DEFENCE INDUSTRIAL PARTICIPATION (DIP)

1. Industrial Participation (IP), on a national basis, became mandatory on 1 September 1996 upon approval by the Cabinet of the Government of South Africa of the principle to utilise government procurement as an instrument to leverage, through the IP programme, economic and industrial benefits and support for the further development of the country. In this regard it should be noted though that Armscor has been applying the offset principle to an array of defence contracts since 1989.
2. In terms of the national IP policy, Industrial Participation becomes obligatory when government departments and parastatals such as Armscor conclude foreign procurement, purchases or lease contracts of which the value exceeds USD 10 million, in which case an IP obligation will be attracted by the foreign vendor. In terms of the national IP policy, the required IP obligation will be at least 50% of the value of the contracts.
3. The national Industrial Participation policy however provides for the purchaser (in this case Armscor, acting for and on behalf of the Ministry of Defence), to require IP on purchases of less than USD 10 million and to also increase the IP obligation to a level above that which is prescribed in the national IP policy.
4. In line with these provisions of the national IP policy, and in addition to the minimum requirements as set out in this policy, the Ministry of Defence (MoD) and Armscor's IP policy impose an IP obligation on all defence purchases exceeding a value of USD 2 million. The nature of this initial obligation will be to focus on strategic business concepts primarily within the domain of the defence industry, and is commonly known as "Defence Industrial Participation" (DIP). The Armscor IP policy furthermore stipulates a minimum countertrade commitment of at least equal to the value of the purchase contract (100% IP requirement).
5. In respect of defence contracts with a value above USD 10 million, the requirement for National Industrial Participation comes into being in addition to the Defence Industrial Participation requirements. The total required IP commitment remains at a value of at least equal the value of the purchase contract, typically with a 50-50 split between the required relative values of the DIP and NIP components.
6. In order to further clarify the concepts of DIP and NIP:

   Defence Industrial Participation (DIP) is the process where purchases of the Department of Defence are used as a leverage to oblige a foreign seller of defence commodities/services to do defence-related business in South Africa on a reciprocal basis in order to advance military strategic and defence-related industrial imperatives.

   National Industrial Participation (NIP), on the other hand, relates to business in the commercial, or non-defence sectors and is administered by the Department of Trade and Industry (DTI) in accordance with their laid down rules and procedures.

In summary

Defence Industrial Participation is mandatory on all foreign defence purchases above USD 2 million.

• Defence purchases exceeding USD 2 million but less than USD 10 million: Require a Defence Industrial Participation obligation of up to 50%.
• Defence purchases exceeding USD 10 million: Require a Defence Industrial Participation obligation of at least 50% and a National Industrial Participation obligation of at least 30%.

Usually an Industrial Participation of at least 100% is requested, split equally between Defence Industrial Participation and National Industrial Participation.