Press Statement by :

Economist Allied for Arms Reduction - South Africa

19 August 2004

ECAAR-SA
3B Alpine Mews
High Cape
Cape Town 8001

021-465-7423
ecaar@icon.co.za 

The Supreme Court of Appeal has yesterday, without explanation, dismissed ECAAR-SA's petition for a review of the Cape High Court judgment in March that we had misdirected our case against the Minister of Finance. The judges had ruled that when he signed the foreign loan agreements which give effect to the arms deal, the Minister was merely implementing a preceding cabinet decision and thus just a functionary.

This is a severe blow to ECAAR-SA but, more especially, to South Africa's constitutional democracy. In four years the arms deal has destroyed Parliament's credibility and severely weakened the Chapter Nine institutions. It has now undermined the independence of the judiciary and shredded the Constitution.

Ironically, the new Defence Review process which began in Parliament on Tuesday has vindicated ECAAR-SA's role as a whistleblower in the arms deal scandal. The SANDF now agrees that it faces financial collapse because of the costs of the arms deal. The SANDF also notes "there is a clear mismatch with the envisaged force design". In short, frigates, submarines and sophisticated fighter aircraft are both unaffordable and useless for peacekeeping operations in Africa in the 21st century.

Section 217 of the Constitution requires that government procurements must be conducted in a manner "which is fair, equitable, transparent, competitive and cost-effective". The arms deal fails that requirement. The Joint Investigating Team report tabled in Parliament in November 2001 found that every primary contract was ridden with tendering malpractices and irregularities. In respect of the BAe contracts, cabinet ministers overruled Air Force chiefs and the former Secretary for Defence who considered the BAe Hawks and BAe/Saab Gripens to be both too expensive and unsuited to South African requirements. Even Armscor's legal department recommended that the German Frigate Consortium should be disqualified.

The arms deal was driven by the economically-irrational proposition that R30 billion spent on warships and warplanes would generate R110 billion in offsets to create 64 165 jobs, thus stimulating the economy. The Auditor General in September 2000 expressed concern about the BAe "non-costed options", ie the offsets. Offsets are internationally notorious for corruption, and for being impossible to monitor. It is for these reasons that offsets are prohibited under the rules of the World Trade Organisation, of which South Africa is a member. Indeed, the Cape Times reported on Monday that the department of Trade and Industry now concedes that the arms deal offsets have failed to materialise.

There is no parliamentary approval for the arms deal. Neither the old Exchequer Act nor the Public Management Finance Act provide for foreign financing of such transactions, given such inherent risks. The affordability study unambiguously warned the cabinet that the arms deal was a highly risky proposition. The study highlighted the negative effects of unproductive expenditure on the economy in general, and its impact on government finance in particular. It also warned that the offsets could not be guaranteed, and would exacerbate the negative economic effects of the arms deal. Yet the Cape judges deemed this highly professional study to be immaterial.

The loan agreements signed by the Minister of Finance extend for 20 years and, without approval by Parliament, have ceded control over South Africa's economic and financial policies to European banks and governments, and to the International Monetary Fund. The government's counsel admitted in court that the consequences of these agreements could be "catastrophic". (It is loan agreements such as these that have led countries such as Zimbabwe into foreign debt traps, and resultant social and political anarchy).

The State Liability Act, as confirmed last year by the Supreme Court, requires one to cite the responsible minister in a representative capacity. It is the Minister of Finance's signature on the loan agreements that gives effect to the arms deal. The judgment against ECAAR-SA has put cabinet decisions beyond judicial review. Such impunity contradicts constitutional requirements that government must held be accountable to the public. We are therefore considering whether to take the issue to the Constitutional Court.

Advocate Norman Arendse has recently announced in the media that he is suing us for defamation. We have endeavoured to settle the matter, believing that the courts should not be cluttered with personal vendettas. Unfortunately, Arendse persists and accordingly we will both defend the case and countersue for unethical behaviour and for negligence. It was during his tenure as senior counsel that we began this public interest litigation. It is extraordinary that the chair of the Cape Bar Council would make such a fundamental error as to sue the wrong party.

Terry Crawford-Browne