Defence in Malaysia: Industrial Development & Additional Capabilities

Of local design and manufacture, the vehicle has yet to win an order since it’s unveiling in 2006 (photo : Deftech)

In addition lies the fact that Malaysia’s defence industry is largely competing against itself for a small domestic market, in July 1999 the Malaysian Defence Industry Council was created to serve as a forum for the defence industry, the Council being headed by the defence minister and comprised of government officials and the heads of local defence companies. Under it are six working groups dealing with the six specified defence industry fields deemed strategic by the Malaysian government; Aerospace, Maritime, Weaponry, Automotive, Information Communications Technology and Commonuser Equipment, each being headed by a representative from the companies in the defence industry. However, given that the companies involved are competitors in a smallMalaysian domestic defence market, it is not surprising that little has come out in the form of a common approach to the industry’s development or joint development/cooperation efforts between the companies. The recent cooperation between three companies Composite Technologies Research Malaysia (CTRM), System Consultancy Services and Ikramatic System, to form a consortium to develop the ALUDRA (Allianced Unmanned Developmental Research Aircraft) UAV was a result of a government directive to the companies to collaborate rather than compete against each other in developing a UAV for the Malaysian Armed Forces.

There has been little interest among Malaysian defence companies towards mergers or consolidation, the only exception being Deftech’s MYR6 million ($1.75 million) takeover of MMC Defence in January 2007 and renaming it Defence Services, MMC Defence was the local industrial partner for Poland’s Bumar in the supply of 48 PT-91M MBTs to Malaysia and provided in-country support for the tanks. The move allowed Deftech to ensure additional work for itsmain factory in Pekan, which was used to assemble 259 FNSS ACV-300 AFVs ordered by Malaysia. Deftech also provides various wheeled vehicles for the Malaysian army ranging from its Handalan II truck design to various other truck and wheeled vehicles from it’s foreign partners which include Daimler Chrysler for G military vehicles, Alvis for Supacat, Mowag for Duro vehicles and Iveco for heavy duty military trucks. In 2005 Deftech completed a 69 vehicle order for Handalan II trucks for the Royal Brunei Armed Forces. The company’s indigenously designed 4x4 AV4 light armoured vehicle illustrates the problem faced by Malaysian defence companies, having debuted the vehicle in 2006 with the expectation that the Malaysian Army would purchase the vehicle, the company has had to instead face the reality that there is little interest by the Malaysian government to purchase the AV4.

 Manufactured by Deftech, the truck is in widespread use with the Malaysian Armed Forces and is also used by the Royal Brunei Armed Forces (photo : Deftech)

For research and development, the Malaysian Defence Ministry has the Science and Technology Research Institute for Defence (STRIDE) which along with conducting its own research and development programmes, collaborates and provides limited funding for local defence companies for R&D and also provides technical and scientific evaluations for the Malaysian Armed Forces. However, STRIDE has only a small funding allocation for R&D, for the 2006-2010 timeframe, it was only allocated MYR17.5 million ($5.1million) a figure that clearly precludes any significant R&D programmes.
Since his appointment in 2009, Defence Minister Dato’ Seri Ahmad Zahid Hamidi has been pushing two initiatives in regard to the Malaysian defence industry. The first one calls for the establishment of an ASEAN (Association of South East Asian Nations) Defence Industry Council to promote cooperation and trade between ASEAN member countries in their respective defence products. However there has been little response from other ASEAN countries as to whether they would be willing to create and support such an organisation. Coupled with the fact that many ASEAN countries see little need to purchase defence equipment from fellow ASEAN members, it appears highly unlikely that the idea of an ASEAN Defence Industry Council will be realised. The second initiative is the proposed establishment of a Defence Technology Park in Malaysia which is to serve a regional hub for the both defence research and production. The proposed Defence Technology Park covers 492.5 hectares of land located at Sungkai in the peninsular Malaysian state of Perak. A two year study plan for the proposal to be carried out by Masterplan Consulting was announced at the Langkawi International Maritime and Aerospace (LIMA) 2009 show. At the same show, French Defence Minister Herv_ Morin stated that France was looking to assist Malaysia in developing its indigenous defence industry with the potential for outsourcing work to Malaysia in regard to French defence sales in the region though he also stated that this was all in the preliminary stage and would depend on which field of defence industry that the Malaysians were wanting to develop.

 

Another products of Deftech (photo : Deftech)

In terms of future major local defence industry manufacturing programs, only two programmes are expected to materialise soon, both of which are naval shipbuilding programs, the first onewill be the follow-on Batch 2 ships of the Kedah class Next Generation Patrol Vessels, ofwhich sixwould be built and which would be larger and armed with antisurface and anti-air missiles in contrast to the lightly armed first batch whose armament consists only of a 76mm main gun and two 30mm cannons. The programme was originally thought to be of secondary consideration in contrast to the proposed local construction of two BAE Systems Batch 2 Lekiu class frigates, however with the government indefinitely postponing the frigate programme, the Batch 2 NGPVs have come to the fore, particularly with Boustead Naval Shipyards, which built the Kedah class, nearing completion of the final ship of the six ship class. At LIMA 2009, Malaysian PrimeMinister Dato SeriNajib said that the Batch 2 NGPV was of priority as Boustead had some over 2000 local subcontractors dependent on its shipbuilding work. However, he did not indicate as to when the Malaysian government would actually allocate funding and begin the programme.

The other shipbuilding programme would be the Malaysian Multi-Purpose Support Ship (MPSS) program. With the RMN’s loss of its LST KD Sri Inderapura in October 2009 to a ship fire, it is expected that the programme, which was postponed in 2008 for financial reasons would be started again with a decision made this year. The requirements call for up to three ships, with the joint capacity of two ships able to completely transport an entire Malaysian Rapid Deployment Force Battalion. Individual ship requirements are for a capacity of 500 troops and 100 vehicles, an 18 knots speed with 8,000nm endurance using diesel engines, landing deck capacity for 2-3 helicopters and storage capacity for four helicopters and four LCM along with a possible installation of a missile system for point defence and the ability of the ship to act as a command platform and floating headquarters for joint and amphibious operations. The Malaysian industrial requirement would allow the lead ship to be built in the country of origin of the design but the remaining ships would have to be built in Malaysia. The purchase of a 66 percent stake in South Korean shipbuilder TKS Co Limited by Malaysian shipbuilding company NGV Tech, a deal which was signed at LIMA 2009, has led to speculation that the Korean Dokdo design would be chosen and that NGV Tech would be the Malaysian company for the programme though nothing concrete has emerged to indicate that this was the case.
 

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.