ignore or to sacrifice. There have already been some spin-offs from the existing defence programmes - primarily in steel, electronics, ceramics and quality control systems - and there will be further spin-offs from current and future defence programmes. The greatest potential in this area, however, lies in applying the capabilities of this industry more directly to other sectors. The capabilities that South African industry can "spin-off" from defence work also, for instance, enable it to produce equipment well-suited to other needs in developing countries: Equipment that actually works under very basic conditions, that is simple to maintain, and that developing countries can afford. Much of the technology is already available, and the "think tanks" established by the defence industry have the ready capability to develop other interesting concepts in a variety of fields, given just a little encouragement. This would open a potentially vast market to South African industry, in Africa and elsewhere in the "Third World". The very extensive "pure" research and development capability of the defence industry, and particularly the "think tanks" of both Armscor and Denel, can very usefully complement that of the CSIR, to expand and extend South African expertise, particularly in engineering, electronics, areas of applied chemistry. Having been established specifically as research and development houses in most cases, these bodies should not experience any difficulty in making their expertise available, and doing research work for other firms. Again, applying these capabilities to the civilian market will allow the various think tanks and research establishments to be kept operational, will benefit the industry generally, and should generate useful income. Apart from extending its penetration - in terms of products and clients - of the defence equipment market, the defence industry should, therefore, also diversify its interests into other areas altogether, both widening and deepening its range of interests. There is obvious potential in the industrial sectors technically related to the defence industry. A careful study of the defence industry's capabilities will reveal other opportunities, many in co-operation with firms outside the defence sector. Expanding into such non-defence work, will generate profits that can then be applied to developing new technologies, and will also vastly broaden the industry's base for long-term survival. CONCLUSION What then are the prospects for South Africa's defence industry? Given that the two basic assumptions made earlier in this paper are not too optimistic: that government does recognise the importance of effective armed forces and an industrial base to support them; and that industry will move decisively to ensure its survival; the present prospects for this industry are not as poor as they may look at first glance. Given further that the industry does not lapse into a digestive coma as soon as its immediate survival is assured, but continues to actively exercise its imagination and turns its concepts into programmes, its future prospects can be very promising indeed. The economic potential for South Africa is considerable. A sound defence industry will keep funds in the country, bring in useful foreign exchange earnings as an exporter, and will have valuable spin-offs for industry as a whole. It will also maintain South Africa's strategic independence.