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Warning on state of SA's defence industry MPs told international suppliers' countertrade undertakings not used strategically to sustain local capabilities, skills Parliamentary Editor CAPE TOWN The massive countertrade undertakings of the international arms suppliers involved in the controversial multibillion-rand arms programme were not used strategically to maintain the capabilities and skills of the local defence industry, Parliament's defence committee heard yesterday.

In 2001 it was estimated that the programme, costed at R30bn- R52bn, would generate R104bn in countertrade and create 65000 direct and indirect jobs. Reports late last year said that most of the main contractors in the programme were on target to meet their obligations, but the jobs created would fall short of estimates.

Countertrade investments as a result of arms programme contracts were not specifically directed at the defence sector.

Aerospace, Maritime and Defence Industries Association executive director Simphiwe Hamilton told the committee yesterday that to underestimate the contribution defence-related industries made in SA would do the country a great disservice.

He said the industry should be valued, and local manufacturers should be protected against foreign competition as was allowed for defence matters in the rules of the World Trade Organisation. This would help establish a favourable home market for the defence industry.

Referring to the arms programme offsets, he said: When we do engage in acquisitions which involve the import of equipment from abroad, government has put in place countertrade and offset processes. Our observation at the moment is that we have not used that process strategically to direct the benefits from that industrial participation towards the retention, maintenance, the nurturing and the enhancement of specific capabilities that the department of defence finds important and wants to prioritise.

What we are stating is that we need to use industrial participation as a lever through which we can achieve certain objectives. He said there should be closer contact between the defence industry and the South African National Defence Force (SANDF) in planning acquisitions. If a company had a capability that could be used by the SANDF in the future, then the company could retain it. If this was not done, capabilities in the industry would be lost as firms increasingly asked why they were retaining a capability that was not used.

Hamilton said that in arms acquisitions in recent years the government had adopted a risk averse approach. He said that if SA wanted to have a defence industry it could not be achieved without some risk.

Part of this risk-averse approach was to engage in unfettered competition without regard to capabilities in local industry. All companies, regardless of the implications, seem to have been given an equal opportunity to participate. Hamilton said the dire financial state of state arms maker Denel was due to this approach.