Three of the five largest suppliers in government's controversial arms-procurement programme are now behind schedule in meeting their offset obligations, it has emerged.

None of the suppliers has been penalised to date.

Instead, one supplier has been given a grace period of more than a year.

The lag in offset obligations deals a blow to the long-doubted merits of government's offset programme, which obligates the five largest defence equipment contract winners to facilitate 13,6bn in sales and investment in new economic activity in SA.

The merits of offset programmes widely seen as sweeteners to win support for arms deals have been questioned by the World Bank, the World Trade Organisation and other bodies.

The chief director of the Industrial Participation Secretariat at the trade and industry department, Sipho Zikode, said on Friday that the German consortium supplying three submarines to SA had failed to meet its mid-term targets for offset projects in non-defence sectors.

Lead member of the German consortium Ferrostaal faced incurring penalties of 10% of its total contract value.

It could also be allowed a grace period to catch up, trade and industry deputy director-general Lionel October said on Friday.

In terms of its mid-term target, Ferrostaal had to meet an investment target of à 610m and a sales target of à 110m by July this year.

Ferrostaal has said it was initially "slow to rise to the challenges" of its offset commitments, but it had "the will to meet (the) agreed target within the contractually agreed period".

It also emerged from a letter signed by Trade and Industry Minister Mandisi Mpahlwa in reply to questions by the Democratic Alliance (DA), that two other suppliers were behind schedule. These were Thyssen, a member of the German Frigate Consortium supplying corvettes to SA, and French arms company Thales, which has been linked with bribery allegations in the Schabir Shaik trial.

Thyssen had been allowed an extension of 18 months on its first investment milestone, due to the withdrawal of one project that would have contributed substantially to the achievement of the first milestone. Thyssen's original mid-term target for investment was $147,6m and the sales target was $56,6m.

The letter does not state what Thyssen's shortfall was, but put Thales' shortfall at $18,7m. Thales has to achieve an overall investment and sales target of 278,4m. Neither Zikode nor the German Submarine Consortium would say what Ferrostaal's shortfall was.

The fact that Thyssen and Thales lagged in their offset obligations was not clear from the annual report on non- defence offset projects presented in Parliament last month.

The DA criticised the annual report for lack of detail, and requested further details from the trade and industry minister. DA spokesman on trade and industry, Enyinna Nkem-Abonta said in a statement at the weekend that arms trade offsets were a poor industrial policy tool, if only because they mostly caused trade displacement, generating little new trade or investment and the "loading" of the purchase price to "offset" the cost of reneging on offset obligations.

He said it was possible that some offset programmes might carry real benefits to the recipient country. "But such a conclusion can be made only after a thorough cost-benefit analysis of the arms deal has been done."

Nkem-Abonta has also called for an independent audit of government's recent announcement of an R11bn purchase of new military transport aircraft.

With acknowledgements to Carli Lourens and the Business Day.