Future of the South African Defense Industry – Market Attractiveness, Competitive Landscape and Forecasts to 2022

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Published: November 30, 2017 Report Code: GD-DF0440MR-ST

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The Future of the South African Defense Industry – Market Attractiveness, Competitive Landscape and Forecasts to 2022, published by Strategic Defense Intelligence, provides readers with detailed analysis of both historic and forecast defense industry values, factors influencing demand, the challenges faced by industry participants, analysis of industry leading companies, and key news.

Synopsis

This report offers detailed analysis of the South African defense industry with market size forecasts covering the next five years. This report will also analyze factors that influence demand for the industry, key market trends, and challenges faced by industry participants.

In particular, it provides an in-depth analysis of the following –
– The South African defense industry market size and drivers: detailed analysis of the South African defense industry during 2018-2022, including highlights of the demand drivers and growth stimulators for the industry. It also provides a snapshot of the country’s expenditure and modernization patterns
– Budget allocation and key challenges: insights into procurement schedules formulated within the country and a breakdown of the defense budget with respect to capital expenditure and revenue expenditure. It also details the key challenges faced by defense market participants within the country
– Porter’s Five Force analysis of the South African defense industry: analysis of the market characteristics by determining the bargaining power of suppliers, bargaining power of buyers, threat of substitution, intensity of rivalry, and barriers to entry
– Import and Export Dynamics: analysis of prevalent trends in the country’s imports and exports over the last five years
– Market opportunities: details of the top five defense investment opportunities over the next 10 years
– Competitive landscape and strategic insights: analysis of the competitive landscape of the South African defense industry. It provides an overview of key players, together with insights such as key alliances, strategic initiatives, and a brief financial analysis

Scope

– The South African defense budget valued at US$3.7 billion in 2017, a fall from US$4.2billion in 2013, and registered a CAGR of -3.18% during 2013-2017. Even though the actual budget increased in local currency, it showed a downward trend in terms of dollar value owing to variations in the exchange rate.

– During 2013-2017, an average of 19.8% of the country’s total defense budget was allocated to capital expenditure, while an average of 80.2% was reserved for revenue expenditure. Furthermore, capital expenditure is expected to remain constant over the forecast period. The South African Defense Force has expensive and advanced military equipment and the country will focus more on upgrade and maintenance activities over the forecast period. This had been neglected over the years due to insufficient funding and improper budget allocation, which resulted in gradual equipment wear and tear.

– The MoD is expected to invest in Infantry Fighting vehicles (IFV), transport aircraft and corvettes.

Reasons to Buy

– This report will give the user confidence to make the correct business decisions based on a detailed analysis of the South African defense industry market trends for the coming five years

– The market opportunity section will inform the user about the various military requirements that are expected to generate revenues during the forecast period. The description includes technical specifications, recent orders, and the expected investment pattern by the country during the forecast period

– Detailed profiles of the top domestic and foreign defense manufacturers with information about their products, alliances, recent contract wins, and financial analysis wherever available. This will provide the user with a total competitive landscape of the sector

– A deep qualitative analysis of the South African defense industry covering sections including demand drivers, Porter’s Five Forces Analysis, Key Trends and Growth Stimulators, and latest industry contracts

Denel
Ansys Limited
Reutech
Saab Grintek
IVEMA (Pty) Ltd
Aerosud
Global Armour
Milkor (Pty) Ltd
Paramount Advanced Technologies
Tellumat Defense

Table of Contents

Table of Contents

1. Introduction 8

1.1. What is this Report About? 8

1.2. Definitions 8

1.3. Summary Methodology 10

1.4. About Strategic Defense Intelligence 11

2. Executive Summary 12

3. Market Attractiveness and Emerging Opportunities 13

3.1. Current Market Scenario 14

3.1.1. Primary Threat Perception 14

3.1.2. Military Doctrine & Strategy 15

3.1.3. Military Fleet Size 16

3.1.4. Procurement Programs 19

3.1.5. Social, Political and Economic Environment & Support for Defense Projects 20

3.1.6. Political and Strategic Alliances 21

3.2. Defense Market Size Historical and Forecast 22

3.2.1. South African defense expenditure expected to grow at a CAGR of

4.35% over the forecast period 22

3.2.2. Modernization initiatives, peacekeeping missions, and border security expected to drive defense expenditure 24

3.2.3. Military expenditure as a percentage of GDP is expected to increase during the forecast period 26

3.3. Analysis of Defense Budget Allocation 27

3.3.1. Capital expenditure share to remain constant over the forecast period 27

3.3.2. Capital expenditure expected to increase over the forecast period 28

3.3.3. ‘Others’ Defense accounted for the largest percentage share of the overall defense budget 30

3.3.4. Army expenditure to grow at a modest pace over the forecast period 32

3.3.5. Per-capita defense expenditure expected to increase over the forecast period 36

3.4. Homeland Security Market Size and Forecast 37

3.4.1. Homeland security (HLS) expenditure expected to value US$8.3 billion in 2022 37

3.4.2. Homeland security expenditure to be driven by rising threat of global terrorism and high violent crime rates 40

3.4.3. South Africa faces a Moderate level of threat from foreign terrorist organizations 41

3.4.4. South Africa has a score of

3.5 on the Terrorism Index 42

3.5. Benchmarking with Key Global Markets 45

3.5.1. South African defense expenditure expected to remain low compared to leading spenders 45

3.5.2. The country will continue to be a small player in the global defense market 47

3.5.3. South African defense expenditure as a percentage of GDP is lower than the majority of leading defense spenders 48

3.6. Market Opportunities: Key Trends and Growth Stimulators 49

3.6.1. Infantry Fighting Vehicles (IFVs): 49

3.6.2. Transport Aircraft: 50

3.6.3. Naval Vessels:- Corvettes 51

4. Defense Procurement Market Dynamics 52

4.1. Import Market Dynamics 53

4.1.1. Defense imports expected to remain constant during the forecast period 53

4.1.2. Sweden dominated South African defense imports during 2012-2016 54

4.1.3. Aircraft were the major defense imports during 2012-2016 55

4.2. Export Market Dynamics 56

4.2.1. Defense export value declined significantly during 2012-2016 56

4.2.2. Ecuador dominates South African defense export market during 2012-2016 57

4.2.3. Armored vehicles accounted for the majority of country’s defense exports 58

5. Industry Dynamics 59

5.1. Five Forces Analysis 59

5.1.1. Bargaining power of supplier: low 60

5.1.2. Bargaining power of buyer: Medium 60

5.1.3. Barrier to entry: Medium 60

5.1.4. Intensity of rivalry: High 60

5.1.5. Threat of substitution: Medium 61

6. Market Entry Strategy 62

6.1. Market Regulation 62

6.1.1. Offset policy ensures support for local companies 62

6.1.2. Declining FDI inflows impact business environment 63

6.2. Market Entry Route 64

6.2.1. Budgeting Process 64

6.2.2. Procurement Policy and Process 65

6.2.3. Foreign OEMs find alternative routes into the market 65

6.2.4. Joint ventures and collaborations provide market entry opportunities 65

6.3. Key Challenges 66

6.3.1. Corruption and bribery 66

6.3.2. Lack of transparency 66

6.3.3. Lack of relevant defense policy 66

7. Competitive Landscape and Strategic Insights 68

7.1. Competitive Landscape Overview 68

7.2. Key Public Sector Companies 70

7.2.1. Denel: overview 70

7.2.2. Denel: Major Products and Services 70

7.2.3. Denel: recent announcements and strategic initiatives 72

7.2.4. Denel: alliances 73

7.2.5. Denel: recent contract wins 74

7.2.6. Ansys Limited: overview 75

7.2.7. Ansys Limited: Major Products and Services 75

7.2.8. Ansys Limited: alliances 75

7.2.9. Ansys Limited: Recent Contract Wins 76

7.2.10. Ansys Limited: financial analysis 77

7.3. Key Private Sector Companies 79

7.3.1. Reutech: overview 79

7.3.2. Reutech: products and services 79

7.3.3. Reutech: recent announcements and strategic initiatives 80

7.3.4. Reutech: alliances 81

7.3.5. Reutech: recent contract wins 81

7.3.6. Saab Grintek: overview 82

7.3.7. Saab Grintek: products and services 82

7.3.8. Saab Grintek: recent announcements and strategic initiatives 82

7.3.9. Saab Grintek: alliances 83

7.3.10. Saab Grintek: recent contract wins 84

7.3.11. IVEMA: overview 85

7.3.12. IVEMA: products and services 85

7.3.13. IVEMA: recent contract wins 85

7.3.14. Aerosud: overview 86

7.3.15. Aerosud: products and services 86

7.3.16. Aerosud: recent announcements and strategic initiatives 86

7.3.17. Aerosud: alliances 87

7.3.18. Aerosud: recent contract wins 87

7.3.19. Global Armour: overview 88

7.3.20. Global Armour: products and services 88

7.3.21. Global Armour: recent announcements and strategic initiatives 89

7.3.22. Global Armour: alliances 90

7.3.23. Global Armour: recent contract wins 90

7.3.24. Milkor (Pty) Ltd: overview 91

7.3.25. Milkor (Pty) Ltd.: products and services 91

7.3.26. Milkor (Pty) Ltd.: recent announcements and strategic initiatives 91

7.3.27. Milkor (Pty) Ltd.: recent contract wins 92

7.3.28. Paramount Advanced Technologies: overview 93

7.3.29. Paramount Advanced Technologies: products and services 93

7.3.30. Paramount Advanced Technologies: recent announcements and strategic initiatives 93

7.3.31. Paramount Advanced Technologies: recent contract wins 94

7.3.32. Tellumat Defense: Overview 95

7.3.33. Tellumat Defense: products and services 95

7.3.34. Tellumat Defense: Recent announcements and strategic initiatives 95

7.3.35. Tellumat Defense: Alliances 96

7.3.36. Tellumat Defense: Recent contract wins 96

8. Business Environment and Country Risk 98

8.1. Economic Performance 98

8.1.1. GDP Per Capita 98

8.1.2. GDP, Current Prices 99

8.1.3. Local Currency Unit per US$ 100

8.1.4. Exports of Goods and Services (LCU) 101

8.1.5. Imports of Goods and Services (LCU) 102

8.1.6. Gross National Disposable Income (US$ Billion) 103

8.1.7. Goods Exports as % of GDP 104

8.1.8. Goods Imports as % of GDP 105

8.1.9. Government Cash Surplus/Deficit as % of GDP 106

8.1.10. Service Imports as % of GDP 107

8.1.11. Service Exports as % of GDP 108

8.1.12. Foreign Direct Investments 109

8.1.13. Net Foreign Direct Investments as % of GDP 110

8.1.14. Market Capitalization of listed companies (US$ Bn) 111

8.1.15. Market Capitalization of listed companies as % of GDP 112

8.2. Minerals 113

8.2.1. Mining, Manufacturing, Utilities Output 113

9. Appendix 114

9.1. About SDI 114

9.2. Disclaimer 114

Table

List of Tables

Table 1: South Africa’s Ground Forces Strength 16

Table 2: South Africa Navy Strength 17

Table 3: South Africa Air Force Strength 17

Table 4: South Africa – Ongoing Development and Procurement Programs 19

Table 5: South Africa – Future Procurement Programs 19

Table 6: South African Defense Expenditure (ZAR Billion &US$ Billion), 2013-2022 22

Table 7: South African GDP Growth vs. Defense Expenditure as Percentage of GDP, 2013-2022 26

Table 8: South African Defense Budget Split Between Capital and Revenue Expenditure (%), 2013-2022 27

Table 9: South African Defense Capital Expenditure (US$ Billion), 2013-2022 28

Table 10: South African Defense Budget Share (%) Split by Services (Army, Navy, Air Force and Other), 2013-2022 30

Table 11: South African Defense Budget Allocations in ZAR Billion – Breakdown by Services (Army, Air Force, Navy and Others) 2013-2022 32

Table 12: South African Defense Budget Allocations in US$ Billion – Breakdown by Services (Army, Air Force, Navy and Others) 2013-2022 34

Table 13: South African Per-Capita Defense Expenditure (US$), 2013-2022 36

Table 14: South African Homeland Security Expenditure (ZAR &US$ Billion), 2013-2022 38

Table 15: Terrorism Index, 2017 42

Table 16: Benchmarking with Key Markets – 2013-2017 vs. 2018-2022 45

Table 17: Methodology for Offset Credits 62

Table 18: South Africa Budget Formation Timetable 64

Table 19: Competitive Landscape of the South African Defense Industry 68

Table 20: Denel – Product Focus 70

Table 21: Denel – Alliances 73

Table 22: Denel – Recent Contract Wins 74

Table 23: Ansys Limited – Product Focus 75

Table 24: Ansys Limited – Alliances 75

Table 25: Ansys Limited – Recent Contract Wins 76

Table 26: Reutech – Product Focus 79

Table 27: Reutech – Alliances 81

Table 28: Reutech – Recent Contract Wins 81

Table 29: Saab Grintek – Product Focus 82

Table 30: Saab Grintek – Alliances 83

Table 31: Saab Grintek – Recent Contract Wins 84

Table 32: IVEMA – Product Focus 85

Table 33: IVEMA – Recent Contract Wins 85

Table 34: Aerosud – Product Focus 86

Table 35: Aerosud – Alliances 87

Table 36: Aerosud – Recent Contract Wins 87

Table 37: Global Armour- Major Products & Services 88

Table 38: Global Armour- Alliances 90

Table 39: Aerosud – Recent Contract Wins 90

Table 40: Milkor (Pty) – Major Products & Services 91

Table 41: Milkor (Pty), Ltd. – recent contract wins 92

Table 42: Paramount Advanced Technologies – Major Products & Services 93

Table 43: Paramount Advanced Technologies – Recent contract wins 94

Table 44: Tellumat Defense- Major Products & Services 95

Table 45: Tellumat Defense- Alliances 96

Table 46: Tellumat Defense- Recent contract wins 96

Figures

List of Figures

Figure 1: South African Defense Expenditure (ZAR Billion), 2013-2022 23

Figure 2: South African Defense Expenditure (US$ Billion), 2013-2022 23

Figure 3: South African GDP Growth vs. Defense Expenditure as a Percentage of GDP, 2013-2022 26

Figure 4:South African Defense Budget Split Between Capital and Revenue Expenditure (%), 2013-2022 27

Figure 5: South African Defense Capital Expenditure (ZAR Billion),2013-2022 29

Figure 6: South African Defense Capital Expenditure (US$ Billion), 2013-2022 29

Figure 7: South African Defense budget Split Between Army, Navy, Air Force and Others, 2013-2022 31

Figure 8: South African Defense Expenditure in (ZAR billion), – Breakdown by Services (Army, Air Force, Navy and Others) 2013-2022 33

Figure 9: South African Defense Budget in US$ Billion – Breakdown by Services (Army, Navy, Air Force and Others) 2013-2022 35

Figure 10: South African Per-Capita Defense Expenditure (US$), 2013-2022 36

Figure 11: South African Homeland Security Budget (ZAR Billion), 2013-2022 38

Figure 12: South African Homeland Security Budget (US$ Billion), 2013-2022 39

Figure 13: Terrorism Heat Map, 2017 41

Figure 14: Terrorism Index, 2017 44

Figure 15: Benchmarking with Key Markets – 2013-2017 vs. 2018-2022 46

Figure 16: Defense Expenditure of the World’s Largest Military Spenders (US$ Billion), 2017 and 2022 47

Figure 17: Defense Expenditure as Percentage of GDP of Largest Military Spenders (%), 2017 48

Figure 18: Naval Vessels Market Size (US$ Million), 2017-2027 49

Figure 19: Transport Aircraft Market Size(US$ Million), 2017-2027 50

Figure 20: Corvettes Market Size (US$ Million), 2017-2027 51

Figure 21: South Africa Defense Imports Trend, 2012-2016 (TIV values) 53

Figure 22: South African Defense Imports by Country (%), 2012-2016 54

Figure 23: South African Defense Imports by Category (%), 2012-2016 55

Figure 24: South Africa Defense Exports Trend, 2012-2016 56

Figure 25: South African Defense Exports by Country (US$ million), 2012-2016 57

Figure 26: South African’s Defense Exports by Category (%), 2012-2016 58

Figure 27: Industry Dynamics Porter’s Five Forces Analysis 59

Figure 28: Ansys-Revenue Trend Analysis (2013-2017) 77

Figure 29: Ansys – Operating Income Trend Analysis (2013-2017) 78

Figure 30: Ansys – Net Income Trend Analysis (2013-2017) 78

Figure 31: South African GDP Per Capita, 2015-2025 98

Figure 32: South African GDP Current Prices, 2015-2025 99

Figure 33: South African LCU per US$ 2015-2024 100

Figure 34: South African Exports of Goods and Services (LCU), 2005-2014 101

Figure 35: South African LCU per USD, 2005-2014 102

Figure 36: South African Gross National Disposable Income (US$ Billion), 2005-2014 103

Figure 37:South African Good Exports as (% of GDP), 2005-2014 104

Figure 38: South African Good Imports as (% of GDP), 2005-2014 105

Figure 39: South African Goods Balance (% GDP), 2005-2012 106

Figure 40: South African Service Imports (% GDP), 2005-2014 107

Figure 41: South African Service Exports (% GDP), 2005-2014 108

Figure 42: South African Foreign Direct Investments (BoP, current US$ billion), 2005-2014 109

Figure 43: South African Net Foreign Direct Investments (% GDP), 2005-2014 110

Figure 44: South African International Reserves, including gold (US$ billion), 2005-2012 111

Figure 45: South African Market Capitalization of listed companies (% of GDP), 2005-2012 112

Figure 46: South African Mining, Manufacturing, Utilities Output (US$ billion), 2005-2014 113

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