Publication: Business Report Issued: Date: 2006-10-08 Reporter: Mzwandile Jacks

The Benefits of A Call to Arms

 

Publication 

Business Report
Date 2006-10-08

Reporter

 Mzwandile Jacks

Web Link

www.busrep.co.za

 

Johannesburg - When the topic of South Africa's arms deal comes up, an easy and almost common line of thinking leaps to mind: a gathering of European arms companies corrupting the ruling party's politicians to get a better cut.

And many are of the view that these companies have done very little to improve South Africa's economy as initially promised. But it seems this is not the whole truth. It turns out there is a lot more that these companies have done, which have not been well trumpeted.

Sipho Zikode, a chief director at the department of trade and industry, says this is because the department manages over 150 projects.

Most European suppliers claim they have contributed positively to this country's economy since the arms deal was signed eight years ago. They add that they are committed to continuing this.

These firms are BAE Systems, Saab, MAN Ferrostaal, ThyssenKrupp, Thales, Volvo, Siemens, Boeing, DaimlerChrysler South Africa, Framatome and General Electric.

This review only looks at the first five companies because these, in one way or the other, have been tainted by South Africa's multibillion-rand arms deal corruption allegations.

When the arms deal offsets programme was made public, South Africans were told that it would include R104 billion in investments and about 65 000 direct and indirect jobs would be created.

Though the set targets have not been achieved, there has been some progress and these companies believe that they have done well in meeting their obligations.

Most of these companies think they will achieve targets they set for themselves by 2011.

The period over which the arms deal, estimated to be worth between R30 billion and R50 billion, will be paid is about 20 years, with the bulk of the payment being made between now and 2011.

Depending on how one looks at it, these companies could be on the right track. Billions have been invested into projects that have provided income, training and jobs.

BAE Systems, Saab, MAN Ferrostaal, ThyssenKrupp and Thales say there are many projects at play in South Africa, which include the skills development and the introduction of the state-of-the-art technology.

BAE Systems and Saab have projects in the jewellery manufacturing and financial sectors.

The two companies say South Africa's purchase of new Hawk and Gripen fighter aircraft to modernise its air force has resulted in 100 new investments in manufacturing, skills development and technology transfer projects across its aerospace, defence and various civil industries.

The companies have been involved in projects aimed at increasing exports *1. Since 2002, they have invested more than $120 million (R949 million) in six South African projects. And the projected sales amount to $2.1 billion. About 800 jobs have been created throughout the country *2.

Linden Birns, a spokesperson for BAE Systems, says the company is doing exactly what it promised.

"If this was not the truth, we would not have been awarded such significant contracts in South Africa. And we would not have awarded so many contracts to other smaller companies."

Stephen Laufer, the spokesperson for Saab, says the firm is committed to a long-term contribution to the South African economy and will meet all its offset commitments.

MAN Ferrostaal is working on a number of different projects on behalf of the German Submarine Consortium. These are spread throughout the country and they straddle a number of sectors.

They range from agricultural projects such as the resuscitation of the Magwa Tea Estate in the Eastern Cape to recycling projects in Gauteng. MAN is also supporting an industrial training centre in the Western Cape.

In 2004, MAN Ferrostaal invested about E41.5 million (R417 million) in seven projects. It also invested R65 million in another South African project. Projected sales from these projects amount to E469.6 million and more than 3 915 jobs have been created *3.

Through ThyssenKrupp, the German Frigate Consortium has funded a number of projects. These range from the production of aluminium tubes to the production of insulated sandwich housing panels.

Partnerships have been formed with Royal Bafokeng and Merafe Resources, formerly SA Chrome and Alloys.

These projects are spread across the country and are said to be valuable because they bring industry and employment to rural areas.

The consortiums have so far invested about $335.4 million in South African projects. Projected sales from these projects amount to $712.9 million. About 6 385 jobs have been created *4. Partners include international companies and black economic empowerment entities.

As part of its strategy to broaden the beneficiary base of its economic activities under the National Industrial Participation programme, Thales facilitated a $50 million financing programme package from Caylon Investment Bank to the Industrial Development Corporation (IDC) to support the development finance agency's strategy of funding small and medium enterprises (SMEs) in South Africa.

This funding is said to be the most affordable source of commercial borrowing received by the IDC and the full benefit of this funding will be passed on by the IDC.

This five-year facility will be used to promote and sustain SMEs development in poorer provinces through support for feasibility studies and investment projects.

This would be in line with the IDC's development mandate. This facility will be used to fund enterprises that are adjacent to townships and SMEs in rural areas.

Thales has invested more than $103 million in South African projects since 1999. Projected sales from these investments amount to $607 million. About 553 jobs were created between 1999 and 2002 *5.

With acknowledgements to Mzwandile Jacks and Business Report.


*1       How be it then that the country's balance of trade deficit is now at record levels?


*2      Wow, 800 jobs in seven years. Meanwhile Denel, who used to employ about 100 000 people is getting a few billion Rand per year of taxpayers' money to bail itself out of the financial dwang, not to mention the rest of the DRI who are burning bad.

For interest, the LIFT and ALFA programmes were stipulated to create 30 500 jobs.


*3      The submarine programme was stipulated to create 16 251 jobs.


*4      The corvette programme was stipulated to create 10 153 jobs.

Note, most of this probably related to the combat suite which was not job creation, but job retention.


*5      This was the effective period for the final development and production of the corvette combat suite. Just 553 jobs created and 55 300 lost - not bad if one's French.