• ADF

Business Unusual: The Private Defense Industry


Indian Air Force AH-64E manufactured by TATA Boeing Aerospace Limited in India. This joint venture has established a new manner of increasing foreign sales through joint venture production which allows the end-user to benefit from industrialization experience and greater OEM economies of scale in terms of lifetime support and upgrades.



The first half of 2022 was dominated by the Russian invasion of Ukraine which in turn provided thorough insight into how everyone, including the major G7 powers (excluding the US), have evolved during the past two decades following the end of the Cold War into neglected arms development and manufacturing capabilities. Thanks to globalization, the majority countries which were beneficiaries of advanced homegrown military industrialization during the early 1990’s have become nearly totally dependent on foreign military supply due to globalized consolidation during an era when all nations naively believed that the world was entering a phase of peace, and that grand strategy warfare was something of the past. For that reason, which includes the likes of the US Department of Defense, military strategies and doctrine shifted towards fighting low-intensity wars countering global terrorism and insurgencies in far-reaching austere environments fighting predominantly low-tech adversaries. Enter 2022, and the whole world suddenly fell into a divide last seen during the Cold War between the then communist USSR alliance and the capitalist West. Within a matter of weeks, all military planners were studying the reckless Russian operations unfolding in Ukraine, while at the same time observing the resilience of the Ukrainian population to resist the vastly superior Russian aggressors. The main lesson learnt by everyone, including Russia and the Ukraine, was that no nation was prepared for the war and its global effects that unfolded within the territories of Ukraine. One of the main lessons leant so far is the critical importance of maintaining a functional domestic military industrial capability, and how vulnerable sovereign integrity becomes when such capabilities have been lost. A classic case in study in Africa is the near total collapse of the South African Defense Industry (commonly referred to as SADI), now only a shadow of its once capable reputation in armaments research and development up to as recent as a decade ago, thanks to political interference, targeted corruption, uncontrolled distribution of classified IP to competitors, and gross mismanagement (Read: 5th Generation Warfare: The Evolution of War beyond the controls of the Nation State).


To understand how the private defense industry works, and how it can be maintained as a sustainable strategic asset and deterrence for future conflict, we need to understand the two dominant factors distinguishing the military industry as for-profit corporations from any other commercial activities, namely:


- Guidelines for Military Brand Success; and

- Armament Systems Design Principles and Considerations.


Guidelines for Military Brand Success:

Throughout the years we have observed many new start-up ventures offering the ‘next best thing’ for fighting the so-called ‘wars of the future’. Some of these ideas were good, the majority not so good. The problem was that in the absence of any large-scale conflicts comparable to what we observe now as the Russo-Ukraine war, the global arms industry started influencing military planners (as a means of facilitating sales during times of peace) on how future wars would be fought based on current and future anticipated armament developments, rather than the traditional (and more reliable) method of the military providing requirement specifications to solve emerging capability gaps on the battlefield based on experiences gained. Consequently, many systems came into existence as temporary solutions to political restrictions instead of doctrinal deficiencies on the battlefield (such as single-use loitering munitions), and some systems just exist because some people know the right people responsible for signing off [for payment] on profitable defense ‘research and development’ projects. The reality is that in the global defense industry there is no such thing as corruption, but there are extensive responsibilities in terms of payments for facilitation fees, brokerage fees, sales commissions, referral fees, and consultation fees (all which adds up to inflating the final procurement costs).


USMC training with the Switchblade 300 (Inert/Practice) loitering munition system. Loitering munitions originated from a demand by US SOCOM to provide alternative rapid precision strike options to SF/SOF to bypass time consuming politically restrictive procedures implemented during the Obama administration to limit civilian casualties in Afghanistan. The system does not solve any doctrine deficiencies, and the tactical advantages of its capabilities are still being debated compared to other proven systems available in service.



During the height of the Cold War, arms development was mainly a privilege amongst the global superpowers constituting either NATO or the USSR alliance, with a few exceptions being South Africa (as a result of being subjected to an arms embargo while engaged in a multiple front low-intensity hybrid conventional-irregular war for nearly three decades), Brazil, Israel (also subjected to minor forms of sanctions while resisting aggression from its Arab neighbors), South Korea (bordering a hostile and nuclear armed North Korea while still being technically at war), Taiwan (resisting a growing threat of invasion by the PRC) and Turkiye (trying to keep the peace as a growing regional power bordering various countries currently engaged in conflict). Japan also maintains an advanced domestic military industrial complex, but not as a global supplier due to its self-imposed restrictions on arms exports (which might change soon). However, before the end of the Cold War, arms development used to be a privilege of the State, but after the end of the Cold War as government budgets got cut to reprioritize spending on social development and infrastructure development, opportunities arose for the privatization of arms development. It was also during this era where private funding became available for defense research and development (instead of government funding), and private corporations rapidly expanded its military technologies IP (intellectual property) assets as globalization of the arms industry evolved. What followed was the rapid decline of traditional State enterprises, with much of their IP being sold off to the highest [international] bidder, also associated with a major exodus of skilled and experienced engineers to better paying opportunities abroad. Basically, the decade between 1990 to 2000 could be considered the period of consolidation in the global arms industry, for what happened during that period shaped the current landscape of global arms development and [regulated] supply. The only global power (other than the USA), which retained its domestic multi-domain arms industry is France. Russia saw a major decline in new systems development for a period spanning a decade since the collapse of the USSR, but resumed research and development programs during the early 2000’s choosing to incorporate many Western off-the-shelf technologies in new systems to limit development costs.


So, fast forward into the present, and we find a situation where the global arms industry has become dependent on the mercy of only a few dominant enterprises, namely Boeing, Lockheed Martin, BAE, Rheinmetall, General Dynamics, Textron, Nexter, Thales, SAAB, etc. These multi-national corporations collectively dominate the majority private owned defense IP, the impact thereof being that if a new entrant to the private defense industry does not become part of the value chains of these extremely influential enterprises, the likelihood for success would be low. However, technology is a catalyst for constant evolution and improvement, and the science of warfare is also a constantly changing variable, why there will always be opportunities to enter the lucrative business of arms development within a limited scale. To be successful and sustainable over the long term requires a totally different business management mindset as traditionally applicable to the global consumer goods and services industry, and this is one of the major factors causing many good defense technology developers to fail, namely, inappropriately qualified management. To understand this better, we will explain three basic guidelines for brand success in the defense industry, namely:


1. Business edge over competitors:

2. Niche product offering:

3. Making money is not the primary objective:

(An example of alternative remuneration is the provision of company housing to employees, where the company owns the house as an asset reflected on its assets register (with associated tax benefits). If the monthly value of this arrangement equals $ 5,000 (for example), the benefit from this arrangement to the employee would be a saving of $ 5000 (whereas a $ saved equals a $ earned), and for the company, instead of paying $ 5,000/month additional as a salary to the employee with little to show in return other than employment, by providing housing of equal value the company now owns an asset that appreciates in value which can also serve as collateral when bridging finance is required for future production orders exceeding cash availability at the time).



A critical requirement for success in the private defense industry is long-term sustainability. In many cases, prospective customers value long-term sustainability as more important than product specifications. The reason for this is that defense systems in general have an anticipated lifespan of between 10 to 40 years, and therefore prospective customers need to be satisfied that the OEM (Original Equipment Manufacturer) will still be available during the product’s anticipated lifetime in terms of technical support, mid-life upgrades, and resupply when necessary in times of crisis. Also, a defense customer is more likely to procure newer variants of a proven system from the same OEM if the product fits the customer's capability needs instead of procuring from an alternative supplier. Again, South Africa is an example of a defense industry that was owned by the State but neglected into insolvency causing for most capital equipment and supporting systems in service with its armed forces becoming obsolete, with original OEM support abruptly discontinued due to lack of OEM capacity to fulfill its obligations. The consequences of such political negligence, as applicable to South Africa, is that it would be cheaper just to replace obsolete equipment with new foreign procured off-the-shelf equipment when compared to the costs of upgrading to a modernized baseline required to extend the current service life of existing hardware. The grounded SAAB JAS-39 Gripen fleet is an example of what happens when a customer neglects to upgrade its hardware periodically in line with OEM baseline developments. What further complicates the SAAF JAS-39 Gripen fleet serviceability is that the platforms are equipped with obsolete components which are not supported by the OEM anymore due to the OEM having migrated to sustaining modernized systems in use with its majority customers who are maintaining their fleets in line with OEM specifications. The SAAF variants also feature components which were produced domestically by OEM's (not SAAB affiliated) that do not exist anymore.

The TATA Boeing Aerospace Limited production facilities for the Indian Air Force and Indian Army AH-64E Attack Helicopters in India. South Africa would benefit much by partnering with Boeing to build AH-64E Attack Helicopters to replace its obsolete fleet of Denel Rooivalk CSH-2 combat support helicopters, and thus becoming a regional support center in Africa for Boeing helicopters to increase regional sales, and to revive the local defense industry (with US government support in terms of FMS and FMA financing). The costs to maintain and modernize a limited production batch of 11 [remaining of 12 initially procured] Rooivalk CSH-2 systems in service with the SAAF is not economically viable, especially taking into consideration that the OEM cannot guarantee remaining service life support, including sustainable supply of munitions and other unique mission systems.



However, as a result of the South African SOE's rapid decline (as primary OEM of the majority armed forces capital equipment), various opportunities arose for its largest privately owned competitor to expand its portfolio. However, this enterprise (name intentionally withheld), now South Africa’s largest privately owned defense services group, is successful and sustainable for the reason that defense products and services are not its primary sources of revenue. The group's sustainability is derived from its extensive international (the emphasis being on outside of South African government controls) real estate portfolio, and the sole purpose of its military sales is to expand its real estate derived revenue which in turn sustains its defense services portfolio between sales (which is far and wide competing within the global space). However, as a relatively small player within the international defense industry, it has also partnered with the likes of Boeing by becoming part of its value chain in emerging economies where South African defense products still enjoy relative success. However, what is important now for surviving defense manufacturers in South Africa to achieve success and sustainability is to diversify manufacturing infrastructure away from the South African political controlled environment to reduce political interference and effects of unfavorable political policies, especially now that the South African government is considered a supporter of Russia in the Russo-Ukraine war due to its damaging ‘neutral-but-biased’ foreign policy towards Ukraine.


Armament Systems Design Principles and Considerations:

The second differentiating factor which distinguishes the private defense industry from conventional business models, is the relevance of armament systems design principles and considerations. As previously mentioned, armament design follows user design specifications derived from actual problems that exist within the ever-evolving battlefield, and it is not a game of designing a product, and then adapting the means of warfare to conform to the product specifications. Armament design is a highly complex science, and it is much more complicated than the design principles applied to day-to-day consumer products. Basically, to understand how armaments are designed, we need to understand the different design phases, namely:

  • Phase 1: Prototype (the first attempt product designed to meet the prescribed user specifications. During prototyping, various models are built to various specifications to determine the ideal baseline specifications).

  • Phase 2: Baseline Specifications (the product version combining all the tried and tested specifications conforming to the desired user requirements to enable operational testing and certification. This phase includes final modifications and change orders to the point where the end-user is satisfied with the specifications to enter serial production).

  • Phase 3: Production Model (the end-user certified production model conforming to all user design specifications, with no further change orders).

During Phase 1 and Phase 2, the OEM needs to understand that the following principles and design considerations will be applied by the end-user before acceptance of the production model specifications, namely:


1. Is the system going to do anything different to the enemy compared to anything else currently in service?


2. What does the design offer to improve on other similar systems that are available and tested in terms of:

  • Added capability?

  • Simplicity of use?

  • Reliability?

  • Longevity of design in terms of future relevance?

3. Evolutionary, but not revolutionary. In other words, is the product a result of gradual evolution of design for improvement of an existing concept range rather than a radical change in design from anything currently in existence. What this implies is that evolutionary products are usually more successful in terms of sales and adoption compared to revolutionary products. Military procurement is still very much conservative in terms of adopting revolutionary designs, hence the reason why start-ups should focus on evolutionary designs (improvement of existing concepts) instead. Basically, from a revolutionary perspective, the first of a new concept is usually undesirable due to reliability concerns and not being proven yet, whereas from an evolutionary perspective, the newest version of an existing but proven older system is considered most ideal.


4. What is the field survivability of the system when used by low skilled operators with limited logistical support, and how simple is the system operation under these conditions?


5. The ‘perfect’ design comprises a balance of compromises between:

  • Weight,

  • Ammunition design,

  • Performance,

  • Maintenance requirements,

  • User experience,

  • Simplicity of design,

  • Durability,

  • Reliability under harsh field conditions,

  • Transportability,

  • Logistics, and

  • Costs of procurement and support over lifetime.

6. In terms of a weapons system, the ‘system’ implies:

  • Hardware,

  • Support Equipment,

  • Maintenance,

  • Training, and

  • Tactical Application Doctrine.

7. What problem does the system solve from a doctrinal perspective, and how does it solve the problem?


8. How evolved is the design in terms of new system induction with a credible end-user in terms of the following phases of induction:

  • Phase 1: Embedded

  • Phase 2: Accepted

  • Phase 3: Proven

9. Does the system fit the current end-user doctrine, and if not, what are the requirements to achieve integration into existing doctrine, or does the system necessitate any doctrine changes?


10. How complex is the system? In other words, more components equate to increased complexity in terms of operability, maintenance, technical support, logistics, and costs. These factors usually constitute the metrics for measurement of design quality.


Other Considerations:

The last major obstacle to achieving success as a supplier in the defense industry is access to funding, but more specifically, financing options for prospective customers to purchase your products. At present, governments all over the world are leaning towards government-to-government funding mechanisms, and the traditional method of governments dealing directly with international arms suppliers are starting to decline. One of the reasons for this is due to major international arms procurements being more political than economic, and by following a government-to-government approach allows both the purchaser and the seller to renegotiate more favorable trade agreements at national level to the benefit of both economies since the cost of initial capitalization offers great leverage at the political level to negotiate/renegotiate other trade arrangements not necessarily related to defense. However, large off-the-shelf purchases from foreign suppliers also require guarantees to the end-user that the capital equipment procured will receive lifetime support from its OEM and its regulatory government (who is responsible for approving exports of controlled technologies). It is for this reason why the United States, United Kingdom, Israel and France are presently dominating the international arms industry due to their respective governments' commitments to ensuring that beneficiary nations are always rewarded over the long-term for purchasing defense hardware from their respective industries. The implications of such high-level support means that a beneficiary nation is not only purchasing weapons systems, but they are in fact also 'purchasing' protection from the respective [supplier] governments. Sweden and South Africa are examples of advanced defense technology developers who are subject to governments that do not understand the importance of maintaining domestic defense industrial capabilities, why SAAB of Sweden is struggling to sell its advanced technologies globally. The SAAB JAS-39 Gripen system is an example of how an extremely capable weapons system is being killed by lack of government support in facilitating government-to-government sales, to include undesired political interference at times. The result over time is that SAAB has lost the edge in successfully marketing its JAS-39 Gripen E to prospective customers, and due to the rapid rate of US government funded R&D into the Lockheed Martin F-35 Lightning II program to achieve continuous milestone successes, along with the continued advancement of the older F-16 system into the 4th Gen Plus F-16 V Block 70/72, the SAAB JAS-39 Gripen E/F cannot effectively compete against the economies of scale offered by the US competitor systems anymore. Looking at 2022, a major hindsight failure for SAAB was the failed bid by Ukraine to license manufacture the SAAB JAS-39 C/D Gripen in Lviv, Ukraine, which was abruptly halted when Russia annexed Crimea, mainly due to Swedish Government indecisiveness in approving the go-ahead for technology transfer. The Government of Ukraine confirmed during 2022 that SAAB was still a contender to provide frontline light multi-role fighters, but in reality the proven F-16 systems from the US (along with improved US government support) would benefit Ukraine more in the long-run. Unfortunately, the only means of remaining relevant in the arms industry under such restrictive economic conditions is to gradually diversify risk away from the traditional [domestic] manufacturing base by establishing production facilities in the countries where the host governments are more favorable to support continued future sustainability and development. SAAB commenced with diversifying its production base away from Sweden through partnering with Boeing to win the USAF T-X contract to supply the newly developed Boeing-SAAB T-7A Red Hawk as a replacement for the aging USAF Northrop T-38 Talon trainer. SAAB also unsuccessfully attempted to sell its SAAB JAS-39 Gripen E/F to Canada with full production and technology transfer, but unfortunately SAAB cannot compete against the Lockheed Martin F-35 Lightning II which enjoys full US Government support. Lastly, there is also a belief that government-to-government arms procurement minimizes the risks for corruption. Unfortunately, this belief is much debatable, and better left for another discussion.


South Africa, on the other hand, is a major lesson to be learnt in how to destroy a capable defense industrial capability in a relatively short period of time. The main causes for failure based on the South African experience are as follows:


1. Political Interference:

The most damaging factor to the domestic armaments industry in South Africa was the post-1994 leftist vs right-wing political debates regarding the necessity of maintaining a domestic military industrial complex. From a leftist perspective, the South African arms industry was not observed as a strategic asset for enabling the export of high-value manufactured goods as a source of foreign currency, but rather a remnant of the pre-1994 'apartheid' political dispensation. The first mistake made by the post-1994 political dispensation was to add a negative political label to the arms industry, consequently disregarding the value that an advanced arms industry offers as a tool for reinforcing and extending political power. In general, the arms industry is a business with no political preferences, similar to how general commerce has no direct political affiliation. The right-wing politicians, however, favored South Africa producing its own capital equipment requirements, while at the same time increasing foreign sales to increase foreign earnings which in turn supports growth in the economy.


Shortly after the political transition period post-1994, the majority leftist ruling party members demanded a gradual demilitarization of both the armed forces capabilities, to include the defense industry, which was at the time still considered 'white dominated', and by no means could the new government see the strategic value and importance of maintaining a [regulated] domestic defense industry in expanding South African interests abroad. This was partly fueled by the ruling party's foreign sponsors during its period as a revolutionary movement, why immediately after 1994, the SANDF became beneficiary to foreign 'military advisory training teams' embedded in its structures to guide and supervise the integration of all statutory (SADF, TDF, VDF, BDF, CDF) and non-statutory forces (MK, APLA) into the South African National Defence Force (SANDF). It was during this period when the SANDF was 'rationalized' into a "non-offensive defence" force (Reference: Disarmament and Defence Industrial Adjustment in South Africa, SIPRI, 1998), having lost much of its pre-1994 SADF specialized offensive capabilities (in addition to having lost the whole of its SOF capabilities in the form of 32 Battalion by 1993, which is comparable to losing the 75th Ranger Regiment in US Army terms). During this transformation period the SANDF was inflated in personnel numbers to accommodate all integrated personnel, and to reduce the unsustainably high manpower, the majority experienced SADF personnel were retrenched via severance packages and early retirement. This phase lasted nearly the whole of the 1990's, and during this period the majority primary equipment R&D programs were either cancelled or delayed, with payroll expenses being prioritized. At the same time, 'racial inequality' was used as the perfect justification by the political government wanting the so-called dominant 'white image' changed in the defense industry through expedited affirmative action policies (since it was government owned entities), forcing the inclusion of inappropriately qualified and inexperienced ruling party affiliated members (referred to as 'cadres' by the ruling party) to be given formal employment in inflated management positions which were unsustainable on the payroll of enterprises struggling to maintain solvency without government funding.


When the Mbeki administration came into power during 1999, it was concerned about the influence the domestic military industrial complex was exercising on South African foreign policies via the then Department of Foreign Affairs (renamed DIRCO after exposure of its politically misleading tactics during the 1990's), especially when he faced humiliation during the Mandela administration as the then Deputy President, when South Africa was identified as a supplier of various armaments shipments to UNITA after 1992 by various defectors and captives who served as senior officers in UNITA during that period. UNITA failed to gain the majority vote during the 1992 general elections, and consequently returned to civil war as the belligerents shortly after its failed elections bid in Angola. The UN Sanctions Committee on Angola later found that during 1997, UNITA received up to 50 flights per month originating from South Africa, which then drastically reduced by 1998 as these activities became more exposed to public scrutiny and foreign oversight by institutions such as SIPRI and HRW (and any other pseudo NGO's manipulated through government funding to promote narratives). The majority supplies were managed via its diverse international proxy network originating from the era of 'sanctions busting', to include characters such as the convicted Russian arms dealer, Viktor Bout. However, what the South African supply network to UNITA also exposed was the large scale involvement of the diamond mining industry since UNITA paid for its supplies in diamonds (below international market value, and free from regulatory controls usually associated with conventional mining operations), with the general supply chain leading to Brussels from South Africa via London. In short, reckless activities by the South African arms industry eventually contributed towards its expedited 'adjustment'.


However, during the Mbeki administration, the South African government implemented various reforms to tighten control over its foreign policies, especially as exercised through the influence of the military industrial complex. As the regulatory oversight framework improved and foreign sales increased, the number of experienced [white] employees were reduced to make space for affirmative action appointments enforced by stricter government employment regulations, leading to profits being spent on increasing payroll benefits instead of reinvestment into the business models to improved future revenue sustainability between sales. Gradually, the top management structures were filled with inexperienced politically connected 'cadres', and the South African defense industry (state owned) became an employment rewards program for continued political loyalty by its members. Based on the feedback provided by the last experienced [white] employees responsible for managing primary development projects, working conditions became unbearable due to a culture of political toxicity within the state owned enterprises, why the majority decided to leave for better opportunities in the Middle East (KSA, UAE). As sales declined due to reduced investment into new R&D and product improvements, foreign customers started shopping elsewhere, consequently ending in constant government bailouts to sustain these enterprises as 'strategic assets' while enabling the expansion of politically connected cadres to benefit from extracting tax payer funds via corrupt supplier tenders. The same model was applied to the South African national carrier, SAA, over the same period of time which resulted in the total collapse of a once profitable airline. During the Zuma administration (2009 - 2018), which is also better known as the period of 'state capture', Denel Land Systems appointed a sub-contractor, VR Laser Services, as the single source contractor for armored vehicle manufacturing. The appointment was for a 10 years period, but it was found to be illicit due to the contract award being done as a result of political connections rather than performance and capability. This agreement drew the attention of whistleblowers who were concerned about the ability of VR Laser Services under its post-2013 leadership to perform the highly complex steel fabrication, especially after Denel Group purchased a specialized armored vehicle manufacturer, LMT, for the purpose of having the required capacity to produce the Badger IFV. VR Laser Services was eventually liquidated under questionable circumstances. The project was initially awarded to Denel Land Systems during 2013, and to date the SANDF had already paid R 7,6 Billion (US$ 440 million) towards a total program cost of around R 16,2 Billion (US$ 930 million) for 244 units consisting of 5 different variants (Section, Mortar, Command, Missile, Fire Support) to modernize the mechanized infantry forces of the SA Army.

Project Hoefyster, the South African Army requirement for the replacement of its aging Ratel 6x6 range of IFV's with the modular Badger 8x8 IFV based on the Patria design. The model illustrated here is the final Section (Squad) variant baseline specifications.



This program, however, is the product of more than 10 years' research and development prior to the production contract award in 2013, and due to the demise of DLS' capacity as the primary contractor, the SANDF is on the verge of cancelling the contract (with penalties) due to DLS' inability to guarantee deliveries by 2026. Furthermore, DLS still has not finalized Stage 1: Production Baseline Development for the Section (Squad) variant yet for reasons relating to lack of funds, lack of skilled personnel, and obsolescence of critical sub-systems caused by a program being a decade late. The consequences of Project Hoefyster is that past and prospective customers have lost total faith in Denel to deliver on any major capital equipment, why Denel Group is failing to gather any foreign orders. In the mean time, the SANDF was considering reallocating Project Hoefyster to an alternative manufacturer in South Africa, which unfortunately does not exist. The consequences of such a move would also cause for Denel's bank guarantees to be called up, which would immediately result in total liquidation of Denel's assets by the affected banks. This would consequently end the South African government's domestic arms manufacturing capabilities as OEM of the majority SANDF hardware, why this eventuality is unlikely to realize.


2. Intellectual Property Misappropriation:

Misappropriation of classified intellectual property (IP) is one of the major causes for Denel Group's eventual failure. The main problems caused by IP misappropriation is that both past and prospective customers lose faith in an OEM if it fails to secure the confidential data relating to the advanced weapons systems it has/intends to procure for fear of such data falling into the hands of its adversaries. The following list summarizes the most prominent [exposed] incidents relating to the unintended loss/theft of Denel controlled IP:


(a) 2018: One of the major [alleged - still under investigation] corruption losses sustained by the state arms manufacturer, Denel, is the [alleged] unlawful transfer of classified missile IP to the Saudi Arabian Military Industries (SAMI) during 2018. The incident was exposed by Denel employees after a February 2018 meeting with SAMI representatives at Denel Group facilities, after which senior management staff and around 20 senior missile technology engineers left the services of Denel for direct employment with SAMI. Based on current evidence suggesting probable cause, it is suspected that the extent of the unauthorized transfer of missile technology data relates to the following Denel Dynamics systems:

  • ZT-6 Mokopa: Air-to-Ground laser guided Anti-Tank missile. Also capable of being ground- and ship launched, and can be adapted as an Anti-Ship Missile (ASM) with 10,000 m operational range.

  • ZT-3 Ingwe: Laser beam riding anti-tank guided missile (ATGM), 250 m - 5,000 m range.

  • Umkhonto: Short- to Medium Range Surface-to-Air Missile (SAM). 20 km, 30 km and 60 km ranges in three different variants.

  • V3-E A-Darter (Agile Darter): 5th Generation short range infrared homing air-to-air missile (AAM), 22 km range.

  • Marlin: Active radar homing beyond visual range air-to-air missile (BVRAAM) with 100 km range. Can also be developed as a surface-to-air missile (SAM).

  • Umbani: Precision guided glide bomb kit for NATO Mk 81, Mk 82, Mk 83 free-fall bombs with 40 km, 120 km, and 200 km range options.

  • Cheetah C-RAM: Radar guided Counter-Rocket, Artillery, Mortar (C-RAM) short range air defense system designed for integration with the Oerlikon Skyshield Very Short Range Air Defense (VSHORAD) system.

Some of the concerning details which emerged in the investigation suggests that network security protocols were ignored by allowing the SAMI delegation to connect unauthorized devices to the Denel Group network, which was identified as the method how the delegation got access to the classified missile data packs (technical specifications, drawings/blueprints, test results), and how they left Denel facilities with the classified data in hand. This was revealed after junior members in Denel were instructed by the senior members (now in SAMI employment), to download all related data packs which were then transferred to the SAMI delegation's devices. This in fact all occurred after the initial meeting on February 19, 2018, ended abruptly due to the SAMI delegation refusing to sign a compulsory non-disclosure agreement (NDA) as a condition prior to being allowed access to any information. Based on confidential information shared by Brazilian Air Force officers with knowledge about the A-Darter joint venture development with Denel Dynamics during that period, this incident (along with major concerns about overall Denel mismanagement) was considered the final cause for cancellation of the Brazilian Air Force interest in the A-Darter development, and why Denel Dynamics has lost all credibility for any future partnership developments due to the high associated risk of development data being lost/stolen/misappropriated by Denel staff for personal gains. Of most concern is how exposed Denel data storage protocols are, allowing for individual members of the organization to access complete [top secret] data packs without proper audit trail procedures. Although this incident is under investigation, it is very likely that nothing will come from it as an attempt to avoid sharing of embarrassing details how the incident transpired, to include avoiding any written record of the incident which may count against future prospective sales, and to avoid any political embarrassment while preparing for the next presidential elections in 2024. This breach also caused for top secret SANDF critical systems data to be exposed to unintended foreign analysis.


(b) 2012: Denel Dynamics (South Africa) engages in a joint venture with Tawazun Holdings (UAE) to create Tawazun Dynamics (Denel: 49%, Tawazun: 51%). The original intention of the JV was for the UAE to develop a precision guided munitions manufacturing and integration capability for the Air Force of the UAE based on Denel Dynamics' products IP and development experience. However, through a complicated series of rebranding and consequent IP transfer events after the initial industrialization milestones of Denel Dynamics products in the UAE were achieved, Tawazun Dynamics became Barij Dynamics, and Barij Dynamics transferred all products IP to its successor Halcon during 2017 (independently registered juristic entity), which is a subsidiary of another company, EDGE Group, which is owned by Tawazun Holdings (UAE), Denel Dynamics' original JV partner in Tawazun Dynamics. During all the legal entity changes that followed after the various UAE entities acquired the IP they were after, Denel Dynamics was excluded from the original joint venture agreement terms and conditions, which in effect became void. During the [suspected] SAMI IP theft investigation by the SIU in South Africa, it was determined that the UAE transfer was done under the disguise of a letter signed by a senior executive that was implicated in the [suspected] SAMI IP theft incident, who is now employed by SAMI in Saudi Arabia. Of further concern was the number of ex-Denel employees that were employed with EDGE and Halcon in the UAE (directly and indirectly). During IDEX 2021 in Abu Dhabi, Halcon revealed its SkyKnight "first UAE designed and manufactured counter-rocket, artillery, and mortar (C-RAM) missile system" which can be integrated with the Oerlikon Skynex Air Defense System.

Halcon SkyKnight C-RAM



Denel Dynamics Cheetah C-RAM



Although the Halcon SkyKnight missile is slightly larger than the Denel Dynamics Cheetah C-RAM, the missile system was developed by the original Denel Dynamics Cheetah C-RAM development team (who was not employed with Denel Dynamics anymore), suspected to be based on the Cheetah C-RAM data with similar specifications, and it is also no coincidence that an ex-Denel Dynamics engineer who was part of the Cheetah C-RAM development team, is now employed with EDGE Group, the major shareholder of Halcon. However, at the heart of these developments we find Rheinmetall AG (Germany) who partnered with EDGE Holdings (UAE) to "develop" a short-range missile system that can be integrated with its existing Rheinmetall Air Defence (Switzerland) Oerlikon Skynex Air Defense System, using munitions manufactured by Rheinmetall Denel Munitions (South Africa) in which Rheinmetall AG owns a 51% majority stake. During the original Denel Dynamics Cheetah C-RAM development (which pre-dates the Halcon SkyKnight C-RAM by at least 2 years), all these Rheinmetall subsidiaries were involved with the original development for the exact same reasons. However, what Rheinmetall realized in South Africa was that a critical system technology they required to expand their product capabilities was being compromised by gross mismanagement in Denel Group, along with South African government incompetence and political interference, why Rheinmetall (as a partial IP owner with Denel Dynamics) had to diversify its risks away from South Africa's Denel, and consequently partner with the UAE to obtain supply stability in the desired C-RAM system. This decision by Rheinmetall might also explain the change in naming protocols from Oerlikon "Skyshield" (in partnership with Denel Dynamics) to "Skynex" (in partnership with Halcon/EDGE) to avoid legal liabilities, since both systems are theoretically the same.


(c) 2010: Israeli intelligence services, Mossad, obtained stolen South African anti-tank missile technology data packs, and consequently returned it to its South African counterparts for investigation. Two unidentified South African citizens were arrested years later under a veil of secrecy as an attempt to cover up the incident to avoid international embarrassment, as well as to limit prospective foreign buyers (especially in the (Middle East) from knowing that the top secret missile technology was already compromised. The concerning details that followed was that the relevant data packs were offered to unidentified Israeli businessmen by individuals connected to the manufacturer, Denel Dynamics. The Israeli citizens accepted the offer, and handed the data packs over to Mossad for analysis. According to the details of a cable 'leaked' to Al Jazeera in 2015, the data packs belonged to the ZT-6 Mokopa: Air-to-Ground laser guided Anti-Tank missile (which can also be used as an anti-ship missile). This leak, however, was most probably done intentionally as a means to deter Middle Eastern (Arab) customers from purchasing the weapons system since it is compromised by Israeli intelligence services (assuming that the relevant data packs are being studied by Israeli defense intelligence). The data packs for this missile system was also indicated as part of the suspected unlawful SAMI data transfer incident of 2018. No foreign nationals were prosecuted for this incident. Of the two South Africans prosecuted, one accused was convicted and sentenced to 5 years imprisonment, and another became a state witness and walked free subject to a 5 years suspended sentence and a R 500,000 (US$ 45,000) fine. During this incident, the government attempted (via its security cluster), to hide the details of this incident from the public through an attempt to draw the local media's attention away. Unfortunately, this incident could not be contained when the details were [probably intentionally] leaked to a foreign news agency as "leaked Mossad cable", which resulted in a thorough investigation.


(d) 2009: During a 2010 testimony given at the US-China Economic and Security Review Commission Hearing about China's emergent military aerospace and commercial aviation capabilities, it was reported that the PRC had developed a 'new' short-range air-to-air missile (SRAAM) "influenced by the South African Denel A-Darter short-range AAM". This testimony was given in response to US intelligence that the Chinese had approached Denel around 2009 (based on information confirmed by various insider sources at the time) to 'co-operate' on the A-Darter development. The US conveyed their concerns to Denel, who supposedly investigated the matter, and in an official response confirmed to US authorities that Denel was in fact approached by Luoyang (developer of the PLAAF PL-10 SRAAM system), but that Denel had declined the Chinese offer due to the business case not being considered profitable. At the time, the Denel A-Darter SRAAM was at a mature level of development (pre-Brazil partnership).

Denel Dynamics V3-E A-Darter (version: 2018)



However, the Denel Kentron A-Darter was designed in response to a SAAF requirement in 1995 to replace the V3-C U-Darter, a SRAAM suspected to be a domestic 'upgraded' version of the Rafael Python-4 SRAAM from Israel (since it was integrated on the newer Denel Cheetah-C, which had much commonality with the Israeli IAI F-21 Kfir). Therefore, the V3-C U-Darter supposedly became the design starting baseline for what then became the V3-E with major design improvements, including thrust vectoring. The Chinese, however, also had experience with the Rafael Python-3, having license built it as the PL-8 for use by the PLAAF. During 2009, the PLAAF was pursuing a replacement for its aging PL-8 (Python-3) SRAAM which was being developed as the PL-10. The Denel A-Darter might have been a consideration, but that is not the design which the PLAAF was after, why we think the Chinese were in fact after the IRIS-T which was just inducted as an 'intermediate solution' by the SAAF on its newly delivered SAAB JAS-39 C/D Gripen fighters until Denel Dynamics had finished development of the V3-E A-Darter (still an unproven and non-certified system at the time). What we need to understand is that the PLAAF defense strategy is to effectively counter the most modern NATO systems available at the time, and IRIS-T is a proven NATO system based on the Soviet Vympel R-73, a far superior AAM compared to the Rafael Python-3. The PLAAF is equipped with large stocks of Soviet Vympel R-73, which was still its primary SRAAM at the time.

Diehl IRIS-T



Looking at the Luoyang PL-10E that entered production in 2013, the design resembles more commonality with the Diehl IRIS-T design and performance than it has in common with the Denel Dynamics V3-E A-Darter. The so-called 'leaked' images of an A-Darter inspired PL-ASR (which became the PL-10E) resembles the makings of a disinformation campaign to divert attention away from the possibility that China might have been given access to the IRIS-T via a partner nation. This all happened around the same time period that South Africa was accepted into the BRICS Forum (alongside Brazil, Russia, India, China), and the ruling party (under leadership of the Zuma administration) in South Africa was implementing reforms to push South Africa towards an eastern alliance, away from the traditional West. This, along with the fact that China has a long-standing military heritage relating to the ruling party dating back since 1962 when the PRC trained the first military recruits for the ruling party's armed wing, uMkhonto weSizwe (MK), which was engaged in resisting the South African government at the time. Also, Diehl was involved with various test firings of the IRIS-T system at the Denel Overberg Test Range, South Africa, for a period spanning nearly a decade. Whether there were any [proprietary] data breaches during this period is unknown, although covert trading of armaments specifications amongst common interest nations are not uncommon. Both Argentina and Taiwan were known for trading foreign procured missile systems components with the pre-1994 South African government during the arms embargo period in exchange for other technologies possessed by the South Africans. Why would anything change after 1994?

Luoyang PL-10E 5th Generation SRAAM in service with the PLAAF, which also equips the Pakistan Air Force JF-17's and J10's. The tail mounted control fins are of Chinese design. The most critical aspect about this missile system is that it is 100% Chinese, and not a copy of any other existing SRAAM. The development of this system proves the current Chinese R&D capabilities having evolved beyond reverse engineering, and the purpose of obtaining foreign competitor systems data is only to test own developments for comparison and improvement. The Denel v3-E A-Darter is a product of various foreign sourced components merged together, why it is not a suitable system for the PLAAF.



3. Compromised Sales Culture:

Irrespective of the product, a business is only as effective as the people representing the brand to prospective customers. The arms industry is no different. Apart from the most common complaints about dealing with South African suppliers relating to unprofessionalism during negotiations, arrogance, and challenging after sales support during warranty claims for defective/incomplete equipment caused by poor quality assurance procedures during shipment dispatch to the customer, the following events highlight major turning points (for the worse):


a. 2015: When the South African government (via its Denel Group SOE mechanism) purchased all BAE Systems shares comprising its total Land Systems South Africa (LSSA) stake, BAE Systems pitched the RG range of combat vehicles as the most beneficial part of the deal to confirm the sales. The business case presented by BAE Systems was quite valid, and under the right conditions the market assessments provided by BAE Systems to Denel Vehicle Systems (DVS) had much validity. However, immediately after the transaction was concluded, Denel Group suffered from restrictive cash-flow as a direct result of the purchase, and it sent its sales representatives to the Middle East in an attempt to generate earnings from the newly acquired products gained from BAE Systems LSSA. What followed was a major act of irresponsible desperation when the IP for the most valuable asset in the newly acquired DVS portfolio, the RG-35 (N35 designation for the production model), was sold below value at US$ 16 million to NIMR, a subsidiary of the UAE government linked Tawazun Group, whereas the BAE Systems sales projections to DVS was estimated at around US$ 315 million over the period 2015 - 2021, which proved to be a valid figure.

BAE Systems RG35 family of MRAP vehicles. Denel Land Systems obtained the IP for this range of vehicles during the BAE Systems LSSA shares purchase, and then sold it to NIMR (UAE). It is now designated the NIMR JAIS family of MRAP vehicles.



However, what was later described by members of the banking sector that participated in the initial sales negotiations in the UAE, the Denel representatives' actions were best described as 'desperate', and far from anything professional. However, the deal raised suspicions for the reason that NIMR was supposed to become an equity partner with DVS for the joint venture production of various DVS systems for the MENA market, which then concluded in NIMR becoming the sole owner of the N35 intellectual property. However, during November 2015, Tawazuun ordered the production of 100 N35s at a cost of around US$ 92 million to be delivered over a period of two years to the armed forces of the UAE. Unfortunately DVS failed to deliver the last 30 units due to liquidity problems. Eventually, the Denel employee who signed off the initial IP sale resigned his position with Denel Vehicle Systems to become the CEO of NIMR UAE. This was also the last order Denel received from the Middle East for any of its armored vehicle systems, and it also lost any further production opportunities for the N35 for its customer NIMR, now the IP owner for the N35 (JAIS). As Denel's financial situation deteriorated, it also used funds ring-fenced for the production development of the South African Army's Project Hoefyster Badger IFV's to sustain its business operations. This transaction was initially investigated for possible misappropriation of assets, but was concluded to be just irresponsible business practice to acquire temporary relief for growing liquidity problems.


b. 2000: Denel was awarded an Indian Army tender to supply 1,000 NTW-20 anti-material rifles, along with 398,000 rounds of ammunition. The tender was brokered for the supply of 700 units by Denel (South Africa), with the remaining 300 units to be manufactured under license in India. In 2005, the Indian government blacklisted Denel on the grounds that it had paid kickbacks to the value of 12,75% of the total contract value to Varas Associates to facilitate the contract award. The investigation lasted 13 years, and during 2018, the Indian government lifted the ban on sales imposed on Denel Group to tender on future Indian armed forces contracts. Of the 1,000 NTW-20's ordered, only 400 units were inducted by the Indian Army, with the remaining units being placed on hold. Following arbitration proceedings through the Supreme Court, the Indian Ministry of Defence was instructed to pay US$ 100 million to Denel during 2018. For reasons not justified by Denel management, the US$ 100 million reward was waived which raised concerns since Denel was in desperate need for cashflow at the time (although it was suspected that the lifting of the ban only followed after Denel declined acceptance of the award), and since then there has been no further dealings between India and Denel Group. The problem caused by this transaction is that in desperation to confirm a large order with the Indian Army, Denel sales representatives allowed for payments to be made to Varas Associates (registered in Isle of Mann) under the payments heading 'Technical Assistance and Consultancy', which under Indian anti-corruption laws are considered illegal, consequently exposing Denel to criminal prosecution. In fact, under Indian defense procurement laws, OEM's may not offer any items to the Indian Armed Forces via any intermediaries.


4. Non-existing Succession Planning:

Organization culture and hierarchy is still the achilles heel of the majority defense enterprises in South Africa. To understand the reasons, we need to understand the heritage of how these 'corporations' came into existence, especially while being subjected to an international arms embargo. During the 1970's, South Africa was in a desperate situation to counter an imminent threat of encirclement by its Soviet sponsored enemies while being equipped with obsolete British supplied military hardware and doctrines. To mitigate the risks it faced, especially when it became clear that the UN was to pass a resolution imposing strict sanctions and an arms embargo against South Africa, the government procured as much modern equipment as it could, predominantly from France, as an attempt to modernize the armed forces. The challenge, however, was that much of these new hardware were not fully matured in terms of development, and South Africa had neither the scientific- nor industrial capabilities to continue development of immature technologically advanced systems to meet South African military requirements. When international sanctions finally came into effect during 1977, not all of the new hardware procured were delivered on time. The only option the government had was to expedite domestic industrialization capacity required to maintain and enhance current hardware, as well as to design and develop new technologies to meet major capability gaps within the armed forced. To achieve this in the shortest period of time, South Africa recruited skilled engineers from predominantly France, Belgium, Germany, Yugoslavia, Israel, and the US to develop the production technologies required to develop the defense technologies (for in the defense industry, you first need to develop the specialized production technology required to develop, test, produce and maintain the desired defense technologies before defense technology development can commence), via various covert mechanisms controlled by Armscor, the South African government's primary arms development company established in 1968 in response to the UNSC arms embargo. These engineers arrived in South Africa with full government protection and family relocation support, and most were paid up to 10x more than what they earned in their countries of origin, and much more compared to the South Africans assigned under their supervision. The program was a success, and soon (with the covert assistance of a few sympathetic Western nations), South Africa started producing advanced military hardware at a rapid rate which were immediately absorbed into the armed forces, and consequently deployed into operational use in the then South West Africa (Namibia), and southern Angola to fight communist forces in a hybrid unconventional/conventional war which included Cuba and the Angolan FAPLA as adversaries under guidance of USSR advisors, while at the same time assisting the then Rhodesian government in fighting a USSR sponsored insurgency directed from both Mozambique and Zambia. At the time, the Rhodesian government was subject to the same restrictions as imposed on South Africa. However, when Rhodesia ceased power to a majority democratically elected government, which then became the state of Zimbabwe, much of the Rhodesian defense industry was absorbed into South Africa. Initially the idea was to enable skills transfer between the foreign engineers and their South African counterparts acting as apprentices, which did provide results, but due to the high levels of secrecy maintained in these projects, the majority of developments were dependent on the individual knowledge of key personnel involved with the projects. Succession planning was never a major consideration, and the associated risks were assumed to be too high to expand the scope of involvement and skills transfer necessary to achieve project automations without dependence on key personnel. By 1989, South Africa was planning its withdrawal from Angola and South West Africa, and immediately all defense funding were ceased when the national defense budget was cut to a third of its war time funding. This caused major job cuts leading to a large exodus of highly skilled engineers being absorbed into foreign [competitor] defense companies due to a lack of opportunities in South Africa while the political system was evolving to a democratically elected society. Some of these engineers started their own defense companies, with many having survived until now, but none having grown into major international market share suppliers. As funding further dried up, the majority state owned projects were privatized, eventually leading to major consolidation of the surviving defense corporations under one umbrella company, Denel, as a means to save costs through reducing overheads caused by operating costly parallel support structures. Initially this worked well, especially when the Denel Group management was still considered competent, and the company started producing profits from large international sales. The performance of Denel Group was good (as a 100% state owned enterprise), until South Africa engaged in a major arms procurement program during the late 1990's to modernize the Navy and Air Force. One of the primary suppliers selected to supply new fighter aircraft systems to the South African Air Force was BAE Systems (also acting as the agent for SAAB at the time). BAE Systems was later implicated in major corruption charges involving the payment of millions of US$ in bribes to South African government officials, as well as the inappropriate use of British government officials to exercise pressure on their South African government counterparts to accept the BAE proposals at rather inflated prices. One of the consequences of the BAE Systems deal was return investment into the South African economy, which was then [cunningly] achieved through the procurement of a 75% stake in the Denel Land Systems business which basically held the majority IP in Denel Group's most profitable products portfolio at the time. The consequences of this short ownership arrangement was a loss of IP (through technology transfer by ownership - not illegal, but ethically inappropriate) in major capital projects relating to mine resistant ambush protected (MRAP) technologies to BAE Systems, which ended a few years later when BAE Systems Land Systems South Africa (LSSA) sold its stake back to the South African government under undeclared conditions of sale during 2015. The consequences, however, is that Denel Group never recovered its global position again since then, and it never will based on the current expansion of global competitors offering similar products (which includes BAE Systems), also employing past Denel engineers lost in the process. The same sequence of events apply to Denel Dynamics (missile systems, UAS, and space systems), and Denel Aeronautics (OEM for the Oryx and Rooivalk helicopter systems, as well as the Cheetah range of 4th Generation multi-role fighters). Denel Aeronautics currently lacks the financial capacity and skilled staff to effectively support the South African Air Force in maintaining its medium lift helicopters and combat support helicopters fleet (only 4 out of 12 Rooivalk CSH's procured presently serviceable). Denel Dynamics used to be the last profitable business unit in the Denel Group of Companies, but as a result of unsustainable losses in key development personnel, the last remaining projects have fallen behind by years in terms of industrialization and production milestones already paid for by both the air forces of South Africa and Brazil respectively for the supply of the advanced A-Darter 5th Generation AAM for its respective SAAB JAS-39 Gripen multi-role fighters. During August 2020, the Brazilian Air Force cancelled their interest in the Denel Dynamics A-Darter, even though the missile system passed qualification and certification testing in Brazil, due to concerns about Denel Dynamics' future sustainability to support the system over lifetime comparative to other competitor systems from the US and Europe. The SAAF, on the other hand, submitted a small batch production order during March 2015 which is by no means close to being fulfilled by Denel Dynamics. The SAAF (South African Air Force), however, is partly to blame because the initial order for 8 inert (practice), 21 trainer, and 41 operational missiles are not large enough (from an economies of scale perspective), to cover the design, development, industrialization, qualification, certification and consequent production costs for the missile system as per SAAF baseline specifications. During a February 2022 presentation to the Joint Standing Committee on Defence, the Acting Denel CEO confirmed that Denel did not have the capacity to complete the SAAF order due to lack of funds and resources.


5. Declining Industrial Capacity:

The most critical requirement for producing advanced and heavy manufactured goods, is to be equipped with the advanced technology and infrastructure to manufacture products conforming to advanced design specifications. Advanced manufacturing (materials science, fabrication, research and development, testing, etc) should be considered a strategic asset, and it should be accounted for within defense budgets to retain such capabilities into the future. One way of repurposing such facilities is to produce lesser advanced products for the general consumer market to help sustain the financial burden when not used for defense products manufacturing. What this implies is that 'the factory that builds machines' takes time to design, build, and maintain from becoming obsolete over time if not in use. Having the appropriately skilled employees operating modern tools and procedures is an essential requirement to maintaining an advanced heavy manufacturing capability, which is one of the reasons why Denel has failed to progress on the South African Army Project Hoefyster IFV production due to lack of capacity in terms of modern tooling, appropriately skilled employees, and cash to pay suppliers. To be a supplier to NATO countries, additional certifications are required. Denel Land Systems has not modernized any of its heavy manufacturing infrastructure since procurement of the BAE Systems Land Systems South Africa (LSSA) shares, and therefore it lacks the technology required to produce the more complex Badger ICV as per SANDF baseline specifications. In addition to these challenges, the whole South African defense industry is subject to supply chain delays caused by the limited availability of rolled homogenous armor steel. South Africa was once a producer of armor steel, but has since lost that capability when the government sold its ownership stake in ISCOR to raise funds for social development post-1994. This was, however, also part of the so-called 'defence industrial adjustment' agenda to gain greater control over South Africa's defense industrial capacity by ensuring it becomes dependent on imports from the countries who sponsored the initial disarmament program. Now, as global defense hardware requirements increase as a result of the lessons learnt from the Russo-Ukraine War, South Africa has to stand in line to wait for more costly foreign imports of armor steel from the northern hemisphere, while competing for limited resources with other defense manufacturers who's governments have better diplomatic relations with the dominating supplier nations. The last major armored vehicles production completed in South Africa was by BAE Systems LSSA who was the supplier of the BAE Systems RG-31 and RG-33 MRAP systems to the US Department of Defense.

The RG-31 MRAP is a true South African design based on the LMT Mamba APC, but with improved suspension and drive-chain. It is one of the most successful MRAP designs to date with extensive proven combat experience. BAE Systems inherited the intellectual property (IP) for the system when it purchased Alvis OMC (UK) in 2004 (after Alvis OMC purchased Vickers OMC, which purchased the design from Reunert OMC, South Africa). BAE Systems won a multi-billion US$ contract to supply the US military with just under 2,000 RG-31's of various variants for deployment in Iraq and Afghanistan, in addition to smaller orders with other NATO members. Denel obtained the IP from BAE Systems LSSA during its 2015 purchase, with no further sales to date due to low competitiveness compared to other provider nations.



Other than the creation of skilled employment, not much was gained by the South African economy from the BAE Systems LSSA production arrangement in South Africa over the long-term. Regaining lost capabilities is also unlikely due to lack of financial resources and low political will to enable the development of lost industrial capabilities. The ongoing electricity crisis in South Africa since 2008 has destroyed much of the country's economic- and industrial potential, especially domestic steel manufacturing, where uninterrupted electricity supply is a major requirement for advanced heavy industries usually associated with defense manufacturing. At the time of writing this article, the South African economy was already subjected to Stage 8 load shedding (meaning: 8 hours of a 24 hour day is without electricity supply, usually during high peak periods). This situation will not improve during the next decade (or more) due to further international pressure being put on the weak South African government to decommission its majority coal power stations. Unless the country takes the necessary actions to develop modern [Western] nuclear power stations as the only viable option to meet current and future electricity demands, South African industry will remain impaired. The implication of just the lack of sufficient electricity supply alone results in production timelines to be 50% longer compared to competitor economies who do not have electricity supply restrictions.


6. Limited Domestic Spending:

The global average for annual defense budgets are around 2% of the national GDP. In South Africa, however, the annual defense budget is around 1% of the national GDP, and it has remained consistent 1% for the past decade. However. what the South African defense budget does not factor in, is annual USD inflation at a rate of 2,54% per year. This is a major planning consideration when calculating defense budgets for the reason that South Africa, as a raw commodities producer and exporter, is dependent on major imports of manufactured goods as a result of its diminished domestic manufacturing capabilities in favor of cheaper foreign imports. However, the wider implications are further exacerbated taken into consideration that as a result of a decade's poor governance and compromised national investment strategies, the current South African GDP is only US$ 419 Bn (2022) compared to US$ 458,20 Bn (2011). The reason why South Africa is experiencing a negative GDP growth over the past decade is due to the ruling party's implementation of its destructive National Development Plan (NDP) during 2011, which then transformed into the Radical Economic Transformation (RET) agenda with major destructive consequences on the economy as a result of investment uncertainties and government corruption through state capture. These two events by the current ruling party can be compared to intentional economic sabotage which resulted in the destruction of most of the State Owned Enterprises (SOE's), including the dominant state owned arms manufacturing companies responsible for maintaining the majority SANDF hardware. The motives for these major events sprout from strategic interference for reasons not within the best interests of the Republic of South Africa (as a result of the global agendas devised by the same strategic stakeholders that caused the current Ukraine conflict). However, looking at the current South African GDP, if the country was subjected to responsible and competent governance, the current GDP should have been between US$ 606 Bn - US$ 646 Bn if GDP growth over the period 2011 to 2022 was maintained at between 32% (US$ inflation rate) and 41% (Thailand GDP growth). However, comparing the South African economic potential to that of Thailand which is listed as the current 'comparative' economy in terms of GDP, population, and level of development and industrialization, South Africa has far more diversity in valuable resources and more than double the land territory of Thailand which affects agricultural potential. In terms of ocean territories, South Africa controls an EEZ of around 1,000,000 km2 compared to Thailand's 300,000 km2 EEZ from an oceans economy perspective. Taking this into consideration, South Africa has the potential to be a US$ 1 Trillion GDP nation, which begs the question why South Africa is being managed to remain a suppressed GDP economy (Read: 5th Generation Warfare: The evolution of War beyond the controls of the Nation State, and Maritime Protection Strategy: Mobilising the Private Sector).


Now, to put this data into perspective, we look at Turkiye as South Africa's primary defense exports competitor in terms of technological offering, capabilities and value for money. Turkiye maintains an average 2% of GDP defense budget annually (as expected as a member of NATO), of which the total defense budget spend on maintaining the domestic military industrial complex is around 0,75% of the GDP (as a component of the total defense budget). This investment into the local defense industry in turn results in export revenues of around 50% (and growing) return on investment which further supports the continuous expansion of the industrial base through commercial sales to foreign buyers. This in turn guarantees that all strategic technologies are maintained in accordance with OEM specifications, also allowing for the necessary continuous R&D to achieve baseline block improvements during equipment lifetime. The result is a serviceable and modern equipped armed forces ready for any military contingencies when required, with a defense industry capable of supporting it during times of war. In South Africa, however, the current budget has been deprived for so long, that the country lacks the funds just to bring the armed forces back to a sustainable modern fighting force, with a severely diminished and compromised defense industry that cannot effectively support any major military campaigns at a sustainable rate required in modern warfare as observed in Ukraine. In fact, just looking at the 2022 defense budget for the SANDF, the armed forces of South Africa only receives 33% of the budget it actually requires (US$ inflation adjusted) to effectively maintain itself as a professional military force, and none of that feeds back into the domestic defense industry.


7. Restrictive Export Controls:

All defense related exports originating from South Africa are subject to approval by the National Conventional Arms Control Committee (NCACC) whose sole mandate is to ensure that no military IP developed in South Africa are sold to nations indicated in state coordinated human rights abuses, to include sales of armaments to foreign groups involved in global terrorist activities. The problem with this mechanism, however, is that due to its political oversight mechanism, the NCACC has become a compromised tool to manipulate end-users for political reasons not necessarily relating to the sale of armaments, but rather as a means of leveraging the outcomes of other unrelated matters. During the past decade alone, the approval processes required for the issuing of export permits and end-user certificates have been 'institutionally delayed' to the point where traditional defense industry customers have decided not to purchase any armaments from South Africa anymore, rather focussing on developing their own industrial capacity to replace South Africa as a supplier. Saudi Arabia and the United Arab Emirates are examples of major export customers who have chosen not to increase the risk of doing business with South African suppliers anymore (which probably justifies both these nations' past actions to acquire the intellectual property for desired weapons systems through whatever means, including irregular processes). Furthermore, South African armaments are all designed to operate munitions produced by Rheinmetall Denel Munition which requires additional sales approvals from the German Federal Republic (due to Rheinmetall Waffe Munition GmbH's 51% ownership stake). This has become a major obstacle to both the UAE and the KSA who is involved in the Yemen conflict, where the German government has proven problematic in the approval of munitions sales due to conflicting foreign interests, why the use of South African weapons systems are now too risky. Ukraine is also experiencing the same resistance from the German Federal Republic in terms of armaments supply, why Poland has decided to diversify its military hardware dependence away from German systems in favor of adopting systems sourced from the United States, South Korea, and Turkiye respectively. For South Africa ever to be considered a viable arms exporter again, it needs to professionalize its export approvals system [away from political interference], and it needs to nationalize its munitions production and development capabilities to avoid unnecessary foreign government restrictions. Munitions production capabilities are strategic assets, and it should not be compromised by the inclusion of foreign partner nations with conflicting ideologies. Just looking at Turkiye and South Korea as competitor nations, South Africa has already lost any advantages it had in the global defense industry, and this taken into consideration that up to two decades ago, South African defense technological capabilities at the time far exceeded that of both Turkiye and South Korea combined.


8. Limited Operational User Experience:

A major contributing factor to South Africa losing its foreign sales demand is caused by limited operational user experience. For defense products to be in demand, it requires proven operational use experience. During the past few years, the issuing of export permits have become problematic due to political interference caused by external influences. The result was that the already declining export orders were further bottle-necked due to political scrutinization of end-user intentions, even though no international arms restrictions apply to the end-users. Over the long term, lesser South African armaments reach operational use to prove its effectiveness to other prospective users. Turkiye has no limits on its armaments exports, why it is being favored over South Africa. The last remaining 'Made in South Africa' systems in operational use is the G6 Rhino self-propelled artillery system in service with the armed forces of the UAE in Yemen. However, this system is already outdated compared to the newest self-propelled artillery systems developed in Europe, and battle proven against Russian forces in the Ukraine. Furthermore, looking at the UAE user experience in Yemen, what counts against the system is inappropriate TTP's applied by the armed forces of the UAE which exposes the system's weaknesses. This again emphasizes the fact that prospective customers only observe defense product capabilities to be as good as derived from the competence of its existing.


9. Unfavorable Strategic Alliances:

The South African government preaches a policy of neutrality, but what the current Russian invasion of Ukraine has proven is that the current political government is mostly biased, having chosen to support Russia's unlawful invasion of Ukraine and pleading 'neutrality' to justify its unwillingness to condemn Russia's actions. The reasons for this, however, is more reflective towards how compromised the current political system is dating back to when the ruling party was still a revolutionary force pre-1994. Post-1994, especially during the Zuma administration, South Africa rapidly changed its strategic alliances to favoring Russia who at the time was trying to sell (via financial reward), overpriced nuclear power stations at a cost that would have bankrupted the South African government. The government's growing shift in foreign policy towards Russia and the PRC was of concern to Western nations being greatly exposed in terms of foreign direct investment in South Africa, which consequently resulted in gradual downgrading of the sovereign credit rating to basically junk status. The direct effects of these downgrades caused for higher lending costs, which further erodes profits for exporting manufacturers requiring bridging finance to finance large capital equipment projects until delivery to the customer for payment. However, after the Zuma administration ended, the Russian allegiance remained within the ruling party, why the country experienced a failed national level public disobedience campaign involving mass organized looting and destruction of property and infrastructure during July 2021, with various Western multi-national brands being targeted during the well coordinated campaign. However, the Russia government (via the FSB) has also developed back-up contingencies knowing the vulnerabilities of the ruling party, especially how unreliable dealings are with its members, by covertly supporting the CapeXit campaign for secession of the Western Cape from the Republic of South Africa (without involvement of the current ruling party). The CapeXit campaign strategy shares many similarities to the failed Catalan independence (from Spain) movement during 2017, which was solely planned and funded by the Russian FSB until exposed by Spanish authorities. However, since the Russian invasion of Ukraine, the CapeXit campaign has experienced stalled momentum, mainly accountable to funding shortages. The major effect of South Africa's unreliable foreign policies, growing political instability (especially with two major provinces being pushed into the idea of seceding from the Republic amongst its supporters), and the uncontrolled escalation of crime, South Africa is considered too high a risk as a supplier of advanced armaments which requires guaranteed political- and government stability (and maturity) to support costly primary equipment over lifetime. South Africa is still considered an immature democracy on the verge of further decline by foreign governments, and therefore not worth the high associated risks compared to purchasing from more advanced economies providing better guarantees for support over lifetime.


10. Unionized Employees:

During the past 5 years, the demands from the labor unions in the state-owned Denel has played a major role in the downfall of the company. This, however, is not s simple situation. The major fact we need to understand about unionized employees is that it occurs (and thrives) where companies do not have the skills nor professional work environment for employment conditions to be managed in a fair and transparent manner. This, unfortunately, is a common characteristic of South African state owned enterprises who favor loyalty above competence in terms of management appointments. Since 2017, labor relations between the Denel board of directors and the trade unions deteriorated rapidly, with Denel constantly being legally challenged to resolve labour disputes in favor of its employees' demands. These actions caused many lost man-hours on capital projects, and it also wasted scarce financial resources on costly legal fees. Unpaid salaries became more regular as Denel's cash situation deteriorated, and its credit lines with the bank were withdrawn. As Denel continued to fail to meet production milestones, payment for goods were delayed, and the only means of obtaining cash for salaries were by means of government bailouts. The last remaining skilled and experienced employees consequently left the services of Denel, and with many employees working from home as a result of non-sensical COVID-19 employment regulations, much information got lost due to low staff morale, and in most cases, no remaining staff to hand over key project duties and responsibilities, why much of the advanced technology projects have no more staff remaining to fulfill minimum capacity requirements to sustain the projects. During a February 2022 parliamentary Joint Standing Committee on Defence meeting, the Acting Denel Group CEO confirmed that human capital was one of the means how Denel controlled its IP. He also confirmed that at the time, Denel Group's balance sheet was technically insolvent, and that available cash was insufficient to meet operational requirements, which includes payment of salaries and suppliers. As at the the end of December 2021, Denel owned its employees around R 789 million in unpaid salaries, and it owed R 900 million to its suppliers. In addition to these unpaid dues, Denel also owed R 529 million to the South African Revenue Services for unpaid taxes. Its cash flow projections for the FY 2021/22 (February 2022) was minus R 600 million. Therefore, for Denel to break even, it required at least R 2,818 Billion (US$ 160 million), which excludes the funding required to meet operational requirements for FY 2022/23, and the funding required to complete all outstanding orders. For Denel to return to a position where it can commence with normal business operations to recover its position, it will require at least US$ 500 million (at the time of writing this article). Much of those funds are for meeting employee expenditure and trade union demands. The problem, however, is that in South Africa, labor unions operate like 'cartels', although the initial concept of unionizing labor was to enable employee 'participation' in the day-to-day operation of the business. This is further fueled by high levels of corruption and gross mismanagement in especially state owned enterprises, which in turn justifies the severity of actions taken by the labor unions against these corporations leading to damaging consequences to operations and the overall brand image resulting from negative publicity. Looking at South Africa's current reduced production capabilities, unionized labor is identified as one of the major reasons why South Africa has lost its competitive edge in manufacturing for the global supply chain exports market. The government did approve a bailout of R 3 Billion upon the condition that Denel consolidates operations, disposes of non-core assets, and onboard strategic equity partners. These decisions, however, are made by people who have no interest in the future sovereign integrity of the country, and with even lesser interest in actually improving economic conditions. During August 2022, Denel had settled all unpaid wages


Summary:

However, looking at the South African scenario, there are sufficient reasons to suspect that most of the activities leading to the rapid diminishing of its domestic defense industrial capability was caused intentionally through the targeted application of corruption and political interference via the diverse political mechanisms controlling the government (which includes 'lobbying' efforts from competitor private defense companies involving key political figures in the ruling political party). Read: 5th Generation Warfare: The evolution of War beyond the controls of the Nation State. What we also see in the SIPRI study (Disarmament and Defence Industrial Adjustment in South Africa, SIPRI, 1998), is the great effort and resources that were dedicated years in advance to ensuring South Africa's eventual disarmament post-1994, and why neither the economic- nor political conditions were favorable for any member of the defense industry to survive in South Africa, and why much of the defense technologies have left the country for 'better shores'. One of the major reasons why this "Disarmament and Defence Industrial Adjustment" process was implemented against South Africa (not mentioned in the SIPRI report, but regularly a subject of informal discussions amongst foreign delegates in the past), was that the international community did not trust the incoming post-1994 ANC government as the custodian of advanced military technologies, which was also of major concern to the outgoing National Party government pre-1994. However, based on the ruling party's performance since 1994 to present, all we can say is that those assumptions are to a degree proven correct and valid.


Conclusion:

To summarize a somewhat lengthy discussion about what is considered critical success factors in the defense industry, we can derive the following key requirements to achieve success: