ATC231128: Report of the Joint Standing Committee on Defence Following Its Engagement with Members of the South African Defence Industry at Rheinmetall Denel Munition and Damen Shipyard, Dated 23 November 2023

Defence

Report of the Joint Standing Committee on Defence Following Its Engagement with Members of the South African Defence Industry at Rheinmetall Denel Munition and Damen Shipyard, Dated 23 November 2023

 

1.         INTRODUCTION

 

Members of Parliament’s Joint Standing Committee on Defence (JSCD) visited Rheinmetall Denel Munition (RDM) in Somerset West and Damen Shipyard in Cape Town on Friday 3 November 2023. The visit to the two facilities in the Cape Town-area provided the Joint Standing Committee members with insight into the status of artillery munition development and availability for the South African National Defence Force (SANDF), which is crucial to its operational readiness, as well as a progress update on Project Biro which is delivering three new Inshore Patrol Vessels (IPV) to the SA Navy.

 

RDM, with Denel as a minority shareholder, is the primary provider of artillery munition to the SANDF. During the JSCD’s Study Tour to Germany, Members engaged with the parent company, Rheinmetall Germany, and therefore identified a visit to RDM as important. Of specific focus was the need to address the production of legacy munitions for the SANDF by RDM in South Africa and engagements on the arms control regime in the country.

 

Damen Shipyard is the sole provider of the SA Navy’s new IPVs under Project Biro and, as part of the JSCD’s ongoing oversight of the Project, an oversight visit was deemed necessary. The project already delivered two IPV’s to the SA Navy and during the visit members were able to monitor the progress and production of the third and final IPV.

 

 

1.1       Defence Committee Members and Support Staff

 

The Delegation comprised of the following:

 

Members of the Defence Committees:

 

African National Congress

Mr VC Xaba – Co-Chairperson

Mr TN. Mmutle

Ms TI Legwase

Ms MRM Mothapo

Ms A Phetlhe

Ms A Mthembu

Ms M Bartlett

Ms N Nkosi

 

Democratic Alliance

Mr SJF Marais

 

Support Staff

Dr WK Janse van Rensburg      -           Content Advisor

Ms N Maxhegwana                   -           Committee Secretary

Mr G Mankay                            -           Committee Assistant

 

Representatives from Rheinmetall Denel Munition (RDM):

Dr F Dirksen                                         Chief Executive Officer

Mr A Colangelo                         General Manager: Sales                                   

Mr A Africa                                           General Manager: Business Development and Communications

Mr S Khoza                                           Regional Owner: Africa Sub-Sahara & South Asia

Ms A Tshabalala                                   General Manager of Human Resources

Mr T Shandu                                         Executive Manager: Export/Import Control

Representatives from Damen Shipyard Cape Town (DSCT):

Mr Sam Montsi                         Director

Ms Safele Montsi                                  Director

Mr Jankees Trimpe Burger                    Managing Director

Mr Jos Govaarts                                   Manager Projects

Ms Eva Moloi                                        Human Capital and Transformation Manager

Mr Mark Grootboom                              Supply Chain Manager

 

2.         PRESENTATION BY RHEINMETALL DENEL MUNITION

 

The Chief Executive Officer (CEO) of RDM welcomed everyone present and gave a brief introduction about himself, including that he is new in the position and started on 1 September 2023. This was followed by a presentation by the CEO and a number of RDM managers. The presentation provided an overview of RDM as a company, including that Rheinmetall owns 51% of the company and Denel 49%. RDM produces a variety of products including an artillery suite, the RDM mortar suite and chemical products. RDM has several sites across South Africa, including in Somerset West, Laingsdale, Wellington and Boskop.

 

RDM further indicated that it is partnering with academic and research institutions such as University of Kwazulu-Natal, the University of Stellenbosch, the University of North West and the Council for Scientific and Industrial Research (CSIR) for projects and collaborations. RDM is currently busy with installation of solar PV Power Generation Facility at its Somerset West facility for which the environmental approval has been attained.

 

In terms of social responsibility, RDM has partnered with a number of SMME’s for, among others, garden services, plumbing services, internal transport services, car wash services, cleaning services, catering and canteen services, and mechanical repair services. Some of these companies are owned by military veterans. As a way of giving back to South Africa, RDM has a Day-Care centre in Somerset West which was established in 2020/21 and hosts 160 preschool children while employing 24 personnel. RDM also provides equipment and infrastructure to schools to improve quality of learning, including the Sonyongwana High School in Kwazulu-Natal and Macassar High School in Cape Town. A number of bursaries for employees and bursaries to external applicants related to engineering students are also offered. RDM also focuses actively on increasing female participation in the company and broader industry.

 

3.         OBSERVATIONS BY THE COMMITTEE

 

During engagements with RDM personnel, the Committee made the following observations:

 

• The Committee observed that no dividends were paid to Denel over the past two years, but that profits were instead reinvested to increase RDM’s production capacity in order to increase future profits. This was done with the full approval of all stakeholders, including Denel.
• The Committee noted that regular engagements between all stakeholders take place, including between RDM and Denel, and that RDM regularly reports to the Supervisory Board.
• RDM claimed to have a good relationship with the Directorate for Conventional Arms Control (DCAC) and that RDM makes use of a dedicated single point of contact between itself and the DCAC. However, the Committee observed previous input that the industry, including RDM, would like to see a quicker shift to a fully digital and industry-friendly administrative service from the DCAC.
• In terms of legacy product production for the SANDF, the Committee observed that such production requires an entirely new production line to be set up and that this may cause problems in terms of delivering products on time. As a means to overcome problems, RDM holds monthly management meetings with Armscor. The Committee also noted observations from RDM that the company needs to strike a balance between supporting the home market, but also be globally competitive. If the SANDF was on new systems, it could make use of cheaper ammunition produced for global market and, for example, purchase overruns at a prices lower than premium for a small special run exclusively for the SANDF.
• The Committee observed that RDM was also affected by the declining defence budget in South Africa.
• The Committee observed that RDM maintains a number of internal audits and is externally audited by Deloitte.
• In relation to the loss of Denel’s Umkhonto Missile contracts with foreign navies, the Committee observed that RDM also lost on potential income as it produced a part of the missile. However, RDM continues to provide a maintenance service to the Umkhonto missile in use with the SA Navy.
• In terms of the maritime transport of ammunition, the Committee observed that RDM complies with international standards and the Maritime Safety Act when transporting products. Further, chemical products are transported by specialised trucks which also comply with all the relevant legislation, including environmental legislation.
• The Committee observed that RDM has a budget of R6.1 million for skills development for military veterans in the current financial year.
• The Committee observed that RDM does assist the SANDF through Armscor with the de-militarisation of ammunition.

 

4.         PRESENTATION BY DAMEN SHIPYARD CAPE TOWN

 

The Director of Damen Shipyard Cape Town, Mr Sam Montsi, welcomed the Committee and gave an introduction. He provided an overview of the Shipyard as well as the history thereof, stating that it was formed it 1988 and named Farocean Marine. In 2008, the Damen Group bought shares and renamed Farocean Marine into Damen Shipyard Cape Town. In 2010, Damen Shipyard Cape Town had the first onsite training facility and in 2013 the Repairs and Services Division was launched. In 2018, Project Biro commenced which includes the production of three IPVs for the SA Navy. To date, Damen Shipyard Cape Town has delivered 37 vessels to the market and employees more than 300 people in Cape Town.

 

The broader Damen Group has over 12 500 employees and over 35 Shipyards across the world. The Company is active in a number of markets including Habour and Terminal, Offshore Energy Wind, Offshore Energy Oil and Gas, Defence and Security, Yachting, Dredging, Public Transport, Seagoing Transport, Inland Shipping, Fishing, Aquaculture, Pontoons and Barges, Environmental Safety and Control, Civil and Specials. Damen is also expanding its military offering and has recently won a contract to build four large frigates for the German Navy.

 

In terms of progress with Project Biro, two IPVs have been delivered to the SA Navy in May 2022 and September 2023, respectively. The third IPV is still under construction and the expected delivery date is in the fourth quarter of 2024. The IPV project has led to an increase of 50% in employment at the shipyard.

 

In terms of Enterprise Supplier Development (ESD), Damen Shipyard Cape Town commissioned Zevoli Growth Partners to develop and implement its ESD Programme in 2022. Through an innovative ESD programme facilitated by Zevoli, Damen Shipyard Cape Town has managed to increase the participation of black-owned SMME’s within both its supply chain and in the wider economy by sustaining the entrepreneurs and small business suppliers.

 

Finally, it was noted that Damen Shipyard Cape Town complies with the Government regulations as it does have the registration certificate and marketing permit from the National Control Arms Conventional Committee (NCACC).

 

5.         ENGAGEMENT WITH DAMEN SHIPYARD CAPE TOWN

 

During engagements with Damen Shipyard Cape Town personnel, the Committee made the following observations:

 

• In terms of engagement with the DCAC and NCACC, the Committee observed that while Damen Shipyard Cape Town has a good relationship with the DCAC, the DCAC still lacks a transparent and effective system of communication to the industry. Damen Shipyard Cape Town further welcomed the December 2022 DCAC roadshow that was held in Cape Town to engage industry roleplayers.
• The Committee noted observations made by Damen Shipyard Cape Town that there are opportunities for maritime companies, including Damen Shipyard Cape Town, to bring domestic business to the Armscor Dockyard without impacting on the service to the SA Navy.
• The Committee noted that South Africa needs to be serious about its maritime safety, but that budget cuts are having a major impact on its ability to perform in this regard.
• The Committee observed how other regional navies are expanding their fleets, but that they do not make use of South African shipyards, indicating a need for better engagement with regional counterparts.
• The Committee observed the importance of the local shipbuilding capabilities and noted that further fleet replacements will be required in the near future, including, for example, the SAS Drakensberg.
• The Committee observed that South Africa has a large maritime territory to control that was not possible without an adequately equipped navy.
• The Committee noted the stated need for a fourth IPV to be procured as the planned fleet of three IPVs will result in limited operational availability due to deployment and maintenance cycles.  
• The Committee observed that the need for the Offshore Patrol Vessels under Project Biro remains.

 

 

 

 

6.         RECOMMENDATIONS BY THE COMMITTEE

 

Based on the observations above, the JSCD makes the following recommendations:

 

• The Committee recommends that the National Treasury and the SA Navy give strong consideration to the procurement of a 4th IPV as was made clear in the SA Navy requirements to Parliament in May 2023 as this will ensure increased operational availability, less affected by deployment and maintenance cycles. However, this should be considered against all needs of the SANDF in broad and the SA Navy in particular, aimed at ensuring the country’s territorial integrity.
• The Committee also advises the 7th Parliament to further investigate naval acquisition needs over the medium to long term and advise Parliament, the DOD and National Treasury on these matters.
• The Department of Defence should submit a written report to the Committee on the breakdown of expected sea hours (1) over the medium-term given currently funded maintenance programmes, (2) how these would reflect if a 4th IPV should enter service. This should be submitted within 30 days of the adoption for his Report.
• The Committee recommends that the JSCD, in the 7th Parliament, again visit RDM to have follow-up engagements on the company’s support to the SANDF and to view their production facilities in full.

 

The Committee wishes to thank the management of RDM and Damen Shipyard Cape Town for its willingness to host the Committee and for its continued support to the SANDF.

 

Report to be considered.