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Disarmament and Defence Industrial Adjustment in South Africa

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Disarmament and Defence Industrial Adjustment in South Africa Disarmament and Defence Industrial Adjustment in South Africa Stockholm International Peace Research Institute SIPRI is an independent international institute for research into problems of peace and conflict, especially those of arms control and disarmament. It was established in 1966 to commemorate Sweden’s 150 years of unbroken peace. The Institute is financed mainly by the Swedish Parliament. The staff and the Governing Board are international. The Institute also has an Advisory Committee as an international consultative body. The Governing Board is not responsible for the views expressed in the publications of the Institute. Governing Board Professor Daniel Tarschys, Chairman (Sweden) Dr Oscar Arias Sánchez (Costa Rica) Sir Marrack Goulding (United Kingdom) Dr Ryukichi Imai (Japan) Dr Catherine Kelleher (United States) Dr Marjatta Rautio (Finland) Dr Lothar Rühl (Germany) Dr Abdullah Toukan (Jordan) The Director Director Dr Adam Daniel Rotfeld (Poland) Stockholm International Peace Research Institute Frösunda, S-169 70 Solna Sweden Telephone: 46 8/655 97 00 Telefax: 46 8/655 97 33 Email: [email protected] Internet URL: http://www.sipri.se Disarmament and Defence Industrial Adjustment in South Africa Peter Batchelor and Susan Willett OXFORD UNIVERSITY PRESS 1998 Oxford University Press, Great Clarendon Street, Oxford OX2 6DP Oxford New York Athens Auckland Bangkok Bogotá Bombay Buenos Aires Calcutta Cape Town Dar es Salaam Delhi Florence Hong Kong Istanbul Karachi Kuala Lumpur Madras Madrid Melbourne Mexico City Nairobi Paris Singapore Taipei Tokyo Toronto Warsaw and associated companies in Berlin Ibadan Oxford is a registered trade mark of Oxford University Press Published in the United States by Oxford University Press Inc., New York © SIPRI 1998 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, without the prior permission in writing of Oxford University Press. Within the UK, exceptions are allowed in respect of any fair dealing for the purpose of research or private study, or criticism or review, as permitted under the Copyright, Designs and Patents Act, 1988, or in the case of reprographic reproduction in accordance with the terms of the licences issued by the Copyright Licensing Agency. Enquiries concerning reproduction outside these terms should be sent to the Rights Department, Oxford University Press, at the address above. Enquiries concerning reproduction in other countries should be sent to SIPRI. British Library Cataloguing in Publication Data Data available Library of Congress Cataloging-in-Publication Data Data available ISBN 0–19–829413–1 Typeset and originated by Stockholm International Peace Research Institute Printed in Great Britain on acid-free paper and bound by Biddles Ltd, Guildford and King’s Lynn Contents Preface ix Acknowledgements x Acronyms and abbreviations xii 1. Introduction: militarization, disarmament and demilitarization 1 I. Methodology 5 II. The economic effects of military expenditure and defence 9 industrialization III. A new security agenda 19 Table 1.1. The evolution of the South African arms industry 5 2. Militarization and the development of the arms industry 24 I. Introduction 24 II. The origins and development of the arms industry 24 III. Self-sufficiency 35 IV. The size and structure of the domestic arms industry 36 V. The economic significance of the domestic arms industry 40 VI. Conclusions 48 Table 2.1. Military expenditure and arms production, 1961–89 25 Table 2.2. The distribution of military expenditure by function, 26 1961–89 Table 2.3. Military industrialization: stages of development 27 Table 2.4 Arms production in the national economy, 1961–89 28 Table 2.5 The structure of Armscor, 1989 37 Table 2.6. Armscor assets and employment, 1968–89 38 Table 2.7. The top industrial companies, 1989 39 Table 2.8. Private-sector defence contractors, 1984 40 Table 2.9. Arms industry employment, 1961–89 41 Table 2.10. Arms imports, 1970–89 42 Table 2.11. Arms exports, 1982–89 44 Table 2.12. The trade balance in armaments, 1982–89 45 Table 2.13. Military research and development expenditure, 1977–89 46 Table 2.14. Patenting activity, 1977–89 47 3. The changing strategic, political and economic environment, 49 1989–94 I. Introduction 49 II. The changing strategic environment 49 III. The changing political environment 53 IV. The changing economic environment 62 V. Conclusions 66 vi DEFENCE INDUSTRIAL ADJUSTMENT: SOUTH AFRICA Table 3.1. Major economic indicators, 1989–94 63 Table 3.2. Public finance, 1989–94 64 4. Defence cuts and disarmament measures, 1989–94 67 I. Introduction 67 II. Defence cuts 67 III. Disarmament measures 69 IV. The economic impact 72 V. Defence cuts, arms production and the manufacturing 80 sector VI. Conclusions 83 Table 4.1. Military expenditure, 1989–94 68 Table 4.2. The distribution of military expenditure by main 69 programmes, 1989–94 Table 4.3. The distribution of military expenditure by function, 70 1989–94 Table 4.4. Domestic arms production, 1989–94 72 Table 4.5. Military research and development expenditure, 1989–94 74 Table 4.6. Arms industry employment, 1989–94 75 Table 4.7. Armscor and Denel: distribution of job losses, 1989–92 76 Table 4.8. Armscor: regional distribution of job losses, 1989–92 77 Table 4.9. Regional economic indicators, 1993 78 Table 4.10. Government expenditure by selected functions, 1989–94 79 Table 4.11. The South African arms trade, 1989–94 80 Table 4.12. Trends in arms production and total manufacturing output, 81 1989–94 Table 4.13. Sales in the electronics sector, 1989–92 82 5. Defence industrial adjustment, 1989–94 84 I. Introduction 84 II. Defence industrial adjustment in the public-sector arms 84 industry III. Defence industrial adjustment in the private-sector arms 101 industry IV. Conclusions 112 Table 5.1. Armscor procurement expenditure, 1990–94 88 Table 5.2. The South African arms trade, 1989–94 90 Table 5.3. Denel: vulnerability to defence cuts, 1992 91 Table 5.4. Denel arms exports, 1992–93 93 Table 5.5. Denel: turnover by source, 1992–93 94 Table 5.6. Denel groups: defence share in turnover, 1992–93 96 Table 5.7. Structure of the private-sector arms industry, 1993 102 Table 5.8. Sources of supply for domestic arms procurement, 109 1992–93 C ONTENTS vii 6. The changing security environment after 1994 113 I. Introduction 113 II. Recasting the security agenda 116 III. Regional security cooperation 120 IV. Peacekeeping 124 V. Arms sales policies 125 VI. Strategic doctrine 131 VII. The military backlash 135 VIII. Implications for the arms industry 137 IX. A historic compromise 139 Table 6.1. Military expenditure and armed forces in Southern 123 Africa, 1996 7. Defence industrial adjustment after 1994 141 I. Introduction 141 II. Political and institutional changes in the defence 142 establishment III. Defence policy and government policy on the arms 144 industry IV. Arms trade policy and the arms industry 146 V. Defence budget trends since 1994 150 VI. Defence industrial adjustment since 1994 154 VII. Conclusions 166 Table 7.1. Military expenditure, 1989–95 150 Table 7.2. The distribution of military expenditure by function, 151 1989–95 Table 7.3. Military research and development expenditure, 1989–95 152 Table 7.4. Major current procurement projects, 1995 153 Table 7.5. Denel exports, 1992–95 157 Table 7.6. Denel: international joint ventures, 1996 158 Table 7.7. Denel: composition of turnover, 1992–95 159 Table 7.8. Denel: financial performance, 1992–95 160 Table 7.9. Denel and private-sector defence firms: financial 160 performance, 1995 Table 7.10. Arms sales and exports, 1992–95 161 Table 7.11. Private-sector international joint ventures, 1996 162 Table 7.12. The South African arms trade, 1989–95 163 Table 7.13. Arms industry employment, 1989–95 164 Table 7.14. The structure of the defence market, 1992–95 165 Table 7.15. The structure of domestic arms procurement, 1992–95 166 Figure 7.1. Department of Defence: organizational structure, 1995 143 8. Strategies for conversion at the national level 167 I. Introduction 167 II. The costs of disarmament 167 viii DEF ENC E INDUSTRIAL ADJUSTMENT: SOUTH AFRICA III. The peace dividend 170 IV. Conversion 171 V. Refocusing R&D 186 VI. Conclusions 189 Table 8.1. Denel: diversification and conversion efforts 178 Figure 8.1. The costs of disarmament 169 Figure 8.2. Prospects for conversion 179 9. Summary and conclusions 191 I. Summary 191 II. Defence industrial policy issues 196 III. Concluding remarks 205 Appendix 1. SADF rationalization and restructuring measures 207 Appendix 2. Armscor organizational structure, 1992–93 209 Appendix 3. Denel organizational structure and diversification, 210 1992–93 Appendix 4. Background statistics 217 Select bibliography 223 Index 235 Preface The authors define the purpose of this book as being twofold: to provide a comprehensive empirical analysis of the wide-ranging adjustments that have taken place within South Africa’s arms industry during the country’s transition to democracy; and at a more general level to locate this process of defence industrial adjustment within the broader context of South Africa’s changing political, strategic and economic environment. It also attempts to place the South African experience in the context of broader debates about the economic effects of military expenditure and defence industrialization and the relationship between disarmament and development in the developing countries. Peter Batchelor and Susan Willett have extensive first-hand experience of the developing public debate and policy making in defence and security policy in the new South Africa. They examine the experience of the South African arms industry—the largest in any developing country—consequent on the process of disarmament undertaken in the country since 1989, drastic defence cuts and the transformed regional environment.
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