Opinion & Analysis

THE dark arms-deal cloud continues to overshadow SA’s political landscape and the numerous problems that cry out for government’s attention. The corruption fallout of this procurement package has ensnared, to date, the former deputy president of SA, the former chief whip of the majority party in Parliament, and the now notorious Schabir Shaik. However, the biggest potential fraud around the arms deal has attracted the least attention and remains its most egregious element: the offsets — or industrial participation agreements — mooted at the outset as a primary motive for the deal. Government is responsible, either through crass naivety or deceit, for gulling the public into believing this vast outlay would bring economic benefit to the country.

When the initial R30bn deal was signed with the five major European successful bidders, government claimed we would receive a staggering R104bn in complementary investment and 65000 jobs would be created. For every R1 spent on armaments, R3 to R4 would in effect be gained in offset benefits. The good news flowed. In 2000, government trumpeted that, besides jobs created, there would be a substantial positive indirect impact on the labour market.

Defence Minister Mosiuoa Lekota acclaimed the deal three years later in Parliament as “an opportunity to benefit the economy” via the “bonus” of the offsets. The same minister now admits that only a fraction of this bread-for-guns bounty had been realised. He conceded in Parliament this month that a mere 13000 jobs had in fact been created, for the R29bn already paid for the weaponry — a shortfall of 52000 jobs.

Why was government misled so easily into accepting the offset idea? Part of the answer lies in the warm afterglow that followed our successful attainment of democracy. Our new leaders were seemingly susceptible to the blandishments of the arms industry, which was falling over itself to access a new market. Given SA’s social ills, government needed a convincing pretext for spending several billions clearly required more urgently elsewhere. The arms industry, it seems, was happy to offer a pretext, with the fiction of the so-called offset benefits. If we add up the successful bidders’ noncompliance with their offset agreements, we get to a alarming figure of R5bn. This was quantified at the time of the first milestone deadlines in 2003-04, when three of the contractors had already defaulted on their offsets commitments: Ferrostaal (a R4bn shortfall), BAE/Saab (R840m) and Thales (R262m). This yawning gap between promise and fulfilment should have been a source of national outrage; instead, the compliance dates came and went with hardly a murmur from government. It is now time that we demand action and credible explanations.

The most glaring example of noncompliance involves Ferrostaal, which committed to a major investment in the Eastern Cape Coega industrial development zone. This German arms manufacturer won its tender because of its promise to invest heavily in this zone. But it is only a full 60 months after Ferrostaal first made the commitment to invest in Coega that there seems to be any tangible progress. Even now, the project has yet to begin construction and one can be justifiably sceptical whether this will ever become a sustainable project.

In the case of Ferrostaal, as in others, government has apparently refused to implement the breach-of-contract fines which they are entitled to impose. The terms of the offsets agreements allows the state to charge penalties of between 5% and 10 % of the total value of a specific contract, as determined by the industrial participation agreements signed with the various bidders. Government needs to explain. Have such fines been imposed, or have they been held over? Have the defaulting companies been called to account? I am mystified as to why government has apparently not exercised its contractual prerogative, and exacted a fine from Ferrostaal. According to our research, the estimated penalties SA may be entitled to charge Ferrostaal could be up to R850m.

Government cannot be so careless with taxpayers’ money; if the state has a strategy to force the company to comply, it is duty bound to take SA into its confidence. The arms deal itself predates President Thabo Mbeki’s tenure in the country’s highest office; yet it was in his position as deputy that he chaired the cabinet subcommittee which approved of the package.

The scandals, controversies and unfulfilled expectations that have resulted from this single act of the 1994 government are likely to continue to cast a long shadow, even after Mbeki has stepped down.

Leon, MP, is leader of the Democratic Alliance.

With acknowledgements to Tony Leon and Business Day.