On the eve of the African Aerospace and Defense (AAD show at Waterkloof air force base near Pretoria, a good deal of interest will be focused on one of South Africa's most ambitious defense projects—the Paramount Group's Advanced High-Performance Reconnaissance Light Aircraft (Ahrlac). When Paramount unveiled the design last September the company said that it was hoping to fly the aircraft in the second quarter of the year and make its public debut at AAD. No first flight has been announced, but Paramount plays things close to the vest (the project was kept entirely under wraps until early 2011) and hints at “updates” to come soon.

A close rival to the Embraer Super Tucano and Hawker Beechcraft AT-6B—slightly slower, but designed for better endurance and short-field capability—Ahrlac appears at a point when interest in small combat and reconnaissance aircraft is rising, both as low-cost close-air-support assets and as alternatives to unmanned air vehicles, in areas where UAVs are inadequate or restricted in use. Paramount says Ahrlac has been designed to fill an operational need that the company found in one of its main lines of business—providing hardware and training support to peacekeeping operations. The requirement, simply, is to provide armed reconnaissance cover for such operations without breaking the bank.

Paramount has continued to notch successes in one of its other core businesses, the development and production of affordable protected land vehicles. A potentially important announcement in June was an agreement between Paramount and Singapore's ST Kinetics to market, build and support a joint family of wheeled armored vehicles, headed by ST Kinetics' 8 X 8 Terrex infantry fighting vehicle and including Paramount's mine-protected 6 X 6 Mbombe and its range of 4 X 4 vehicles, including internal-security and mine-protected models. While Paramount has many co-production agreements, this is the first time that it has teamed up with a company in the high end of the vehicle market.

The development of Paramount and other export-oriented enterprises is essential for South Africa's defense industry, which since the end of the apartheid regime has been mismatched to the nation's strategic and political needs.

South Africa boasts one of the most technologically skilled defense industries in any emerging country, but the main domestic customer—the South African National Defense Force (Sandf)—cannot sustain a large industrial complex, and competing to win foreign contracts is becoming more and more difficult.

The local industry still accounts for 15,000 workers and contributes a substantial 12 billion rand ($1.4 billion) in revenues to the domestic economy, with about 50% coming from export contracts. Furthermore, it invests close to 1 billion rand in research and development and sustains highly skilled jobs, which are crucial in South Africa.

However, the post-apartheid South Africa had no immediate enemies at its borders and was no longer forced by a U.N. embargo to be self-sufficient to meet its reduced defense needs. At first, this drove a massive reduction in terms of size and capabilities. On the other hand, the government launched massive defense modernization efforts through a number of big-ticket programs, which not only allowed the Sandf (mainly the air force and the navy) to renew its equipment, but also were intended to allow technological transfer and the creation of skilled jobs while reinvigorating the local industry. The deals also allowed and encouraged partnerships with foreign companies, which were mandated under stringent offset agreements to invest locally, preferably by establishing a local presence.

The biggest of these programs has been the acquisition of the Saab Gripen fighter. The jet made its operational debut in 2010, as part of a force providing counter-terror overwatch of the World Cup soccer tournament, and the air force (SAAF) has learned some useful lessons from that and other operations.

The Gripen is not expensive to operate versus other supersonic fighters, but it is costly relative to the defense budget, and the air force has learned some cost-saving techniques such as hot-refueling between sorties, minimizing afterburner use, and switching to new tires that last twice as long in hot weather.

The SAAF Gripens are well-equipped and the operation is quite sophisticated. The air force uses strike navigators in the back seats of its JAS 39Ds and says that the World Cup overwatch proved their value. The same operation saw wide use of the Rafael Litening targeting pod, and the Thales Digital Joint Reconnaissance Pod is being procured. The force is equipped with the BAE Systems Q-Sight helmet mounted display (HMD) and the Diehl-BGT IRIS-T air-to-air missile, although the plan is to replace that with the South African/Brazilian A-Darter. Live tests of the GBU-12 Paveway II laser-guided bomb have been carried out, and the air force plans to follow that system with the Denel Dynamics Umbani bomb family, which features multiple seeker options and a long-range wing kit.

The Gripen operation also brings South Africa into contact with other advanced and professional armed forces—a trend which is being continued with the establishment of a Gripen Fighter Weapons School at the SAAF's Overberg base, in the southern Cape area, to be operated by Saab. The plan is to start modestly, but there are clearly hopes for growth. South Africa offers a lot of space for test ranges—including live-weapon sites close to Overberg, and open ocean all the way to the South Pole—and a location less than a 3-hr. drive from Cape Town, which has to be considered an advantage over Holloman or Eielson AFBs, to mention two U.S. training sites.

However, the “gold rush” of contracts and partnerships related to these major acquisitions is now winding down.

Local economic conditions, with low labor costs and the high technological level of several local companies, convinced international companies to keep or create a high-profile presence in the country, mostly by acquiring local companies or creating joint ventures that are not intended only to serve the Sandf customer. Therefore it is not surprising that a good chunk of the South African defense industry is now made up of foreign-controlled or -owned companies and joint ventures, such as the South African units of BAE Systems, Saab, Thales, Siemens, Zeiss and Rheinmetall.

There is also a wealth of independent companies, starting with Denel—which is state-controlled and will remain so, possibly moving from the Ministry of Public Enterprises to the Ministry of Defense under the proposed South African Defense Review, which Defense Minister Lindiwe Sisulu presented last April. There also several privately owned companies, including Reutech, Grintek, Paramount, Reva, ATE and Damen, which have developed state-of the-art-systems and technologies.

The whole defense industry complex, however, is threatened by the wrap-up of the first wave of major acquisition programs, combined with the lack of relevant Sandf investments in research and technology. In many cases a foreign customer is needed to support new developments (such as Ahrlac), or, at least, a joint program is required to split the R&D costs (such as those conducted by South Africa and Brazil in the missile arena).

Many South African products are interesting to the market because they are based on the lessons learned during years of counterinsurgency warfare or operations in difficult terrain. For instance, South Africa invented the V-hull mine-protected vehicle, and continues to market that experience through Paramount and BAE Systems, which is introducing the all-new RG35 family of 4 X 4 and 6 X 6 reconnaissance, patrol and utility vehicles.

Technologically, South Africa's weapon systems are as advanced as anything on the market, with a double advantage in some cases: The nation's embargo-driven independence ensures that its products are free from the U.S. International Traffic in Arms Regulations regime, down to the component level, and it can sell in areas where Israel, a leading non-ITAR supplier, cannot.

South Africa is one of the few countries able to offer an armed UAV for export—the Denel Dynamics Snyper, a version of the Seeker 400 armed with the new, locally developed Mokopa light missile. But the case epitomizes the South African problem: Even if the South African forces have a stated requirement for a new UAV, the Seeker 400 being the leading candidate, they have no money to buy it, nor can they provide the money needed to exploit its technological potential.

Indeed, South Africa boasts a small, fully professional military, which is nominally 78,000 strong (out of a population of 49 million), including civil servants, but which is severely understrength. South Africa, even more than Nigeria, is a true African regional power, but lacks the resources to play such a role. It has been forced to reduce the number of troops deployed abroad from 2,280 to 1,985, and deploying even a single frigate in anti-piracy mission in the Mozambique Channel proved to be very costly. The Sandf has also been tasked with the very demanding and costly border control mission, putting stress on the budget for operations and equipment maintenance.

South Africa has no resource or border disputes with its neighbors and has no problem securing its vital sea lanes of communications. It is therefore not surprising if the navy's main priorities are the acquisition of two types of offshore patrol vessels and a number of support and logistic ships. The army is expected to be rebuilt around a single mechanized division, a motorized division (to be used mainly for peacekeeping duties) and a special forces brigade. The army should still receive the logistic vehicles planned under the Vistula program, and most of the armored fighting vehicles envisaged under the Hoefyster program. The air force's main need is for tactical transport and maritime patrol aircraft and to complete the equipment of the Gripen and Hawk forces.