Publication: The Star Issued: Date: 2006-10-07 Reporter: Michael Schmidt

They Took Our Cash and Gave Us Niks

 

Publication 

The Star
Date

2006-10-07

Reporter

 Michael Schmidt

Web Link

www.thestar.co.za

 

The offset deals attached to the weapons programme have failed to deliver at all, writes Michael Schmidt

On the eve of the Department of Trade and Industry's report to parliament next month on the industrial participation "offsets" attached to the controversial multibillion-rand defence deal, critics maintain the offsets are a massive fraud.

According to the last report by the DTI to its parliamentary oversight committee a year ago on the national industrial participation (NIP) programme, the country "benefited to the tune of $3,5-billion *1 in the last eight years as a consequence of the country's strategic defence procurement (SDP) programme," signed in 1997, "and other government purchases".

But the primary benefit, say critics, has been to large foreign arms firms and to their black economic empowerment partners - at the expense of the future of the once-powerful local arms industry and of the taxpayer.

The DTI said it was also "monitoring total obligations to the value of $15-billion" by the five main defence contractors: the German Frigate Consortium, which supplied the frigates; Thales, which is supplying the vessels' combat suites; AgustaWestland, which has begun delivery of 30 light utility helicopters; the German Submarine Consortium, which is building three Type 209 submarines; and SAAB/BAE Systems, which is providing 28 Gripen multi-role combat jets, and 24 Hawk lead-in fighter trainer jets.

Lionel October, the DTI's deputy director-general in charge of the enterprise and industry programme, said at the time that he was confident that, despite some initial problems - like the submarine consortium's failed plan to build a stainless steel mill at Coega in the Eastern Cape - he was confident that NIP milestones would be met: the sub consortium's offset investment was subsequently rechanelled into a tea estate near Lusikisiki.

But critics say the entire NIP offset deal is a scam.

For example, in November 1998, the government announced that the foreign companies' offset obligations were to have been completed in seven years. If they meant seven years from when the deals were announced, then the deadline should have fallen due this year, and if they meant seven years from when the deals became operative, the deadline should have been the end of March next year.

But the deadline was shifted surreptitiously over the intervening years to 2011, with the offsets related to the purchase of eight Airbus A400M military transport aircraft to replace our ageing Hercules C130s scheduled for completion in 2013.

Back in 1998, the deal certainly sounded sweet: for a purchase of R30-billion to upgrade the air force and navy, South Africa was supposed to get a R104-billion return in offsets plus the creation of 65 000 jobs.

Such a dizzyingly high return on our investment should have given the deal's enthusiasts pause. And with most job losses in engineering having occurred in the defence sector, it is growing increasingly tough to believe these promises are even en route to being fulfilled.

Early last year, defence writer Leon Engelbrecht echoed economist Mike Schussler in calling the defence offsets scheme "voodoo economics" because it firstly bogged the domestic defence industry down in projects outside their areas of expertise - such as tea plantations - and secondly because the actual costs of the offsets were already built into the price of the acquisitions, the burden falling on taxpayers.

Forget petty bribes such as a R167 387 discount on his 4x4 offered by Daimler-Benz

Aerospace (now European Aeronautic Defence & Space, or EADS, which secured a multimillion-rand deal to supply radar systems to the frigates) to the then chairperson of parliament's joint standing committee on defence, Tony Yengeni.

Critics say the real rot in the arms deal lies in the entire way the offset part of the deal was structured.

With acknowledgements to Michael Schmidt and The Star.


*1       Even the NIP "achievements" so far need to be taken with a digger-loader full of salt. Much of the offset credit is actually granted by DTI for things such as "export credits" and "marketing credits" and not hard investment in cash earning industrial plant and capability.

There was also meant to be the principle of "causality", i.e. there was a direct link between the acquisition and the origination  (cause) of the NIP project.

But most of the original NIP projects have been superseded with projects that would in any case have happened.

Not only is it a scam, but a giant criminality by Thabo Mbeki, Joe Modise, Alec Erwin, etc. - because the German Frigate Consortium, German Submarine Consortium and British Aerospace all won the bids on the basis of MINCOM accepting over-inflated NIP "commitments" by these biders at the expense of better qualifying and more realistic NIP offers by competing bidders. Not only did MINCOM accept these inflated NIP offers, but actually and without a sound basis discounted certain proposals where it suited them and elevated other where it suited them. So in the end, the entire qualitative evaluation and selection process was simply over-ridden by MINCOM's completely arbitrary choices to meet a pre-determined outcome.

There can be little arguing about this - it is as clear as daylight in the JIT's Joint Report, amplified a million candle power in the AG's draft reports.