03 Mei 2010

Defence in Malaysia: Industrial Development & Additional Capabilities (1)

03 Mei 2010

With the six ship class almost completed, shipbuilder Boustead Naval Shipyard is hoping to get an order for an improved Batch 2 class (photo : Malaysian Defence)

Malaysia’s defence industry today contributes to the growing supply of military assault rifles, small caliber ammunitions, unmanned air vehicles (UAVs), patrol vessels, information and communications technology (ICT) based solutions and military gear and apparel.

The country’s industry has also developed capabilities to undertake activities in the areas of maintenance, repair and overhaul, upgrades and modernisation in certain areas as well as the capability to manufacture parts and components for both local and foreign markets.

SME Ordnance Sdn Bhd (SMEO) has licence to make Colt's M4 assault riffle for the procurement of 14,000 rifles in a RM70mil deal. (photo : coltguns)

However, taken as a whole, the Malaysian defence industry still has a long way to go before it fully meets the needs of the Malaysian Armed Forces and becoming a major defence exporter. For instance, other than licensed production of the Colt M-4, Malaysia does not manufacture any other weapons or weapon systems, leaving the Malaysian Army wholly dependent on foreign suppliers for the majority of its weaponry. Similarly, despite building its six Kedah class Next Generation Patrol Vessels, the NGPVs are lightly armed and it remains to be seen as to whether Malaysia can successfully build more sophisticated and heavily armed ships.

The other problem that the Malaysian defence industry faces is the fact that Malaysia’s defence procurement can be summed up as erratic at best as governments have no problems in postponing defence programmes or allowing timeframes to slip.

Designed by a consortium of three Malaysian companies, the UAV is currently undergoing operational testing and evaluation (photo : CTRM)

The development of the Malaysian defence industry started in the early 1970s when the country embarked on the establishment of a government owned ordnance factory. This was then followed by the privatisation of the depot facilities of the Royal Malaysian Air Force and the Royal Malaysian Navy in the 1980s and 1990s. The 1990s also saw the Malaysian government placing a requirement for offset programmes and technology transfer to be included in any purchase of foreign defence equipment although neither were required to be military or defence industry related. This was in line with the then Prime Minister Mahathir Mohammad’s ‘Vision 2020 ‘ goal of making Malaysia a fully industrialised and technologically advanced nation by 2020 and in line with this was the development of Malaysian industries, especially the aerospace and defence industries via transfer of technology and offset programmes.

Adding impetus to the development of the local defence industry was a change in the strategic thinking as to the role of the Malaysian Armed Forces. Up until the late 80’s, the armed forces had by and large been focused on the counter-insurgency role due to the need to suppress the remnants of the communist insurgency. This changed though as there was a realisation that the armed forces would have to deal with conventional, external threats and thus it would have to transform from a largely infantry based army, supported by a brown water navy and a small air force to a modern armed force with both the Navy and Air Force becoming service arms with greater roles than simply supporting army operations as had been the case in the past.

The 259 vehicles all types in use with the Malaysian army are all assembled locally by DRB-Hicom Defence Technologies/Deftech (photo : Militaryphotos)

However the transformation had a price as naturally this meant new and more sophisticated equipment had to be purchased and it became clear that it was no longer financially feasible to rely largely on foreign companies, not only for procurement but also for support and maintenance due to the increasingly complex equipment being operated by the Armed Forces, this was coupled with the depreciation of the Malaysian Ringgit relative to the US Dollar along with the rise of the Euro, all of which made foreign transactions more costly. Thus, turning to local defence companies made fiscal sense. Moreover from a security standpoint, it was also necessary not to be overly reliant on foreign sources for procurement and support as Malaysia had no control over access and availability and it was seen as necessary to have a domestic capability to support and maintain any military equipment of foreign origin and to also reduce reliance on foreign manufacturers, through having an indigenous defence industry.

FNSS developed the ACV-300 based on the AIFV to meet the Turkish Land Forces Command's (TLFC's) operational requirement. The Malaysian version of the AIFV is a result of a collaboration between FNSS and the Malaysian company Deftech. Malaysia's ACV-300 tanks are nicknamed the Adnan (photo : kmbyaf)

However while the defence industry has grown somewhat steadily, it has still yet to be able to fully meet the needs of the Malaysian Armed Forces. Armed Forces Chief General Tan Sri Azizan Ariffin stated in 2009 that only 30 percent of the Armed Forces’ needs were met by the local defence industry. Some of the shortcomings in theMalaysian defence industry can be traced to the government itself, although the Malaysian government had formulated the Defence Industry Blueprint which lays down the strategy and policies for development in six fields. There are five areas of common emphasis for each field, namely the development of human resources and competencies, technology development, industrial development, self sufficiency and international marketing. The Blueprint also had it’s shortcomings in that it did not lay down specific goals or benchmarks to achieve in the development of the Malaysian defence industry and furthermore, placed much of the burden for developing the defence industry on industry itself, rather than the government. The fact is that an indigenous defence industry, particularly for a small country like Malaysia, is not very profitable and cannot sustain and develop itself without government support, particularly fiscally. In addition, the Malaysian government’s emphasis for local defence companies to rely on private financing ignores the fact that for defence companies to attract investment, the potential for a return must be shown which leads back to the erratic and ambiguous nature of the Malaysian government’s plans for defence procurement. Given the uncertainty as to the Malaysian government’s commitment to support any particular military programme, this makes it difficult for Malaysian defence companies to attract investment given the fact that little assurance exists for any return.

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