Andy Nativi Genoa and Bill Sweetman Washington

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.