Defence Sector Code

This articles explains the basics of the Defence Sector Code.

Legal references
Gazette #42021 dated 09 November 2028

The National Development Plan
The Defence Industrial Participation Programme
The National Industrial Policy Framework
The Industrial Policy Action Plan
The Black Industrialists Policy
The South African Defence Review, 2015

The Minister of Trade and Industry gazetted the Defence Sector Code on the 9th of November 2018.

The scope of application applies to all organisations operating in the South African Defence Industry (SADI) in its entirety including national and provincial departments, organs-of-state and public entities.

The South African Defence Industry is defined as a collective term for South African Defence Related Industries. It means those operating in the public and private sector, including commercial organisations and business units of such organisations that are directly or indirectly active in the design, research, development, manufacture and marketing of Defence Material. The scope includes private organisations providing Defence Material and/or any other supplies, products and services to the Department of Defence, whether procured locally or from foreign suppliers.

Defence Sector Code vs Generic Codes

The Defence Sector Code does not deviate from the Generic Codes in terms of Priority Elements, Sub-Minimum Requirements or the Discounting Principle.

The Scorecard is given below.

Ownership is a Priority Element.

Targets are expected to be met within three years of the implementation of the sector code.

In Year One, the target is set at 25% Black Ownership, of which 10% must be Black Woman-owned. In Year Two and Three expected increases should be 30%, 35% and 15% respectively.

Management Control

As per the Generic Codes, use of the Economically Active Population targets are applicable. Once again, the compliance target is done over three years, with targets increasing for each respective occupational level.

Skills Development

The targets closely resemble those set out in the Generic Codes with the difference being the indicator targets expenditure for Black Military Veterans. The compliance target is set at 1% of the overall 6% expenditure required and includes a Learnership, Apprenticeship or Internship requirement aimed at Black People from Designated Groups.

Enterprise & Supplier Development

This introduces a target of 1% Net Profit After Tax (NPAT) to be contributed to the Enterprise and Supplier Development Fund for an additional 5 Weighting Points. Supplier Development only requires a 1% NPAT investment in contrast to the 2% NPAT target required in the Generic Codes.

A Localisation element was introduced and is unique to this sector code. This element aims to encourage local procurement of Defence Material and other services in exchange for 10 Weighting Points.

If at least 60% of procurement is not possible, a written request for exemption from compliance must be submitted to either Armscor or the Department of Defence. A clause in granting an exemption is that an Enterprise and Supplier Development plan must be developed over and above the contribution to the Enterprise and Supplier Development Fund. Compliance as per the clause will afford 6 Weighting Points under this element.

Socio-Economic Development aligns with the requirements set out in the Generic Codes.

Author Craig Tonkin

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