ARMSCOR’S STRATEGIC INITIATIVES

H.S. THOMO

CEO : ARMSCOR

CONTENT

1. Background to Armscor

2. Armscor’s Acquisition and Procurement process

3. The New Armscor Act

4. Service Level Agreement

5. Government Export Support

6. Defence Industrial Participation

7. Technology Exploitation Centre

ARMSCOR BACKGROUND

• Before 1992 Armscor had wide ranging powers to manufacture, sell, buy, import, export and to exercise control on the Defence Industry.

• After imposition of weapons embargo by UN (1977), Armscor focused on

establishing a local defence industry.

• In 1992 – Armscor’s manufacturing capabilities were grouped under a new industrial group (Denel) and NCACC was formed.

ARMSCOR BACKGROUND

• Acquisition organization of the Department of Defence (DoD)

• Test and Evaluation facilities for defence products and systems.

• Defence Quality Organization.

• Defence Industrial Participation for SA.

• Manage the disposal of excess, forfeited, redundant and surplus defence material.

• Commercial exploitation of Defence technologies.

NORMAL ACQUISITION

• In addition to SDP acquisition, Armscor places contracts every year on the local

defence related industry for:

- development,

- manufacturing,

- upgrading,

- maintenance and

- modernization of military

equipment.

This provides opportunities for SMME’s and other

BEE companies.

THE NEW ARMSCOR ACT

REASONS FOR REDRAFTIN THE CURRENT ACT

• Current Act is 32 years old and inconsistent with new SA

• Manufacturing capability of Armscor now move to Denel

• Export control now done by NCACC

PROGRESS TO DATE

• Workgroup formed represented by all stake holders

• All relevant document consulted (e.g constitution, other acts and government policies and practices, etc).

• Guidelines to the act completed and approved by both the Defence Staff Council and Armscor Board of Directors.

• Bill complete waiting to be approved

SERVICE LEVEL AGREEMENT

NEED FOR A SERVICE LEVEL AGREEMENT

PFMA requirement.

To be used by DOD to measure Armscor’s performance.

To be used by DOD to compare transfer payment to Armscor’s output.

To regulate relationship between Armscor and DOD.

CURRENT STATUS OF SLA:

Complete and waiting to be sign in the next few days by Armscor CEO and Secretary for Defence.

GOVERNMENT EXPORT SUPPORT

WHY IS IT REQUIRED

• Sale of arms and arms control are closely linked to government foreign policy.

• Currently no government support to Defence Related Industry for exports.

• South Africa as an arms manufacturing country in Africa.

• The size of South Africa compared to other countries which supply armaments.

• Capabilities of the Defence Related Industry.

GOVERNMENT EXPORT SUPPORT

WHAT IN BEING DONE

The Defence Export Support Board (DESB) has been formed and will be modeled along the lines of DESO of the UK.

• Members are:

Def. Sec. (Chairman),

Armscor CEO (Co-Chairman),

Chairman of AMD,

CEO’s of the big six namely; Denel, ADS, Grintek, Reunert, Vickers OMC and ATE/Aerosud,

Representatives from other government department; DFA, DPE, DTI and others.

INDUSTRIAL PARTICIPATION

• Industrial Participation / Counter-trade is a reciprocal trade phenomena and consists of various elements

• In the RSA Industrial Participation (IP) consists of two components:

- Defence Industrial Participation (DIP): which is Industrial Participation applied solely to the benefit of the Defence Industry.

- National Industrial Participation (NIP): which is Industrial Participation for the benefit of the non-defence industry (i.e. the rest of SA industry)

Direct DIP

Activities in which the defence industry participates in aspects of the equipment being acquired. For example:

- Design and development

- Manufacturing and/or Production

- Test and/or Evaluation

- Product/Systems integration

- Certification

- Commissioning

DEFENCE INDUSTRIAL PARTICIPATION

DEFENCE INDUSTRIAL PARTICIPATION

Indirect DIP

Business activities in which the defence industry benefits as a result of the acquisition. For example:

- Exports of components of the equipment being acquired.

- Exports of other defence equipment.

- Partnership and Joint Ventures.

- Business acquisitions.

- Collaboration in projects.

DEFENCE INDUSTRIAL PARTICIPATION

Technology Transfer

The defence industry acquire new technology and/or skills base. Examples are:

- Direct training and skills transfer

- Acquisition of product datapacks

- Technical assistance

- Publications and manuals

- Acquisition of licence agreements

SA INDUSTRIAL PARTICIPATION POLICY

Defence acquisitions

All foreign acquisitions or procurement of defence meteriel to the value of USD 10 million and above are subject to IP.

• Requirement is 100% IP or more.

• Normally split 50/50 or 70/30 between DIP and NIP.

Other government procurement

Form 1 Sept 1996 all other Government foreign procurements of USD 10 million or more require an IP commitment of at least 30%(e.g SAA/Boeing)

ARMSCOR’S DIP TO DATE

Defence Industrial Participation

Armscor’s DIP programme is in existence since 1988 and boast with an exemplary discharge record.

To date the result are as follows:

Contract No. Passed Credits

Active DIP: 13 R4 700 million

Pro-Active DIP: 9 R265 million

TOTALS 22 R4 965 million

The DTI-IP policy is only in existence since 1997.

NATIONAL INDUSTRIAL PARTICIPATION

National Industrial Participation (NIP)

Projects to the benefit of the non-defence industry. Examples in the SDP are investment project totalling +/- R24 billion in the following areas:

- Motor components.

- Gold chain products.

- Stainless steel plan (mainly downstream products)

- Power equipment.

OBJECTIVES OF IP IN SA

• Stimulate economic growth.

• Secure foreign investments.

• Generate additional exports.

• Secure technology transfer.

• Foster strategic international partnerships.

• Open global markets for SA companies.

• Retain technological skills base for the defence industry.

• Contribute to job creation.

• Foster Black Economic Empowerment development.

1. Corvettes (4x Meko A200)

- Steering gear equipment

- Gearboxes

- Surface-to-air missile systems

- 35mm gun system

- Radar and optronic equipment

- Communication subsystems

- Electronic warfare equipment

SDP BENEFITS TO INDUSTRY

2. Light Utility Helicopters (30x Agusta A109)

- Manufacturing licences for the A109 and A119

- Skills transfer and training

- Avionics and tooling

3. Lead in Fighter Trainer (24x Hawk)

- Health usage and monitoring system (HUMS)

- Electrical connectors

- Aircraft components

SDP BENEFITS TO INDUSTRY

4. Advanced Light Fighter Aircraft ( 9x 19 Bae/SAAB Gripen)

- Communication and electronic warfare equipment

- NATO Standard Pylons

- Power supply units

- Rocket artillery and ammunition

SDP BENEFITS TO INDUSTRY

SDP BENEFITS TO INDUSTRY

5. General

- Initial total DIP commitment: R14,6 billion (December 1999 @ R6,5/USD).

- Estimated total DIP commitment: R18,5 billion (April 2001 @ R8,20/USD)

- Total IP commitment: R104 billion (USD16 billion) now estimated at R131,2 billion.

STRATEGIC DEFENCE PACKAGE DIP DISCHARGE: 1 APRIL 2000 TO 30 JUNE 2001

(EXCHANGE RATE AS ON 25 JUNE 2001)

EQUIPMENT SUPPLIER CURR COMMITMENT COMMITMENT IN ZAR

ACHIEVEMENT IN ZAR

%

USD 1 = R8.20 USD 1 = R8.20 EURO 1 = R7.20 EURO1= R7.20

GRIPENS BAE /SAAB USD 808,049,501 6,626,005,908 208,333,587 3.14%HAWKS BAE SYSTEMS USD 680,341,667 5,578,801,669 635,357,846 11.39%

CORV PLATFORM G F C EUR 88,123,584 634,489,805 47,376,786 7.47%CORV COMB SUITE THALES EUR 371,332,167 2,673,591,602 1,011,444,524 37.83%

SUBMARINES G S C EUR 175,200,423 1,261,443,046 60,313,084 4.78%LU HELICOPTER AGUSTA USD 190,987,395 1,566,096,639 46,660,141 2.98%

TOTAL: 18,340,428,669 2,009,485,969 10.96%

TECHNOLOGY EXPLOITATION CENTRE

General

•Armscor and the SANDF have a bank of defence technologies developed over the years.

•Two years ago Armscor, in consultation with the SANDF, started commercialising some of these technologies.

•Armscor signed an MOU with DERA/DDA to tap into their technology bank for technology exploitation.

AIM

•To create wealth for South Africans through companies or commercial product.

•To create employment.

•To render technical assistance to SA companies.

PROTABLE X-RAY MACHINE

IDEAL FOR:

• Disaster aid

• Rural areas

• Battlefield hospitals

• Emergency situations

• Sports injuries

TORNADO LENS

SPECIFICATION:

Observes and capture video images over long distances (80m - 20km)

Has night observation capability

Total weight of 12kg excluding batteries and tri-pot.

Powered by 24V DC batteries with operational time of 10 hrs.

CONTAINERISED MEDICAL UNIT

• Insulated containers, ISO design.

• Air-conditioned surgical theatre. • Integrated power & communication system

• Automatic stand-by power facility

• Sterilization facility & steam generator

• 1000 liter water tank reservoir

• Separate shower and double sink

• X-ray facility

RUN-FLAT TYRE INSERT

SPECIFICATION:

Easy to replace with a split rim arrangement without need for specialized tooling.

Withstands a maximum loading of 4,5 tons.

Temperature resistance.