The offset programmes linked to the controversial multibillion-rand arms deal had so far resulted in a net gain of $3,5 billion (R22,9 billion) *1 and 8 000 new jobs, but there had been huge risks involved, with some projects folding, parliament heard on Friday.

Lionel October, the deputy director-general overseeing the programmes in the department of trade and industry, told the portfolio committee on trade and industry that after a slow start in 2001, most of the 130 projects had picked up momentum over the past year.

The overall failure rate had been about 1 percent, either because of changed market conditions or fraud, which was now being investigated.

The so-called strategic defence procurement programme linked to the arms deal or aircraft purchases by SAA is made up of two sections.

The national industrial participation programme (NIP) requires suppliers to invest about 30 percent of the value of the contracts won in local, civilian companies. In the defence industrial participation (DIP) programme, arms suppliers have to source components for the arms bought by South Africa from the local defence industry.

NIP programmes have generated investment credits worth more than $1 billion and exports and local sales credits worth $2.5 billion.

NIP partnership projects have ranged from the local manufacture of galleys for the Airbus A319 and A320 to the production of cockpit modules for the BMW 3 Series for export.

October said BAE/Saab was the best performer, meeting 100 percent of investment targets by 2004/05. Thales had also done well, although there were concerns about some of its DIP projects meeting their targets.

Ferrostaal, which was the laggard when the department reported to parliament last year, had dramatically improved its performance, while Agusta and Thyssen had met no more than just over half of their targets.

In Agusta's case, as a company owned by the Italian government, it could not invest abroad and therefore had to try to convince other Italian companies to invest in South Africa.

BAE/Saab's NIP projects had included a fund for small start-up companies, a gold loan scheme for jewellers, carbon manufacturing, high-pressure die casting and a new ferrochrome smelter.

It had invested $6 million in a gold benefication project in Virginia that had folded, with two employees now being investigated by the Scorpions.

Thyssen projects included a ferrochrome smelter, the manufacture of aluminium radiators and a packaging company.

Ferrostaal had funded a new turbine blade project, the resuscitation of the Magwa Tea Estate, a plastic bottles recycling plant, a training centre in the depressed area of Atlantis and an engineering services firm.

The Magwa project had been difficult because experts had to be brought in from India to help revive the project. October said this highlighted the risks involved in offset programmes, especially as the arms manufacturers had no experience or skills in the projects chosen.

Thales had invested in a carbon fibre plant, the production of silicon metals and fume dioxides, solar panel production and a medical waste company. There were concerns *3 that it might not be able to meet its DIP obligations *2, but negotiations were continuing and penalty clauses would hopefully not have to be invoked

With acknowledgements to Lynda Loxton and Business Report.