Publication: Business Day Issued: Date: 2007-11-01 Reporter: Linda Ensor

GDP and Jobs 'Gain from Offset Policy' 

 

Publication 

Business Day
Date 2007-11-01
Reporter Linda Ensor

Web Link

www.businessday.co.za

 

Cape Town ­ An independent *1 economic assessment of the government's offset programme, commissioned by the cabinet *1, found it had contributed R8,6bn to gross domestic product (GDP) each year and created 50 308 jobs directly and indirectly since 1996.

The offset, or national industrial participation programme, requires foreign companies supplying the government or state-owned enterprises with goods valued at over $10m to invest in the local economy to offset the outflow of funds required to purchase the goods. The programme includes the defence industrial participation programme for the suppliers of the strategic arms procurement package *2.

The defence offset programme has been controversial, with critics scoffing at promises by the government that it would bring in billions of rands in investment and create thousands of jobs. Offset obligations for the entire national industrial offset programme now total $16bn, $9bn of which have been discharged so far in the form of credits awarded for investments, sales, exports, support for small and black businesses and training. Of the $13,8bn defence offset obligations, credits for $7,7bn have been awarded.

There were 173 national industrial participation projects in total, most of them (89) in the transport sector, followed by metals, mining and capital equipment (26).

The results of the economic assessment were outlined in a briefing to Parliament's trade and industry committee by the trade and industry department's chief director for industrial participation, Sipho Zikode.

An important conclusion of the assessment was that the programme was effective in using capital as a scarce resource ­ that is the offsets contributed more to GDP than comparable capital projects. The scheme was also positive for the balance of payments, contributing R7,6bn each year over the lifespan of the projects and R3,9bn in taxes.

The offset projects also required an average R16bn of capital each year to sustain, including both the original capital investment and investments in other sectors of the economy associated with them.

The import content of the government's defence and non- defence foreign purchases under trade and industry department management now stands at $11,3bn. Suppliers have made offset investments of $424m and exported $2,9bn.

Zikode said most defence contractors had met their milestone obligations, all of which, except those of the BAE-Saab consortium, have to be discharged by this year. However, a report on the programme showed that contractors such as Thales, Agusta, Prodiba and GFC were about $1bn behind their 2007 milestones. Almost half of the $13,7bn total defence offset obligation was the responsibility of the BAE-Saab consortium which still had four more years to achieve its targets ­ $3bn of which would be for sales and credits on existing investments.

Zikode said some projects had failed because of a lack of competitiveness and sustainability, market weakness and mismanagement of funds.

With acknowledgements to Linda Ensor and Business Day.


*1       Sure?


*2      It has been stated by the government and by the likes of Chippy Shaik, that the only reason for the Arms Deal in the first place was the NIP and DIP.