16 September 1999
State-owned enterprises have received with enthusiasm the news of government’s decision to acquire core elements of the defence package programme. We are delighted at the prospects that Denel in particular and other bodies such as Spoornet and Portner stand to benefit from the purchases.
For some time now the defence-related industries in South Africa have been in a state of recession. The peace dividend achieved with the end of the Cold War and apartheid’s wars in southern Africa caused some degree of downsizing of the industry. This has had negative results in a number of areas, including job losses, reductions in essential research and development expenditure and production. Some of the nation’s primary defence related industries have been placed under severe pressure as a result. The challenge this imposes on the general economic development of South Africa is enormous. For many, the procurement process conducted over the past five years or so has been a period of anxiety and expectation. Government’s decision, therefore, is a welcome boost to the ability of the defence related industries to resuscitate their endeavours. The fact that the DIP, and even elements of the NIP, will extend over a number of years will give comfort to many sections of the industry in the form of confirmed business and investment.
Defence related offsets amount to some 20% of the total, ie about R14,5 billion. Local defence firms will earn over R4-bn via direct participation in the production of the aircraft and ships being procured. In addition, the suppliers will transfer technology worth about R3-billion in royalties and licence agreements to South African firms, and will direct export orders to South African firms for more than R7-billion worth of production of defence contracts with third parties.
Denel itself stands to benefit handsomely from the agreements to engage the Turbomecha engines for the Light Utility Helicopters as this programme supports the continued development of the Oryx and Rooivalk programmes as well. Both the LIFT and ALFA projects bring important work for Denel Aviation. Furthermore, LIW and Kentron are the agreed providers of elements of the combat suites for the corvettes, again providing an important injection into those companies. Furthermore, interesting opportunities have opened up with regard to the development of Strategic Equity Partnerships with particular suppliers that will assist the turnaround of some components of the South African industry. In all, we estimate that Denel will benefit from direct and indirect orders related to the packages to the tune of about R2,5-bn. Possible export orders could increase Denel’s financial position by another R1-bn. New technology transfers to Denel would amount to approximately R3,1-bn. Current indications are that over the next 7 to 10 years, Denel will benefit by just over R3,5-bn as a result of the negotiated industrial participation. These figures are based on the basic package and do not include estimates for future decisions.
Participation in the programmes also provides Denel and other companies with the opportunity to modernise their maunfacturing facilities with new machines, as well as securing the extension of important engineering activities in the aviation field. The light utility helicopter programme assists us in the production of aircraft parts that will encourage the manufacturing line.
I am also pleased that other state owned enterprises such as Portnet and Spoornet will benefit from the acquisition package. In relation to the Coega project, Agusta, Thyssen and Ferrostaal all provide important elements of the industrial plan for the area. I am confident that agreement on these projects will give us the go ahead we have all been waiting for the development of the Coega Port and related projects. I can assure the people of the Eastern Cape that I will not hesitate to facilitate rapid development of the Coega Port and these projects, ensuring Portnet’s active involvement at all stages. Government is awaiting a report concerning the potential for railage from Sishen to Coega and Saldanha. We envisage however that it will be necessary for upgrading of rail facilities in the Coega area in any event.
Government understands development to be a multi-faceted phenomenon. Direct investment in a number of different areas will have positive spin-off effects in a whole range of geographic and industrial areas. We in Public Enterprises are excited by the prospects of sustained economic activity involving a number of our state-owned enterprises. That activity will enhance our capability to speed up transformation and restructuring of state-owned assets in a more confident manner.