This week brought two interesting developments for the defence industry. Denel's Eloptro division signed a R62m agreement with Zeiss Optronik of Germany to co-design and produce periscopes for the SA Navy's new submarines and for export to Greece and South Korea; and a German team arrived at Denel's Overberg Range to test the new Taurus stand-off weapon.

What is interesting is that SA's defence industry is taking another step into the top end of international defence development and manufacture.

This also means the industry will gain access to new technologies and markets, and the SA National Defence Force will benefit from more focussed research, development and the industry's strategic independence.

These developments are mainly an outcome of the defence packages. Before the process began, SA's defence industry was able to develop and produce interesting and effective equipment, even in demanding fields such as guided missiles. But there was always doubt whether it was not like other smaller industries that look good but whose equipment does not really work, or is not as advanced as it looks, or is a copy of something else.

That changed when some of the major European defence companies came to SA to investigate defence industrial participation demanded by government under the packages. Many European executives and engineers were surprised by an industry that was as capable as it looked from outside, and that had breadth and depth of technology an industry with companies they could not only work with on the SA projects, but could also draw into their own research, development, design and manufacturing programmes.

The outcome of that quick education has been a number of alliances between SA and European defence companies, including some such as EADS, which did not benefit greatly from the packages. Denel, SA's largest defence company, is the main beneficiary, with several divisions winning valuable export work.

For example, Denel Aviation has an agreement with Agusta to manufacture helicopters for certain markets which could be worth $30m a year, and is manufacturing 20 A 109 airframes for the Swedish Air Force. Denel's PMP has an order from Royal Ordnance for brass ammunition components worth R225m over five years.

Among private defence companies, Grintek has seized opportunities created by the defence industrial participation programme, establishing alliances with SAAB in avionics and electronic warfare, EADS in communications and with German antenna specialist Kathrein.

While these contracts are valuable, their real importance lies in SA equipment being incorporated into systems used by major armed forces. That brings business and access to new technologies, and cachet that will stand the industry well in other export and joint ventures.

The importance of the defence industrial participation contracts goes even further. The defence industry is a very effective incubator of engineers, scientists and technicians.

The industry offers challenges, demands precision and rewards innovation, and many people who now run small and medium engineering and electronics firms in SA cut their teeth on defence projects.

Heitman is a Defence Consultant and SA correspondent for Jane's Defence Weekly.

With acknowledgements to Helmoed R. Heitman and Business Day.