Professor J Paul Dunne, Middlesex University Business School

Dr Peter Batchelor, Centre for Conflict Resolution, University of Cape Town

Dr David Saal, Middlesex University Business School

Secondary sources

Various databases in South Africa

Company interviews and survey information

Government sources

The main contribution of the project has been to provide a comprehensive analysis of the process of change underway within South Africa's defence industry and to investigate its economic implications. It has also sought to suggest alternative future conversion policies that would allow the reductions in military spending to have a positive impact on economic growth. The specific skills of the project researchers and data availability led to more of a focus on the industrial analysis than we had originally intended. However, this turned out to be extremely valuable in terms of the papers produced and their policy relevance.

The research questions contained in the proposal were addressed in our written outputs:

1. An evaluation of the theoretical literature on the economic effects of military expenditure and on policies of conversion from military to civilian production, to judge its applicability to South Africa. See P2, P9, P10, P11, P13, WP6, WP7.
2. An evaluation of the changing security environment in Southern Africa. Undertaken in detail in P3.
3. An analysis of the nature of the Apartheid defence industry and the changes that have taken place since the ending of Apartheid. See P2, P9, P10, P11, P13, WP6, WP7.
4. A macroeconomic empirical analysis of the effects of military spending on the economy, the impact of the reductions and evaluation of future policy options. Using reduced form models, Neo-classical (P5, P6, P8, WP1), Keynesian (P8) and using Granger causality analysis within a VAR framework (P1).
5. Microeconomic: A detailed industrial database was developed and analysed. See P7, DP6, WP2, WP4, WP5, WP6. A panel of defence contractors was constructed and analysed (P4) and a case study of DENEL undertaken (WP7).
6. An evaluation of the economic aspects of the arms trade, offsets and subsidies was undertaken. The arms trade (P12, WP3) and the recent offsets deals (P9).
7. The proposed comparative analysis proved unfeasible in the lifetime of the project but remains an important consideration for future work by the researchers
8. How policies of conversion might be developed as an integral part of industrial policy was considered (P2, P9, P10, P11, P13, WP6, WP7).
9. Attempts were made to respond to some of the criticisms of the referees, through the extension of our network of contacts, and improved data collection at the level of firms.

A number of substantive conclusions have emerged from the research

1. Military expenditure would appear to have a negative impact on economic growth in South Africa. This is particularly true when the models are estimated for the manufacturing sector.
2. Industrial level data provided further evidence of the negative effects of military spending and the damaging effects of 'mis-investment' in strategic industries (including armaments) during apartheid. Panel data methods provided a novel perspective on this problem.
3. Company level panel data analysis led to findings consistent with other countries with large defence industries. Financially, defence companies performed as well as non defence, but not in terms of growth. Private defence companies have been relatively successful in restructuring, but the public sector is still experiencing problems.
4. Overall, military spending has had a negative impact on economic development in South Africa and a re-allocation of resources from defence to civilian areas is likely to benefit the economy. A successful defence conversion policy could still be developed as part of a general industrial regeneration policy.

1. The project contributed important information and analysis to the debate over the dramatic downsizing and restructuring of South Africa's defence industry and fed into the production of the White Paper on South Africa's Defence Industry.
2. The project has questioned the economic aspects of the policy option of pushing for arms exports in the face of declining domestic demand. It has also analysed the issue of defence offsets, their role in the arms trade and their economic value.
3. The case study of South Africa, with its developing and developed country characteristics, provides important lessons for other countries. It also made an important contribution to the larger debate on the economic effects of military spending in developing countries, providing a valuable complement to the cross country econometric analyses which form a large part of the applied literature
4. The project has provided a wealth of information and its results have been widely disseminated and have had a considerable influence on policy debates within South Africa. Through conference presentations, seminars, lectures, publications and forthcoming publications the research findings are also feeding into academic debates in South Africa, the UK and elsewhere.

The success of the project has been in its production of a large number of high quality papers, their interest to a wide interdisciplinary academic audience, and their influence on policy within South Africa. The researchers have also had a high profile within policy fora in SA and have developed close working links with a number of government departments (DTI and DoD), while maintaining an independent position and have developed strong links with campaigning groups and civil society. They have also had considerable profile within the international media. Another important part of the proposal was the collection of data, including macroeconomic, industrial, regional, and company level. This is available through the project website. Valuable survey and interview information was also collected.

Less successful aspects of the project were the areas we failed to deal with. It was not possible to complete the macroeconomic model evaluation, regional analysis and the comparative aspect of the analysis. These failings were due to a number of practical problems. However, we feel that the project's extensive research at the industrial level more than compensates for these failings.

 Publications August 1997 Onwards

Edited book in progress: Brauer, Jurgen and Paul Dunne (eds) The Economics of Military Expenditures, Arms Production and Trade in Developing Countries. Edited collection from conference. Macmillan, forthcoming 2000. With Jurgen Brauer.

1. Batchelor: "Arms Production and Trade: The Case of South Africa and Zimbabwe", Southern African Regional Institute for Policy Studies Conference, Harare, Zimbabwe. September 1999.
2. Batchelor and Dunne: "Industrial Participation, Investment and Growth: The Case of South Africa's Defence Related Industry". Paper presented at the South African Trade and Industry Policy Secretariat Conference, Midrand, September 1999.
3. Dunne: "The Restructuring and Reinvention of the Defence Industrial Base" Paper presented to the COST A10 Workshop on Defence Restructuring and Questions of Identity, Copenhagen, September 1999.
4. Dunne: "An Econometric Analysis of Military Spending and Economic Growth in South Africa" and "Economic Growth and Productivity in South African Manufacturing" (with Alvin Birdi), Fourth Annual Conference on Econometric Modelling for Africa, University of the Witwatersrand, Johannesburg, July 1999.
5. Batchelor and Dunne: "The Restructuring of South Africa's Defence Industry and the Arms' Trade". Dunne presented a paper with Ron Smith and Eftychia Nikolaidou at a conference on "The Arms Trade, Security and Conflict", Middlesex University Business School, June 1999.

1998

6. Dunne: "Marxism and Militarism". Invited presentation to a colloquium on "Defence Economics and the History of Economic Thought", Espace Europe, University of Grenoble, December 1998.
7. Batchelor and Dunne: "The Restructuring of South Africa's Defence Industry". Presentation to the Trade and Industry Policy Secretariat Conference, Johannesburg, September 1998.
8. Batchelor and Dunne: Various papers presented to the CesA/IDN International Conference on Defence Economics and Security in Mediterranean and Sub-Saharan Africa. Lisbon, June 1998.
9. Dunne: "The Restructuring of Military Industry in South Africa", presentation to a conference on "The Economics of Military Expenditure in Developing and Emerging Economies", Middlesex University Business School, March 13-14^th, 1998.

1997

10. Dunne: "The Economics of the Arms Trade", presentation to a conference on "Globalisation of the European Arms Industry", Middlesex University Business School, September 19-20^th, 1997.

Peter Batchelor is the principal drafter of South Africa's Defence Industry White Paper (forthcoming). He presented the results of the report on restructuring options for Denel Pty (Ltd) to a seminar on the restructuring of South Africa's defence industry at the Department of Defence in October 1997. A background paper for BICC's 1998 "Conversion Survey" on the restructuring of South Africa's defence industry and published 'South Africa's Arms Trade', Bulletin of the Atomic Scientists September/October 1998. He visited Middlesex University Business School for six weeks over the summer of 1998 for planning meetings, to write up the research and to attend conferences and workshops. This included the International Conference on Defence Economics and Security in Mediterranean and Sub-Saharan Countries, (National Defence Institute, Lisbon, Portugal, June 1998) where the project team presented a number of papers. Peter Batchelor and Paul Dunne undertook ad hoc work for South Africa's Department of Trade and Industry during the period July 1997 - June 1998. They also undertook interviews and research on the defence industry with the support of the DTI in the first two months of 1999. The results of this research were presented to the Trade and Industry Policy Secretariat (TIPS) Forum in 1998 and 1999. A copy of the 1999 paper is available on the TIPS website. Peter Batchelor presented a paper on "The Restructuring of South Africa's Defence Industry" at a seminar at the Council on Foreign Relations, New York in January 1998. He was also part of the defence sector team on the Foresight Project in the Department of Arts, Culture, Science and Technology in South Africa (Jan-May 1999) and was commissioned to write a paper on "South Africa's Arms Trade and the Commonwealth" for the Commonwealth Human Rights Initiative, June 1999.

Paul Dunne organised three international conferences at Middlesex: 1) "The Globalisation of Military Industry and the Arms Trade", 2) "The Economics of Military Spending in Developing and Emerging Economies"; and 3) "The Arms Trade, Security and Conflict" where he, David Saal and Peter Batchelor presented papers on their research. Dunne made a trip to South Africa in September 1997 and with Saal in March 1998, to plan the research, collect and search out data, meet other researchers and to work with Peter Batchelor. David Saal presented a paper on the industrial level research to the Review of African Political Economy Conference in Preston UK. Paul Dunne gave a presentation to the Business Research Centre at Peking University, while on a visit to China. Paul Dunne accepted an invitation to become a member of the COST A10 working group on "Socio-economic and Cultural Aspects of Conversion and Defence Restructuring" and attended workshops at Bled, Paris and Copenhagen. Paul Dunne and David Saal made a number of presentations to internal workshops and seminars at Middlesex on the results of the research. In addition Paul Dunne gave seminars to the Department of Economics, Manchester Metropolitan University Nov 1998; Department of Economics, Lancaster University, Nov 1999 and University of Port Elizabeth, 1998. He also visited South Africa January and February 1999 for research and company interviews, July for a conference (MUBS support) and September for the TIPS conference (DTI support).

Paul Dunne gave various briefings to journalists in the UK and SA and wrote "Weapons that kill jobs and growth", Observer Sunday 27^th April 1997, "Conversion and Industrial Policy", The Engineer May 1997. Radio interviews included 9 July 1998 for Radio Birmingham interview and 11 July 1998 for BBC Radio Newcastle interview. Batchelor and Dunne were interviewed for South African TV and Swedish TV. Batchelor made numerous contributions to the South African media over the period of the project.

Other presentations included the Quaker Peace and Services Annual Conference 21-23 March 1997; Quaker meetings in Hove and Birmingham. Joint Services Command and Staff College, Bracknell 1 March 1998 and 5 March 1999; Cambridge Continuing Education: Contribution to a course on Defence Economics and Procurement: 22 Feb 1999 and 2 Nov 1999, Madingley; In addition, Dunne gave the Campaign Against the Arms Trade (CAAT) 1^st annual public lecture at the LSE on "The globalisation of arms production and trade" November 9^th 1999.