Arms deal offsets of ‘no benefit to economy’ |
Publication |
Weekend Argus (Sunday Edition) |
Date | 2012-11-18 |
Reporter | Ivor Powell |
Web Link | www.capeargues.com |
THERE is no evidence that defence industrial
participation (DIP) investments concluded under
South Africa’s controversial arms deal have
resulted in any benefit to the economy,
according to Armscor’s 2011/12 annual report.
Declaring itself “not satisfied with Armscor’s
management” of the offsets programme, the
corporation’s new governing board states: “To
date, Armscor cannot show the impact of DIP
obligations in the SA economy.”
Restructured in April last year under the
chairmanship of former Military Intelligence
chief lieutenant general Maomela Moreti “Mojo”
Motau, the new Armscor board has embarked on an
aggressive repositioning of the corporation they
inherited from former chairman and one-time
North West premier Popo Molefe.
The Motau board assessment starkly contradicts
the awarding – as of March 2012 – by Armscor
officials of offset credits valued at R14.165
billion to weapons manufacturer “obligors”, in
terms of the strategic defence packages (SDPs)
signed off at the end of 1999.
Nor is there much more to come into the fiscus.
At present, only one contractor still has DIP
commitments outstanding – French manufacturer
Thales (formerly Thomson CSF) which secured the
contract for the combat suite on the SA Navy’s
four frigates.
The report notes that obligations to the value
of € 147.8 million (R946m) have yet to be
discharged. It indicates that an extension has
been negotiated until 2016 for final sign-off.
Along with national investment participation
(NIP) programmes – ie investments in the general
economy – the DIP investments were used by the
government to justify the enormous expense of
the weapons procurement programme (around R30bn
in 1999, around R70bn today) – and to persuade
the public the country would make money out of
the arms deal.
Describing the offsets scenario developed by the
government as the
“guns and butter” argument, and
“part of the public
sweetening process” not taken seriously
after contracts were awarded by either of the
foreign suppliers of
(sic)*1 Armscor,
defence contractor
and arms deal critic Richard Young said a
“cursory review of the current health of the
South African defence industry more than bears
out the fruitlessness of the DIPS in the arms
deal”.
As the deals were structured, payments
for the new frigates, fighter and trainer jets,
submarines and helicopters were to be pegged to
the fulfilment of NIP and DIP investments.
But earlier this year it emerged from figures
released by the Department of Trade and Industry
that, though duly signed off by South African
officials, the NIP programme had, in reality,
fallen woefully short of projections.
Slated to benefit the economy to the tune of
around R110bn, and to generate 65 000 jobs, the
NIP programme had delivered just over
R6bn in actual
investment in a decade, and created
somewhat fewer than
14 000 new jobs.
Although Armscor remains
non-committal on the
particulars, the Armscor board’s
commentary appears to
mirror that of the
Department of Trade and Industry.
Responding to questions from Weekend Argus,
Armscor identified two primary categories of DIP
offsets awarded by the officials responsible:
technology transfers – accounting for R4bn, and
export sales – R9.9bn.
In both cases, the
actual benefits appear to have been
questionable.
The Armscor report notes that in the
context of the SDP, offset credits were awarded
against export orders – that is to say,
contracts for South African companies to produce
components for overseas counterparts, or sell
armaments (like Rooivalk helicopters) to
overseas buyers in deals set up by arms deal
obligors.
In several instances on record, such deals fell
through before benefits would accrue to the
economy, but, apparently after more or less
extravagant offset
credits were awarded.
In the light of this experience, the new board
specifies that subsequent to Armscor’s
experience of the arms deal, offset credits are
to be granted only “once sustainability can be
demonstrated by means of follow-up business”.
As early as November 2004, Victor Moche, former
chief executive of
Denel – the state-owned armaments
manufacturer where the bulk of the DIP business
was done – complained to a parliamentary
committee that DIP
deals had been foisted on Denel, and that
at least 80 percent
of the deals in question were
running at a loss
to the SA partner.
He later amended the estimate of loss-making
partnerships to “practically
100 percent”.
In several other cases, where such orders did in
fact come to fruition, the obligor contractor
was allowed to manoeuvre itself into a position
to buy a controlling interest in the South
African defence manufacturer in question – and
thereby apportion to itself and to overseas
economies the lion’s share of the benefits and
profits.
French manufacturer Thomson CSF (now
Thales), for
example, was in a position to doubly benefit
from technology transfers and specialist
training – earning DIP credits, but at the same
time holding a controlling 60 percent share in
African Defence
Systems, the beneficiary of the skills
transfers.
The other 40 percent is shared between Schabir
Shaik’s Nkobi holdings and Futuristic Business
Solutions, another entity which featured
prominently in arms
deal corruption investigations.
Another beneficiary of DIP skills transfer
programmes was the Midrand-based Aerospace
Monitoring and Systems (AMS) which, in the
mid-2000s, developed strategic partnerships with
three of the successful arms deal contractors –
Thales, UK manufacturer BAE Systems, and
European Aeronautics Defence and Space Company.
By 2006, the benefits to the South African
economy became increasingly remote after the
company was acquired by Saab Grintek Defence
(Pty) Ltd (itself the site of a buyout of South
Africa’s Grintek by the
Swedish Saab).
The company is now, according to its website,
“part of Saab Avitronics, a business unit
focusing on avionics and electronic warfare
systems which already has operations in both
Sweden and South Africa”.
Commenting on the revelations, DA spokesman on
defence David Maynier noted that the Armscor
report marked “the first official statement
indicating that
there was something seriously wrong with
the arms deal DIPs”.
“One has to wonder why Armscor has been silent
for so long. Perhaps, with the arms deal
commission looming, it has decided to air some
of its dirty linen,” Maynier suggested.
Meanwhile, Weekend Argus has confirmed that
Armscor has
networked on the issue with the Jacob
Zuma-appointed Seriti Commission of Inquiry.
“Copies of all documents in the possession of
Armscor that relate to the special defence
packages were handed to the commission as
requested,” spokeswoman Daphney Chuma said.
But many observers believe it could be too late.
As Young put it: “The family silver has been
pawned.”
With acknowledgement to Ivor Powell and Weekend Argus.
The current state of
SADI (South African Defence Industries) :
Denel sold its optronics business to Zeiss;
Denel sold part of its munitions business to Rheinmetall;
Denel sold part of its aero business to Saab Aerostructures;
Denel is still effectively bankrupt without begging the treasury annually;
ATE even after its R500 million Arms Deal contract from BAE Systems is in business rescue;
ADS changed its name to Thint South Africa, then to Thales Defence Systems (TDS), then to Thales South Africa Systems (TSAS), its defence business is a shadow of its former glory;
Grinaker Avitronics was sold to Saab;
Saab Communications sold its business to Reutech;
Saab is downsizing and possibly largely pulling out of the country;
Reumech OMC was acquired by corruption giant British Aerospace.
And if SADI doesn't
get some fresh orders soon it's only going to
get worse.
If fact it's going to see its arse.
As a letter for the Acting General Manager:
Acquisition of Arms said this last fortnight :
"In pursuance of its responsibility to ensure the continued survival of strategic capabilities within the South African Defence Industry, the Armscor Board of Directors has resolved to undertake an assessment of the status of suppliers and to gain better information on the financial implication of sustaining identified critical capabilities in industry.
In this regard, you are requested to complete the subsequent questionnaire as accurately as possible in order to allow us to update the industry database with the relevant information that is deemed to be imperative to allow the Armscor Board of Directors to make informed decisions with respect to the level of contracting that is required to sustain strategic capabilities within the industry."
Without a hurried
increase in this level of contracting, there is
not going to be survival*.
As many observers put it, it could be too late.
As Young put it: “The family silver has been
pawned.”
*1
*2
Great business if one can get it.