The major internal security development in South Africa in Q208 was the outbreak of very serious antiimmigrant riots in a number of areas of the country. The wave of violence, much of which was concentrated in and around Gauteng province and the Johannesburg area, started on May 11 and over the rest of the month led to the death of 62 people, with hundreds injured, and tens of thousands displaced from shantytowns where they were living to new makeshift camps. In BMI’s view, this indicates that the country could be facing a series of upcoming security challenges in 2008-2009. With Presidential elections due in 2009, Jacob Zuma remains the current favourite to win, having received the backing of the ruling African National Congress (ANC) at its annual conference in late 2007. Zuma continues, however, to face serious corruption charges due to come to court in August 2008 or later. Tense relations between his supporters and those of outgoing president, Thabo Mbeki could also create a degree of political turbulence. South Africa faces internal and external security threats. Internally, it faces the daunting challenges of an anti-immigrant xenophobia, well-established organised crime and drug trafficking network, a vast wealth disparity, and large scale of HIV infection within its population. Its security concerns also extend beyond its borders. As the hegemonic power in the continent, and particularly in the southern Great Lakes region, it has a heavy involvement in the continent’s trouble spots in terms of security forces/peacekeeping deployments. While the numerous security threats in the region have the potential to destabilise South Africa on a variety of levels, the potential for its neighbours – particularly Zimbabwe – to destabilise it, economically and politically, is especially strong. The defence industry witnessed major upheaval when the lifting of the arms embargoes on South Africa led to competition with foreign companies. With the South African National Defence Force (SANDF) no longer a captive customer of the sector, companies have had to shed large sections of their workforce, leading to dwindling numbers. Recent procurement packages may be the first step in reversing this trend. The future of the South African defence industry depends on its successful break into the international market. Joint ventures (JVs) will aid the country in gaining technological lead in key areas. Currently, the biggest single long-term problem within the defence industry is the lack of research and development (R&D), funding and policy. Several defence industrial participation (DIP) contracts have been signed with South African firms, which will assist in areas of defence electronics. Arms exports are proving a more vital area of sales for South African defence companies, and should be the main catalyst for any growth in the industry. Encouraging figures from key defence companies seem to suggest a growing export market. Meanwhile, arms imports should increase substantially with the delivery of the major weapons platforms recently ordered by the government. The recent normalisation of relations between the US and South Africa offers hope for better trade. BMI concludes that despite concerns, the state’s political, economic and security structures remain relatively strong. The country is plagued with very high crime HIV/AIDS infection rates, but neither of these poses a risk to overall stability. Recent restructuring and moves to modernise the South African armed forces have created the best-equipped and most advanced military on the African Continent. The defence industry is growing and making indents into international markets.