Document(s) 9 of 16

South Africa’s transition to democracy was accompanied by a process of demilitarisation, which reversed the militarisation that took place during the 1970s and 1980s. At an economic level, this process of demilitarisation included dramatic cuts in the country’s defence budget and the implementation of various disarmament measures, such as the termination of the nuclear weapons programme. South Africa’s domestic arms industry, which had been built up under the presence of the United Nations arms embargo, also underwent a process of downsizing and restructuring in response to the defence cuts. It pursued a number of adjustment strategies such as retrenching workers, increasing exports, diversification and conversion, to survive the impact of the defence cuts. This chapter examines the effects of the defence cuts on South Africa’s arms industry, and considers the problems and prospects associated with its conversion within the broader process of demilitarisation. It argues that the lack of success with recent conversion efforts has been the result of a severe domestic economic recession and a lack of political will on the part or government to support (and finance) a national conversion strategy for the domestic arms industry.

The development of South Africa’s arms industry

South African society became increasingly militarised during the Total Strategy era of the 1970s and 1980s (Cock & Nathan, 1989). At an economic level, militarisation included increasing levels of military spending, the development of a domestic arms industry and growing institutional links between the state, the military and private industry. The militarisation of the South African economy, which took place between 1961 and 1989, is reflected in the trends in the country’s militarisation indicators (see the table below).

'When human security needs are not met, we foster a cycle of violence. When we allow militaries to grow in power to control increasingly desperate populations, we have failed to address the root causes of conflict. Too many poor countries spend their limited resources on militaries that serve only to oppress their people. Unless we put an end to the arms trade, we will never put an end to violence.’

– Dr Oscar Arias, 1987 winner of the Nobel Peace Prize

The development of a domestic arms industry was one of the most significant aspects of the militarisation of the apartheid economy. South Africa’s arms industry was established with British aid just prior to the Second World War, when training aircraft were assembled locally and the Pretoria branch of the Royal Mint manufactured small arms ammunition (Cawthra, 1986:89). During the war, the arms industry manufactured a substantial amount of basic weaponry for the Union Defence Force and the Allied forces, including armoured cars, bombs and ammunition. After the war, most of the wartime arms factories converted to their pre-war civilian activities.

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South African Militarisation Indicators (1961-89)
(Figures are in Rm at constant 1985 prices. Figures in italic are percentages.)

Sources: Armscor; South African Reserve Bank, Quarterly Bulletin (various issues).

During the 1950s and early 1960s, South Africa relied heavily on arms imports (mainly from Britain). However, South Africa’s withdrawal from the Commonwealth in 1961, and the imposition of a voluntary United Nations arms embargo in 1963, provided the impetus for a shift towards the establishment of a domestic arms industry. The Armaments Production Board was established in 1964 to control the manufacture, procurement and supply of all armaments for the South African Defence Force (Simpson, 1989:222). The board also took over the Department of Defence’s workshops and the ammunition section of the South African Mint, and was authorised to co-ordinate arms production in the private sector. By the mid-1960s, nearly a thousand private sector firms were involved in various aspects of domestic arms production.

In 1967, the UN Security Council passed a resolution calling on all states to stop supplying arms to South Africa. In 1968, the Armaments Production Board’s name was changed to the Armaments Board. It was tasked with the procurement of armaments for the SADF and ensuring the optimal utilisation of the private sector for arms production (Simpson, 1989:222). In the same year, the government established the Armaments Development and Production Corporation (Armscor). The Defence Ordnance Workshop and the Ammunition Section of the South African Mint became its first full subsidiaries. Over the next few years, Armscor took over various private sector companies, such as Atlas Aircraft Corporation, and established a number of new production and R&D facilities (Cawthra, 1986:98).

In 1973, the government established the Defence Advisory Council (DAC) to co-ordinate the private sector’s involvement in domestic arms production (Philip, 1989:205). DAC was chaired by the then

THE SOUTH AFRICAN ARMS INDUSTRY

The South African arms industry was born in secrecy and its purpose was to facilitate the wars of destabilisation – the armed contras of Angola and the third force units like Vlakplaas. The lines between unconditional war and criminality were blurred and associated with bribery, corruption and murder. R130 billion was squandered in defence of apartheid and it is shocking that this industry is not being phased out in the new South Africa. The current Ministry of Defence even shares offices with Armscor. The cabinet seems to have a perverse fascination with this industry as a form of jobs and finances – despite the embarrassment caused by deals like those with Syria and Rwanda. Our arms deals have unfailingly brought us into disrepute. It is argued that South Africa has a right to self-defence even though we have never been attacked by another country. To argue that an arms industry is necessary for self-defence is nonsense, other countries manage fine without one. We need to sell 70 per cent of arms produced to be financially viable; one can’t have an arms industry without selling weapons. Everyone working in this industry is one less person working in development in South Africa. South Africa still has a chance to do things differently. (Bishop Peter Storey, Methodist Church)

Minister of Defence, P.W. Botha, and included the president of the Armaments Board and representatives from many of the country’s major private sector companies (for example, Anglo American, Barlow Rand, Tongaat and South African Breweries). The establishment of DAC represented the growing institutional links between the state, the military and private industry.

Increasing international opposition to apartheid, and world-wide demands for a mandatory arms embargo against South Africa, prompted the government to embark on a major reorganisation and expansion of the arms industry during the mid-1970s. In 1976, the Armaments Board and the Armaments Development and Production Corporation merged to form the Armaments Corporation of South Africa (Armscor). The restructuring and expansion of Armscor was funded by a secret government grant of R1 200 million (Landgren, 1989:42). The ‘new’ Armscor assumed responsibility for the procurement and production of armaments for the SADF. It was no coincidence that the reorganisation and establishment of the ‘new’ Armscor occurred in the same year as the United Nations mandatory arms embargo against South Africa (Resolution 418) (Cobbett, 1989).

During the 1980s, the domestic arms industry expanded considerably in response to South Africa’s increasing involvement in regional conflicts, which required a guaranteed supply of weapons of ever-increasing sophistication, and the growing militarisation of the state.

Display of apartheid weaponry, 1975 (Photo by Geoff Causton)

New state-owned research, development and arms production facilities were established, and the private sector became increasingly involved in domestic arms production. By 1984, more than 2 000 private sector firms were involved in domestic arms production, either as contractors or suppliers of military technology and equipment to the SADF (Armscor, 1984:7).

In the early 1980s, the arms industry began to experience economic problems as a result of increasing production costs, excess capacities and declining domestic demand. Drastic staff cuts were made at Armscor, several defence contracts with private sector firms were cancelled, some of Armscor’s production activities were rationalised, and a government commission was set up in 1984 to investigate Armscor’s financial problems (Cawthra, 1986:104). These problems were exacerbated by the embargo which forced the industry to adopt uneconomical practices, such as tooling-up for short production runs and stockpiling items which were not readily available in South Africa (Landgren, 1989:58).

By the end of the 1980s, the arms industry had reached a relatively high level of self-sufficiency and could meet most of the equipment requirements of the SADF. However, because of the country’s limited research and development (R&D) resources, and the presence of the United Nations arms embargo, the local arms industry did not try to reproduce or emulate the R&D which had already been carried out by the major Western arms producers (Brzoska, 1991:25). Instead, it concentrated on upgrading, modifying and modernising existing armaments and weapons systems. One of the ways in which South Africa became increasingly self-sufficient in arms production was through its ability to continue to obtain foreign inputs (technology, personnel, components) in circumvention of the United Nations arms embargo (Vayrynen, 1980; Landgren, 1989; Brzoska, 1991).

Economic significance of South Africa’s arms industry

The establishment and development of a domestic arms industry necessitated massive investment by the state and large-scale private sector involvement. By the late 1980s, the arms industry had developed into one of the most significant ‘sectors’ of the country’s industrial economy, in terms of both employment and its contribution to the national economy. However, its expansion and increasing economic significance during the 1970s and 1980s occurred when the economy was performing poorly, and there is evidence to suggest that the development of a domestic arms industry imposed a substantial burden on the national economy and was a contributing factor to the country’s deteriorating economic performance in the 1970s and 1980s (Lipton, 1986; Kaplinsky, 1992).

The arms industry emerged as a significant creator of jobs during the 1970s and 1980s. By 1989, over 150 000 were employed in the arms industry. Total arms industry employment as a percentage of total manufacturing employment increased from less than 1 per cent in 1961 to 10 per cent in 1989, while arms industry employment as a percentage of total employment in the formal sector increased from less than 1 per cent in 1961 to over 2 per cent in 1989.

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Arms Industry Empolyment, 1961-89

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Although the arms industry emerged as a significant provider of jobs during the 1970s and 1980s, most were highly capital- and skill-intensive and reserved for whites, given the strategic concerns of the industry. Thus the employment benefits of domestic arms production perpetuated the racist structure of the labour market and were inappropriate for a country such as South Africa with scarce capital and an abundance of unskilled labour. The arms industry also absorbed a disproportionate share of the country’s skilled labour at the expense of the civilian economy, thereby inhibiting the development of the more productive sectors of the civilian economy. By 1989, Armscor employed nearly 2 000 scientists and engineers – over 10 per cent of the total number of R&D personnel in the national economy.

The use of scarce national resources for investment in arms production had negative consequences for investment in the civilian sectors of the economy. It has been suggested that the excessive share of state investment in strategic industries (for example, Armscor and Sasol) during the 1970s and 1980s represented a form of ‘misinvestment’, in that large amounts of scarce resources were invested in the wrong (capital-intensive) sectors and the wrong types of technology (for example, synthetic fuels) because of strategic considerations (Kaplinsky, 1992; Joffe et al., 1995).

While the establishment of a domestic arms industry was intended to reduce the cost of arms imports, by the end of the 1980s it was estimated that South Africa was still spending nearly R2 billion on arms imports per annum. The value of arms imports peaked in the years before the imposition of the United Nations arms embargo in 1977, then declined quite substantially throughout the 1980s, with marginal increases in the late 19805. While South Africa became less dependent upon imports of completed weapons systems after 1977, it remained highly dependent upon imports of machinery, technology and components which it needed for arms production. Thus, the development of a domestic arms production capability created new forms of dependency on foreign sources of technology and machinery, and ended up absorbing increasing amounts of scarce foreign exchange sources.

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South Africa Arms Imports (1970-89)
(Figures are in Rm at constant 1985 prices. Figures in italic are percentages.)

*Imports as a share of total procurement spending
Sources: South African Reserve Bank, Quarterly Bulletin, various issues; Bulletin of Statistics, various issues (Central Statistical Service); Armscor

South Africa’s arms industry entered the international arms market in the early 1980s as a result of rising overhead costs, excess capacities and declining domestic demand (Cawthra, 1986:104). Armscor launched a massive international marketing drive in 1982, and by 1989 the value of South Africa’s arms exports had increased by nearly 400 per cent.

South African Arms Exports (1982-89)
(Figures are in Rm at constant 1985 prices. Figures in italic are percentages.)

Sources: ARMSCOR, South African Reserve Bank, Quarterly Bulletin, various issues; Bulletin of Statistics, various issues (Central Statistical Service)

Despite the increases in the value of arms exports between 1982 and 1989, the contribution to the national economy was fairly insignificant if one includes the costs of export subsidies, marketing (paid for by Armscor from the defence budget), and the fact that much of the R&D and production costs of export products were subsidised by the domestic procurement budget (Willett & Batchelor, 1994). South Africa’s trade balance in armaments remained negative between 1982 and 1989, despite the positive contribution of arms exports. The arms industry remained a net user of foreign exchange throughout the 1980s.

The evidence presented in this section suggests that the increasing militarisation of the South African economy, and particularly the development of a domestic arms industry, imposed costs on the national economy. The fact that the arms industry absorbed scarce resources (capital, labour, foreign exchange) at the expense of other sectors not only exacerbated many of the existing structural problems in the apartheid economy (for example, shortages of skilled black labour) but also contributed to the underdevelopment of civilian sectors.

Defence cuts and disarmament measures

South Africa’s external strategic environment changed dramatically after 1989. The end of the Cold War and the break-up of the former Soviet Union effectively put an end to superpower rivalry in many parts of the Third World, including southern Africa. The cessation of East-West contestation was accompanied by a reduction in ideological tensions within and among African countries, and by significant moves towards political pluralism in southern Africa (for example, Zambia and Malawi) (Nathan, 1993). These developments contributed to the resolution of most of the region’s historical conflicts (for example, Namibia and Mozambique) and provided opportunities for countries to reduce their levels of military spending and implement disarmament measures.

The interlinked processes of democratisation and disarmament which occurred had a positive impact on the South African state’s external threat perceptions, and led to dramatic changes in the country’s defence and foreign policies. South Africa withdrew its armed forces from Namibia and Angola in 1989, formally abandoned its policy of military aggression and regional destabilisation (for example, covert support for Unita and Renamo), and embarked on an ambitious programme of diplomatic and economic outreach to African states (Nathan & Phillips, 1992:116). These developments, together with the ending of apartheid, removed the dominant source of instability and antagonism in the region and led to a dramatic improvement in inter-state relations.

As a result of these positive developments, and in response to severe budgetary constraints and changing government spending priorities, the De Klerk government cut South Africa’s defence budget dramatically after 1989. Between 1989 and 1995, the defence budget declined by more than 50 per cent. With the defence cuts, the share of defence spending in GDP declined from over 4 per cent to just over 2 per cent between 1989 and 1995; the share of defence in total government expenditure declined from over 15 per cent to 7 per cent during the same period.

The structure of the defence budget exhibited significant changes

Defence Budget Trends (1989-95)
(Figures are in Rbn at constant 1995 prices. Figures in italic are percentages.)

* Defence spending as a share of total government expenditure. Source: Budget Review 1995 (Government Printer: Pretoria, 1995)

Assembling an aircraft bomb in a munitions factory, 1989 (Photo courtesy of Beeld)

between 1989 and 1995. The share of personnel and operating costs increased at the expense of procurement and R&D spending. The increasing share of personnel costs during the pre-election period was related to the SADF’s internal deployment in support of the police, particularly as a result of the increasing political violence which accompanied the final stages of the constitutional negotiations (Friedman & Atkinson, 1994). The share of personnel and operating costs continued to increase after 1994 as a result of the integration process and the formation of the South African National Defence Force (SANDF). The dramatic decline in the share of procurement spending was related to the cancellation and postponement of several armaments projects.

Structure of Defence Budget (1989-95)
(Figures are in percentages.)

Source: Estimates of Expenditure, State Revenue Account; Budget Review 1995 (Government Printer: Pretoria, 1995)

Despite the significant cuts in South Africa’s defence budget between 1989 and 1995, the country remained the largest military spender on the continent in absolute terms. In 1995, it accounted for nearly 65 per cent of total military spending in southern Africa, and 27 per cent of total military spending in Africa (SIPRI, 1995).

The defence cuts implemented after 1989 were achieved as a result of, and in conjunction with, a variety of disarmament measures. These included:

• the rationalisation and restructuring of the SADF, including the disbanding of various SADF units and the closure and scaling-down of various bases and installations;
• ending compulsory conscription for white males at the end of 1993;
• the cancellation and postponement of major weapons projects;
• retrenchments of SADF and Armscor personnel;
• the withdrawal or sale of redundant and surplus military equipment;
• the termination of the country’s nuclear weapons programme (Nathan & Phillips, 1992; Batchelor, 1993).

The cuts in defence spending were accompanied by the restructuring of the public sector arms industry. As part of a policy of ‘commercialising’ public enterprises, the government restructured Armscor into two organisations in April 1992. A new state-owned industrial company called Denel was formed under the Ministry of Public Enterprises, and inherited most of Armscor’s R&D and production facilities. Armscor remained part of the Ministry of Defence and retained responsibility for the acquisition of armaments for the SADF (Batchelor, 1993; Cilliers, 1994).

The economic impact of defence cuts and disarmament

Defence cuts, although desirable for a number of moral, political and economic reasons, can have short-term adjustment costs. These costs are normally felt in terms of job losses and the impact on towns and regions dependent on defence spending.

The defence cuts and disarmament measures implemented in South Africa after 1989 had a dramatic impact on the domestic arms industry. Many defence firms went out of business or exited from the defence market, and the industry as a whole underwent a process of downsizing and restructuring. The value of arms production (including exports) declined by over 40 per cent between 1989 and 1995. The contribution of the arms industry to the national economy also declined after 1989, and the value of domestic arms production in total manufacturing output declined from nearly 8 per cent in 1989 to around 4 per cent in 1995 and, as a share of GDP, from nearly 2 per cent in 1989 to under 1 per cent in 1995.

Domestic Arms Production (1989-95)
(Figures are index numbers based on 1990=100. Figures in italics are percentages.)

* Based on value of domestic acquisition spending and earnings from arms exports.
Sources: Armscor; South African Reserve Bank, Quarterly Bulletin (various issues)

The cuts in defence spending had a significant impact on employment in the domestic arms industry. Total employment declined by over 90 000 between 1989 and 1995, including over 10 000 in the public sector arms industry. Arms industry employment as a percentage of manufacturing employment declined from over 10 per cent in 1989 to 4 per cent in 1995. As a percentage of total employment, it declined from over 2 per cent in 1989 to just over 1 per cent in 1995.

Arms Industry Employment (1989-95)
(Figures in italics are percentages.)

Sources: Armscor; South African Reserve Bank, Quarterly Bulletin (various issues)

The declines in arms industry employment occurred within the context of a severe recession and corresponded to declines in manufacturing employment and total employment in South Africa generally. The job losses in the arms industry after 1989 were not offset by compensating increases in employment in other civilian sectors of the economy, and may have contributed to increasing unemployment in the economy as a whole. While it is possible that the lack of job creation in the civilian sector was linked to the presence of a severe domestic economic recession, the De Klerk government at no point used the savings from defence cuts to fund retraining schemes for defence workers or to create new civilian markets. Occupation categories, such as engineers, scientists and labourers, bore the brunt of the retrenchments in the arms industry and there is evidence to suggest that many found it difficult to find work in civilian sectors (Batchelor, 1996).

The negative impact of the defence cuts and disarmament was felt most acutely in those towns or regions which were heavily dependent on defence spending as a result of the location of military bases or arms production facilities (for example, Simon’s Town). The bulk of Armscor’s retrenchments (nearly 80 per cent) after 1989 were concentrated in the Pretoria-Witwatersrand-Vereeniging (PWV) region, compared to the 20 per cent in the Western Cape, and less than 1 per cent in the Free State (Batchelor, 1996). These retrenchments corresponded to the geographical location of Armscor production facilities and the private sector arms industry (Rogerson, 1990). Although defence cuts were concentrated in the PWV region, the size and diversity of the region’s economy meant that it was more able to absorb the impact than some of the country’s other regional economies.

Document(s) 9 of 16