STATEMENT OF THE SOUTH AFRICAN GOVERNMENT ON THE JOINT INVESTIGATION REPORT INTO THE STRATEGIC DEFENCE PROCUREMENT PACKAGES

15 November 2001

Government Communications

1. The South African government welcomes the completion of the joint investigation by the Auditor-General, the Public Protector and the National Director of Public Prosecutions into the Strategic Defence Procurement Process. The Report clarifies issues that have been the subject of public discourse; and we hope that it will lay to rest speculation on these matters. The facts are now on the table.

2. Government wishes to reiterate its confidence in the institutions that were delegated to undertake the investigation. We have noted that they undertook their work without fear, favour or prejudice, and in a manner that instils confidence in our democracy.

3. As the report indicates, government co-operated to the fullest extent possible. In many instances, we went beyond the call of duty. This is reflected in part in the unusual step to allow classified documents on deliberations of Cabinet and its Committees as well as sensitive matters on the state of our Defence Force to be aired publicly.

4. From the outset, we wish to assert that government accepts the findings of the investigators without reservation; and we will take all the necessary steps to implement their recommendations. It could be that we may be uncomfortable with a phrase here or a formulation there. But this is not the time to quibble about detailed turns of phrase. What is fundamental is the issue of principle: above all, the integrity of our democratic system, its capacity for self-correction and the robustness of our institutions.

FINDINGS ON MATTERS OF PRINCIPLE

5. The report indicates that the Defence Review Process, detailing the country's security assessment and the ensuing responsibilities of the National Defence Force with regard to security, marine resources, international obligations and so on, formed the basis of the decisions of Cabinet on the acquisition of equipment. This was a process that enjoyed the support of virtually all parties in parliament. Indeed, the increasing demands on the SANDF, the evolution of the situation in Southern Africa as well as the September 11th and subsequent events underline the fact that democracy, freedom and human rights require more than morality and "miracles" to protect.

6. The central thrust of the report is found in the key finding: "No evidence was found of any improper or unlawful conduct by the Government. The irregularities and improprieties ... point to the conduct of certain officials of the government departments involved and cannot ... be ascribed to the President or the Ministers involved in their capacity as members of the Ministers' Committee or Cabinet. There are therefore no grounds to suggest that the Government's contracting position is flawed".

7. This should lay to rest all kinds of allegations that were made against government. We are confident that the same enthusiasm that was shown in making these allegations, now found to lack substance, will manifest itself in ensuring that the public is informed of the actual state of affairs.

8. It is a matter of concern to all of us that, as the report notes, "there may have been individuals and institutions who used or attempted to use their positions improperly ... to obtain undue benefits in relation to these packages". To the extent that there were such individuals and actions, applying, as the report says, in particular to the secondary contracting process, these were acts as much of self-enrichment as they were against the ethos of our government. We have noted that the Directorate of Special Operations is investigating these matters; and we express our full support for this. It is in the interest of the government and the country as a whole that the law must take its course and be seen to do so.

AFFORDABILITY AND RIGOUR OF THE PROCESS

9. The report details procedures in the acquisition process that are in line with international best practice. This ranges from the policy process, to the structures that were set up, the assessment of the utility and cost of the packages and the industrial participation programme. Also critical in the assessment is reference to the strategic considerations that Cabinet, on occasion, had to take into account.

10. Much has been said about the cost of the acquisition. Government wishes to reiterate that Cabinet weighed all the trade-offs, and decided that the process was in the best interest of the country. In this regard, the following matters need to be re-emphasised:

10.1 Firstly, the package was systematically managed downwards to ensure its affordability.

10.2 Secondly, a comprehensive analysis was done regarding the long-term implications for the country. As the report says, while there may be differences on the models, Cabinet took a view that was informed by a presentation that was "scientifically based and realistic".

10.3 Thirdly, the report makes the observation that the disadvantages of a weakening Exchange Rate in respect of the acquisition should also be measured against the converse impact on the valuation of the industrial participation packages.

10.4 Fourthly, as we have said before, it is profoundly unhelpful to speculate on the aggregate payments that will be made over a number of years, given the vagaries of factors that need to be taken into account. As with any loan, such as a housing bond, the critical matter is the affordability of the instalments. Critically, as the report says: "What was achieved by the Affordability Team and the International Offers Negotiating Team ... is unprecedented in the international credit market".

10.5 Lastly, while we accept that there are costs involved in such a major acquisition, the fact of the matter is that the Medium-term Budget Policy Statement of government, released some two weeks ago, demonstrates that we are in fact increasing real expenditure on social services.

SUBCONTRACTING AND CONFLICT OF INTERESTS

11. On the matter of the sub-contracting process, the report reiterates what government has said all along that, while state structures may have an interest in the reliability of the package as a whole, "the final decision about which subcontractor should be used remains the responsibility and the right of the main contractor". In this regard, a number of allegations have been made, particularly with regard to acquisitions for the Navy.

12. In relation to electronic systems for corvettes and allegations by a particular company, the report notes that the process undertaken was not unreasonable and therefore would not have impacted on the integrity of the decision.

13. Government has noted the matter of conflict of interest as it applies to individual(s) mentioned in the report and the allegations on gifts received by some officials, as well as the findings and recommendations on this matter. Government will co-operate with any further investigations in this regard.

14. It should be emphasised that these investigations do not, and should not be construed to, detract from the Key Findings and Recommendations of the report, about the rigour and integrity of the formal acquisition process involving government. The decisions of the acquisition process stand - there will be no further review.

15. The report explains the reason behind the initialling of the submarine contract by the then Minister of Defence, and that it was a collective decision of Cabinet. Further, it makes observations about retrospective conflict of interests which we accept, and which already constitute a firm decision of Cabinet from its July 2001 lekgotla.

INDUSTRIAL PARTICIPATION PROGRAMME

16. After making comparisons among a number of countries on industrial participation programmes, the report establishes that we conform to the best in the world. In a number of areas, the negotiated package is well in excess of minimum requirements. We do however accept the finding that this could have been tighter, and the recommendation that further legal opinion needs to be sought to ensure that the contractors meet their obligations.

17. With regard to the observation by the Standing Committee on Public Accounts (SCOPA), that "the contracts contained clumsy language, incorrect references" and so on, the report finds that the contracts were "understandable, well defined and the drafting ... of a high standard".

18. Further, the report found the approach in respect of obligations "to be reasonable", and that the facts in this regard would allay the concerns raised in the Special Review by the Auditor-General as well as the 14th report of SCOPA.

CONCLUSION

19. These then are the main issues in the report. Government wishes to reiterate that we accept both the findings and the recommendations, which speak to critical lessons for the future.

20. Many South Africans will agree that we have been through a novel experience both in terms of the acquisition process and the debate around it. From government's point of view, we welcome this vindication of government's standpoint on these matters.

21. Now, we have the facts. Government hopes that all South Africans, especially those who describe themselves as political leaders, as well as the media, will handle the report's findings and recommendations in the same spirit.

22. For anyone to question the integrity of the report simply because they do not like the findings of a thorough public and forensic audit conducted by the Auditor-General, the Public Protector and the National Director of Public Prosecutions, would smack of opportunism of the worst order.

23. The time has come that all of us stop treating the needs of our National Defence Force as a political football. This Force has a constitutional mandate to fulfil. It is also critical for all of us to desist from making unsubstantiated allegations against government and the investors with whom our country has decided to build strategic relations well into the future.

24. Government will continue with the acquisition process, which, we are convinced, is in the interest of the country.

25. In the light of the damage to our country, caused by unfounded allegations of massive corruption on the part of government and reputable international companies, government will institute its own investigations to ascertain the source of these allegations and the purpose they sought to achieve.

26. We wish to thank the Auditor-General, the Public Protector and the National Director of Public Prosecutions and their teams, for their thorough application to the issues at hand.

(More information on the Strategic Defence Procurement Process can be accessed from www.gov.za)

For further information contact: Joel Netshitenzhe at 082-900-0083

Issued by: Government Communications (GCIS), 15 November 2001