Little research has been done on the state of the South African defence industry since 1994. From an industry perspective, two related factors served it with a virtual death sentence in the late '80s and early '90s. The first was the end of the Cold War, which left the world with considerably more capacity and capability to develop and produce arms than it needed or could afford. The second was the end of apartheid in SA and the concomitant decline in the requirements for an independent arms industry by the National Party government.

In the 1990s the South African industry not only lost its primary customer, the South African Defence Force, and all kinds of state protection, but was forced to commercialise and integrate into a global industry that itself was faced with massive oversupply and restructuring. In the subsequent years the global industry has undergone unprecedented restructuring. The number of major defence firms has declined dramatically as companies have merged or have purchased the military assets of other corporations. These mergers and acquisitions began to cross national boundaries as the emerging defence giants sought new partners and subsidiaries. At the same time the importance of exports grew as a source of compensatory revenue.

These developments did not threaten what some refer to as the first tier of arms-producing countries such as the US, the UK, France, Germany and Italy, which collectively account for roughly 75% of global armaments production.

Together with a number of countries in the developed world, such as Australia, Canada, the Czech Republic, Norway, Japan and Sweden, the South African industry entered the 1990s as part of the second tier of arms producers that was hard hit by the global changes . This group includes some newly industrialised countries with modest military- industrial complexes, such as Argentina, Brazil, Indonesia, Iran, Israel, South Korea, Taiwan, Turkey, China and India.

Richard Bitzinger, whose categorisation of first- and second-tier arms producing countries is used here, describes the subsequent development of a new division of labour, that of a "hub-andspoke" model: a few large first-tier firms at the core, with global supply chains extending out to second-tier states on the periphery. Although hierarchically integrated as part of the global ladder of production, second-tier arms producers are subordinate players, largely and increasingly responsible for supplying niche systems or low-tech items.

As the costs of developing defence systems have risen and the justification for self-sufficiency declined in many countries, second-tier countries have had to rationalise , halt certain kinds of defence work, pursue defence conversion or commercial diversification, leverage dual-use technologies and globalise defence industries via increased exports or international production.

By the end of the 1980s the South African defence industry employed an estimated 131750 persons about 8,3% of the total employed in the manufacturing sector. Then, from 1989 to 1994, SA's defence procurement expenditure declined 60%, only marginally offset by a rise in arms sales. Whatever the extent of bribery and corruption that may have accompanied the South African strategic arms procurement package, recent research conducted by David Botha for the Institute for Security Studies would indicate that the national defence industry was largely able to survive and retain a position within the second tier of the hub-and-spoke model in the period after 1994 through the benefits from the defence industrial participation component, painful adjustments and exports.

Now the industry sees its future as firmly part of the global defence industry, while also again enjoying the full support of the South African government.

The strategy of focusing on competitive products and exporting aggressively is clearly paying off. Already some companies such as Eloptro (Denel), Grintek aviation, and Fuchs (Reunert) export virtually their entire output. Many others do more than 50% of their business abroad.

Another strategy that is inherent to the second-tier industry is increased partnerships between South African and international companies. Denel alone had as many as 13 key international partnerships in 2002. The private sector component of the South African defence industry has many more. Most of the efforts to convert defence technology to commercial use have, however, failed.

Botha's research indicates that the South African arms industry appears to have turned around early in 2001, driven by the strategic defence packages and the defence industrial participation projects that followed. Today the industry is smaller than in 1989 in terms of turnover, employment and product range. However, the products are competitive. They are finding international markets and turnover is growing.

It would therefore appear as if the South African defence industry has been able to survive the challenges of the 1990s. But writing for the International Institute for Strategic Studies, Richard Bitzinger warns: "Second-tier arms-producing states around the world face a challenging and in some cases a grim future." He continues: "The growing resource requirements of acquiring sufficient technological capabilities to move forward in armaments production almost guarantee the continued plateauing or even the regression of these countries' defence industrial bases on the ladder of production."

Modern defence equipment demands massive amounts of money and technology and without either substantial government investment in research and development, or the benefit of a robust civilian high-technology manufacturing industry , SA's industry faces a future within which the global arms industry will probably become smaller, more concentrated in the hands of fewer, big companies and more integrated.

Integration may appear to offer many benefits, but as a subcontractor on subsystems it will further solidify the stratified and hierarchical relationships already evident. The present status of the South African defence industry is undoubtedly the most cost-effective way to preserve and maintain a core capacity, including the associated jobs. At the same time, the world will soon be hostage to a few super-large multinational companies, most based in the US or with substantial US shareholding.

What is not being asked or discussed is the issue of the role of the South African defence industry as an instrument of foreign and defence policy in Africa, with all the risks associated with such a role. This could open opportunities in lower-technology markets in which there is possibly not the same amount of competition, but where SA is well positioned to play a role that may garner it additional strategic leverage.

Cilliers is with the Institute for Security Studies.

With acknowledgements to Jakkie Cilliers and the Business Day.