Defence industrial participation, in its various forms, is regularly applied in international defence deals. Salvo spoke to Johan van Dyk, Armscor's Senior Manager Industrial Participation, about the IP component of the package deal project.

Could you explain to us in layman's terms what the process of industrial participation entails, and what benefits it can be expected to bring?

Industrial participation means that the countries we buy from undertake, as a quid pro quo, to involve local industry to buying certain goods from South Africa, transferring technology, promotion exports, providing marketing assistance, or making certain investments here. Thus an IP programme generates foreign investments that can be channelled into new and existing projects, thereby retaining and creating jobs, sustaining and expanding the industrial base, promoting research and development, creating joint ventures, maintaining skills and capabilities, and providing sustainable key industrial capabilities. If the contract is large, an IP programme can give a substantial economic boost to a country or even an entire region.

How large will the IP deal be in this case?

Simply enormous. For the R29,7 billion we will be spending, we will get foreign participation in our industry worth some R110 billion. This means that for every rand we spend on defence equipment, at least R3,70 will be generated - for example as export or local sales by South African companies. This will happen over a period of up to fifteen years, but it is still a substantial benefit - especially when one bears in mind that the initial requirement was only a rand-for-rand deal.

The total IP programme, involving both the local defence industry and general industry, should generate several thousands of jobs over the period in question. IP projects are located all over the country in some defence-related but mainly civilian enterprises, and thus all of the country and all of the economy must benefit eventually.

We understand that the IP programme is divided into two parts, relating to the defence industry on the one hand and the general industry on the other hand.

That is correct. Armscor will be looking after the DIP, or defence industrial participation, in support of very specific defence strategic objectives. The Department of Trade and Industry, DTI, will take care of the national industrial participation or NIP, which is non-defence-related and purely civilian. But is still one programme, and we co-operate closely with Trade and Industry in order to prevent "double-dipping" and to support their goals as far as we can. This lions's share of this IP proposal, about 90%, belongs to DTI.

So obviously industrial participation is a major part of the package deal project.

Absolutely. The package deal project in fact is jointly managed by the Minister of Defence and the Minister of Trade and Industry, and a wide range of government organisations are involved - inter alia the Ministry of Defence, the Defence Secretariat, the SANDF, Armscor, the Department of Trade and Industry, the Department of Finance, the Department of Public Enterprises, and the Government Communication and Information Service - and last but not least, the Deputy President's office! The project is seen as transcending defence requirements alone, benefiting the entire South African and Southern African economies. Industrial participation in fact plays such an important part that the final acquisition contracts will be signed only after the NIP and DIP agreements have been finalised.

Could you give us some idea of the nature of the IP projects envisaged?

DTI has identified projects in 22 sectors ranging from foundries through motor manufacture, mohair products, and information technology to steel production, electronics, machine tools, and jewelry manufacture. I will not bore you with the total list. However, negotiations to obtain the most affordable final packages are still in progress and I cannot give further details at this stage. Some newspapers have also been speculating as to where certain projects will be located, but at this stage I cannot comment on that either.

On the DIP side, all bidders were provided during the request-for-offers phase with information that would assist them in identifying defence-related projects which would directly support the strategic needs of the Department of Defence. It is an accepted principle that foreign suppliers must make business decisions on the viability of local industrial involvement on a competition bid basis.

With acknowledgement to Salvo - Armscor's Corporate Journal.