Joint Oversight Report to select Gauteng military bases & landline border; Report on engagement with SA Defence Industry role players

Meeting report

Consolidated Report on engagement with SA Defence industry role players

Dr Wilhelm Janse van Rensburg, Defence Researcher for Parliament, said that the aim of the report was to consolidate the various inputs by the role-players on the prospects and challenges facing the defence industry.

The process followed to compile the report included outlining the mandate of various role-players and the selected challenges, as shared with the Committee. It therefore drew input from the various meetings conducted with the role-players since the start of the 6th Parliament which included meetings held on:

• 27 November 2019 with Denel, the National Defence Industry Council (NDIC) and Directorate Conventional Arms Control (DCAC);
• 5 March 2020; 25 June 2020; and 29 October 2020 with the National Conventional Arms Control Committee (NCACC);
• 28 May 2020 with Denel and Armscor; and
• 5 November 2020 with the NDIC and the Aerospace, Maritime and Defence Industries Association (AMD).

One of the biggest challenges facing the defence industry in South Africa, was the declining defence budget and its subsequent negative impact on the industry. The fact that the Special Defence Account (SDA), which was designed for the South African National Defence Force’s (SANDF’s) weapons acquisition and long-term research and development (R&D) projects, was being phased out was one of the main reasons for this situation.

Against the background that the implementation of the 2015 Defence Review could not be funded and only non-cost interventions could be implemented to arrest the decline, South Africa would have to agree to a significantly reduced level of defence ambition for the future.

National Conventional Arms Control Committee (NCAACC)

The National Conventional Arms Control Act (No. 41 of 2002) had established the NCACC to ensure compliance with government policy in respect of arms control. The Act enabled the NCACC to ensure the implementation of a legitimate, effective and transparent control process that would foster national and international confidence in South Africa’s arms control procedures.

The NCACC Act states that the NCACC must “at the end of the first quarter of each year, present to Parliament and release to the public an annual report on all conventional arms exports concluded during the preceding calendar year.” In terms of Section 23 (1)(b), it must “make quarterly reports to the Cabinet and a committee of Parliament determined by Parliament on all conventional arms exports concluded during the preceding quarter.

Dr Janse van Rensburg said the following challenges had been highlighted:

• Information technology (IT) systems;
• Statistics;
• End user certificates;
• Regularity and predictability of NCACC meetings; and
• DCAC capacity

National Defence Industry Council (NDIC)

The NDIC was launched in March 2016 to facilitate close collaboration between the state and the defence industry.

The NDIC had identified nine initiatives which had had a mixture of successes and setbacks. These were:

• Drafting the defence industry strategy;
• The Defence Industry Fund (DIF) aimed at funding small, medium and micro enterprises (SMMEs) in the defence industry;
• Defence sector charter;
• Task team on Denel;
• NDIC intervention plan;
• Designation of small-calibre weapons and ammunition;
• Resource-based alternative funding model;
• Export administration support: End-user certificates; and
• Participation of the industry in government diplomatic engagements.

The NDIC had listed several challenges.

The Denel situation had made it difficult for many SMMEs in the defence sector to survive because they formed part of Denel’s supply chain. The decrease in the DoD budget had resulted in a decline of demand, thus making it difficult for defence companies to survive. The issue of the end user certificates (EUCs) -- which was eventually resolved – had caused a significant number of companies to lose business in key markets. The outbreak of the COVID-19 pandemic had slowed down the efforts to get the designation of small calibre weapons and ammunition to be presented at the Justice, Crime Prevention and Security (JCPS) cluster. There had also been difficulty in enabling non-contentious marketing contracting and exports permits to be approved by one member of the NCACC.

ARMSCOR

The Armaments Corporation of South Africa SOC Ltd (ARMSCOR) was established in terms of the Armaments Production and Development Act, Act No 57 of 1968, to satisfy the requirements of the SANDF in respect of defence matériel. The Armscor dockyard served as the primary maintenance supplier to the SA Navy. It had come under increasing strain in recent years due to financial concerns, and this had impacted on the dockyard’s ability to provide all the services required by the Navy.

One of the main challenges was the dire economic situation of Denel. Denel was contracted to develop and deliver 264 Badger infantry combat vehicles to replace the Ratel infantry combat vehicle under a R9 billion contract named Project Hoefyster. The delivery of the project was expected to start in 2019 and end in 2023. The Committee heard from the briefing that the project was several years behind schedule, and that Denel was unable to deliver on the agreed contractual technical specifications and price.

The utilisation of intellectual property (IP) rights had been raised as a challenge over an extended period. Armscor indicated that it now had a policy framework that was fair and favourable to all those who wanted to develop the IP, especially those who wanted to invest. It was also indicated that the IP belonged to the DOD, and was managed by Armscor.

Adv Solomzi Mbada, the Chief Executive Officer (CEO) of Armscor, had indicated that they had developed an open-source system that could assist with the digitisation of the NCACC’s permit system. He indicated that he would share this with the Secretary for Defence.

Armscor also emphasised that many of the engineers who had left were willing to come back, but it meant the industry needed to sort its problems out, as this was in the interest of the country and its future (JSCD meeting, 5 November 2020).

DENEL

Denel SOC Ltd was a South African state-owned aerospace and military technology conglomerate established in 1992. It was created when the manufacturing subsidiaries of Armscor were split off in order for Armscor to become the procurement agency for the South African Defence Force (SADF), now known as the SANDF, and the manufacturing divisions were grouped together under Denel as divisions.

Denel had been experiencing a liquidity crisis for almost three years, and this had resulted in a delay in the implementation of projects such as the Hoefyster infantry combat vehicle project. However, Denel had a turnaround strategy which involved the replacement of management within the entity.

The Acting Group CEO of Denel, Talib Sadiq, at the JSCD meeting of 5 November 2020, had given a brief update on the current situation at Denel. The entity had been struggling with liquidity challenges, and by May 2020 it had a problem with paying salaries. This was due to a decline in revenue as well as the impact of COVID-19, which had resulted in the NCACC not issuing contracting permits on time.

Denel had developed a strategy -- to decentralise the organisation so that each division stood on its own in order to be client centric. This was as a result of requests received from clients. Funds were now ring-fenced for each client, and contracts were managed accordingly. The challenge was that the DOD’s spent had declined significantly. It was looking at structural reforms to be introduced to conclude strategic equity partnerships in order to get sustainable market access so as to reduce dependency on the local industry, and to bring much needed capital into the business to strengthen the balance sheet.

Challenges arising from the Denel situation had made it difficult for many SMMEs in the defence sector to survive, because they formed part of Denel’s supply chain. The turnover of engineers, particularly in the missile division, was due to the non-payment or the partial payment of their salaries. Denel as the major holder of South Africa’s sovereign and strategic capabilities, was not able to sustain itself, and required around R683million for the current financial year to do so. Two-thirds of that amount was to keep the missile capability in a stable and growth footprint.

Aerospace, Maritime and Defence Industries Association (AMD)

The AMD consisted of South African registered entities whose focus was on the design, development, testing, evaluation, manufacturing, operating, upgrading, maintenance, repair and overhaul of manned and unmanned land, air and sea platforms and their sub-systems, regardless of whether these were meant for defence (including humanitarian and peace keeping operations) or civil security (including homeland and border security) purposes, both locally and abroad. It was a voluntary association and currently consisted of around 72 members.

Addressing the challenges

The South African defence industry (SADI) had tabled suggestions on what could be done to address the challenges faced by the defence industry as follows:

• Direct, deliberate, focused and highest political support was necessary;
• A government-wide approach to support SADI;
• Stable and predictable local defence spending, including R&D;
• A stable and sustainable Denel;
• An effective arms control regime to facilitate arms exports; and
• Financing and related instruments.

SADI also tabled risk factors threatening existing export markets:

• Reputational damage to the South African brand;
• Decrease in tax revenue;
• Potential decline in technology investments;
• Further loss of supply chain, and 25 000 job losses; and
• A halt in the training and development of engineers (JSCD 5 November 2020).

JSCD Recommendations

Loss of scarce skills:

The JSCD recommends that a whole-government approach should be adopted to assist and support the defence industry in order to prevent the loss of scarce skills to other countries, and to attract new scarce skills to the Industry.

Predictability of NCACC meetings:

Although the DCAC had indicated that this had now been addressed, the Committee recommended that the NCACC should be alert to this concern and how it impacted on the defence industry. The NCACC should from 2021 indicate in its quarterly report to Parliament the dates and number of meetings held to consider export and import permits.

Manual IT system of the DCAC:

Given the assurances by the DCAC that they plan to migrate to a new system early in 2021, and that Armscor can assist with a digitised system, the Committee recommended that the parties should collaborate and ensure a speedy, seamless migration to a more efficient and user- friendly system.

Differences of opinion:

The Committee undertook to take this issue further at the next NCACC meeting with the Ministers, to raise and hopefully clarify the frustrations and to explore possible solutions in order to ensure a collaborative, coordinated and supportive approach from all role-players.

Intellectual property rights:

The Committee had welcomed the view that the IP rights could be exploited for additional revenue, and that Armscor and Denel were managing most these rights on behalf of the DOD, and recommended that the defence industry should enhance its efforts in this regard.

Consequence management:

The JSCD undertook to further investigate the occasional non-responsiveness and lack of cooperation, according to the AMD, given the dire need for predictability and regularity of NCACC meetings for the Industry.

Assistance of the JSCD:

The Committee undertook to engage the Portfolio Committees on Public Enterprises and International Relations, in order to highlight the need for a whole-government approach to support the industry.

Discussion

Mr S Marais (DA) thanked Dr Janse van Rensburg for doing an exceptional job in capturing what had been discussed at the engagements. He requested that the researcher investigate the end user certificate, and establish what the United Nations resolutions required. According to him, an impression had been given that the defence industry was unhappy with something in it, which frightened foreign buyers.

Whilst it had been captured correctly, Armscor had reported to the Committee that they had been incredibly concerned regarding their IP’s with Denel, which was why 24 staff members had been instructed to go and investigate the situation over a couple of days.

The Chairperson interrupted Mr Marais, and said that they needed to stick to the relevant issues at hand.

Mr Marais unhappily stated that he would have to find another way of raising issues concerning the defence industry, as it seemed clear that the Chairperson would not allow him to raise important issues. He once again emphasised that he could not understand why important issues which were impacting on the defence industry, Armscor and Denel, were not being given the interest they deserved. He was disappointed at not being allowed to raise issues which had a direct impact on the report.

The Chairperson responded that the Committee needed to confine itself to whether the report captured the discussions correctly, and not discuss matters which fell outside those discussions. The question was whether or not the report was a true reflection of the discussions held.

The Chairperson asked if the report could be adopted.

The report was adopted.

The Chairperson said that the issues raised by Mr Marais would be dealt with when the Committee met with the various defence industry stakeholders, as they were not relevant to the report.

Mr Marais responded that the issues brought up were very relevant to the report, and argued that the Committee should be proactive. If the Committee continued being a reactive one, which dealt with issues only as they arose, then it was no surprise that the defence industry had no trust in them, as they were never really assisting in a proactive manner.  

The Chairperson asked Mr Marais if he was happy with the report.

Mr Marais responded that the question was irrelevant as they had already adopted the report, whether he liked it or not, and as such they needed to move on.

Ms A Beukes (ANC) stated that the Committee seemed to be happy with the report. She agreed with the approach of the Chairperson that the report be adopted first, as per the agenda, and any new items and issues to be raised should be dealt with after they had concluded their agenda for the meeting.

Ms M Bartlett (ANC, Northern Cape) agreed with Ms Beukes

Ms N Nkosi (ANC, Mpumalanga) agreed with what had been said by both Ms Beukes and Ms Bartlett, that the report be dealt with first and any issues arising from that should be dealt with afterwards. She did not see what was wrong with first accepting the report and then dealing with new issues after.

The Chairperson assured the meeting that no issues which came before the Joint Standing Committee on Defence would ever be pushed under the table. All matters would be dealt with. It was just a matter of allowing it the correct time and platform, in order to give it the proper attention.

Oversight visits to Gauteng military bases and landline borders

Mr Peter Daniels, Committee Content Advisor, presented the report on the joint oversight visits of the JSCD and the Portfolio Committee on Defence and Military Veterans to selected military bases in Gauteng, and to selected landline borders from 22-29 November 2020.

Discussion

Mr Marais stated that there were no corrections. It was an outstanding report, and it gave him great pleasure to propose the report be adopted.

The Chairperson said that “9.2 on the Auditor-General” needed to be amended. They needed to correct any inconsistencies.

Mr Marais disagreed, and said it was not an inconsistency as it was the second time the report had come before the Committee.

Mr K Motsamai (EFF, Gauteng) said that the report was perfect and gave a true reflection of the situation. The soldiers were suffering and the facilities were lacking in the most basic regard. Assistance needed to be given, and the report gave a correct impression of the situation as it was.

Mr Daniels suggested that ‘9.2’ be amended to state that: “The Committee would request the Minister to conduct a full forensic investigation on all matters and report back to the Committee.”

Mr Marais supported the suggested amendment.

The Chairperson said that the period went from 2006 to 2015, and therefore wanted to know whether or not it fell within their mandate to go that far back and request a forensic investigation, when they had taken over only from 2019.

Mr Marais confidently stated that it was well within their mandate to go as far back as the information at their disposable allowed. He believed that they were allowed to request the forensic investigation for that period. However, to get full clarity, the Chairperson could always get an opinion from the State Law Advisor in Parliament.

Co-Chairperson Nchabeleng asked if the Committee could go back and check what had happened in Namibia when the SADF was stationed there and had killed Namibians in their own country without having any reason to be there. The same applied as to whether they could look into the killing of innocent people in Lesotho, Mozambique and various neighbouring states.

Mr M Shelembe (DA) disagreed with the amendment proposed by Mr Daniels. He believed that by changing it, it created an impression that the Committee could say one thing today and another thing tomorrow, instead of rather acknowledging the change of their stance, along with the reason why. The changing of things meant that it could allow for things to just be changed on the report left, right and centre, and would not give a proper and true reflection of the discussions and engagements held.

The Chairperson said that the reason the report was before the Committee was so that they could correct it and adopt it.

Mr Marais proposed that when recommendations were done, the Committee refer back to what they had said in “9.2,” and state that due to new information at their disposal, they recommended that the matter be referred to the Minister for a forensic investigation. An opinion on the matter could also be requested from the State Law Advisor in order to get full clarity that the Committee was doing things in the correct manner.

The Chairperson agreed, and said that it could be done this way, subject to the legal advisor’s confirmation that it fell within their mandate to go as far back as 2006.

Mr Marais said the Committee needed to remember that it was the exact same project which had commenced in 2006 that was currently still running. As such, they needed to investigate the matter.

The Chairperson once again asked if the report could be adopted.

Mr Marais moved to adopt the report

Ms Bartlett seconded the adoption of the report

The report was adopted.

Issues for future discussion

The Chairperson commented that in order to do justice to the issues raised outside the ambit of the report itself, they needed to be highlighted and given their own platform in order for further discussions on them not to be limited in the current meeting by time restrictions, etc.

Mr D Ryder (DA, Gauteng) said that the defence budget was one thing which urgently needed to be addressed by the Minister, especially after the announcement made the prior evening in the Budget Speech, which saw defence ultimately as the “loser” in the Budget.

The message given by the Minister and the actions of the President -- where he was deploying soldiers -- was inconsistent with the budget which had been allocated to the Department. What exactly was Cabinet seeing which the Committee was not; and how would the defence force’s plans to expand be impacted by that? Also, how would the Department be impacted when it was being deprioritised? He requested that the Minister be invited urgently to come and account or take the Committee into the Cabinet’s confidence as to what was going on.

The Chairperson said that the matter would fall under the issues which would be dealt with at the next meeting.

Mr Marais said that while he did not agree with the Chairperson’s ruling, he respected it. However, he asked how the Chairperson would suggest that matters which they deemed as vital and important be flagged, as he was constantly being stopped when he tried to raise matters which he felt had some form of significance and needed to be dealt with. 

The Chairperson responded that they would have a look at the term programme and see where they could find a slot in order to deal with all the issues which Members felt needed to be raised and dealt with.

Committee Minutes

Ms Bartlett moved to adopt the minutes of 18 February 2021.

Ms Nkosi seconded the adoption.

The minutes were adopted.

The Committee went through the term programme in order to try and find a suitable date for further discussions to take place. The final arrangements were to be communicated in due time.

The meeting was adjourned.