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The defence sector has an important role to play in contributing towards advanced manufacturing in the economy, the departments of defence and public enterprises said on Monday.

In a statement the departments said Cabinet had considered a strategy report last week on the SA Defence Related Industry (SADRI).

The study found that the SADRI had developed a range of capabilities, including hi-tech electronic and communications products, sensors, land vehicle platform, turrets, ammunition, artillery, small arms, unmanned aerial vehicles, missiles, stabilisation systems, aerospace manufacturing and aviation maintenance.

"The development of these capabilities was mainly driven by South Africa's isolation under Apartheid and significant historical spend on the sector (R14.1bn in procurement in 1990)," the departments said.

However with the advent of democracy, government spending had been re-prioritised.

Defence acquisition spend has steadily reduced over the past 12 years to a level of R6.5bn in 2007.

The study indicated that in order for many local defence companies to survive they were forced to rely heavily on export markets.

"Due to the above factors, many of the SADRI capabilities are now sub-scale, when compared to global standards, and the industry is generally fragmented."

The report was commissioned by the departments of defence, trade and industry, science and technology and public enterprises, with the involvement of the Aerospace, Maritime and Defence Industries Association (AMD) and Denel.

The departments said that although the local acquisition budget had reduced, shifts in expenditure patterns had occurred over the last two years with changing material requirements by the SANDF.

These included the finalisation of the Hoefyster (Infantry Fighting Vehicle) contract (R8 300m), the A-Darter (Air-to-Air Missile) development programme (R866m, jointly funded with Brazil) and the Oryx Helicopter midlife upgrade contracts (R730m).

These contracts would have benefits for Denel and the local industry.

The departments said Cabinet had noted the strategy and recommended that, where possible, local main contractors be appointed for all defence-related material requirements.

Furthermore -- in line with global benchmarks -- a target of 60 percent to 70 percent of defence spend directed towards the SADRI, in areas that had capacity and the competitive advantage, had been set.

Based on international best practice, communication between the department of defence and the SADRI would be enhanced.

This would be through policy statements and communicating medium to long term procurement plans, through industry supplier forums.

The report found that although the SADRI had developed very good capabilities, not all capabilities were commercially viable.

In addition, managerial and technical skills within local companies needed to be on par with competing countries.

"Cabinet resolved that further alliances with global partners will be entered into to ensure that standards are raised to world class levels, to increase access to markets and to contribute to the viability of certain capabilities," the departments said.

Further export marketing support would also be needed.

"Given reduced defence spend and the current state of the SADRI, consolidation of the local industry is both desirable and inevitable. This ranges from collaboration in specific areas to company mergers."

In terms of national defence support services, Cabinet approved that test and evaluation functions -- existing in a number of entities -- be consolidated into the Defence Evaluation and Research Institute (DERI).

This will reduce duplication, resulting in the sustainability of the national defence technology base.

The institute will be established through a Bill and will report to the Minister of Defence.