Arms deal offset ripoff

Ex-QDMS

Ivor Powell

Offset investments by weapons manufacturers in terms of SA’s notorious strategic defence packages have fallen more than R100 billion short of the figure promised by the government and the successful contractors on signing off the deals.

The roughly R6bn invested in SA by winning contractors in the intervening decade stands at just over one 20th of the R110bn committed in justification of the R60bn plus that the arms deal will cost SA.

At the same time, it has emerged that only 13 690 new jobs have been registered as having been created against a commitment of 65 000.

These staggering shortfalls came to light in a detailed report finally handed over to Parliament’s Trade and Industry portfolio committee yesterday at the instance of minister Rob Davies, who in February this year undertook to make the numbers public.

Davies’s intervention came in the midst of a looming stand-off between DA defence spokesman David Maynier and committee chair Joan Fubbs after she ruled out of bounds an audit by international accounting firm Debevoise & Plimpton into German weapons manufacturer Ferrostaal – where serious and allegedly cynical anomalies in terms of SA national industrial participation investments were highlighted.

The probity of offsets was also raised in relation to the BAE/SAAB consortium – which won the contract in 1999 to provide Gripen SAAB fighter aircraft and Hawk trainers at a cost of about R10bn and against an offset guarantee of over $7bn (R50bn) – when it came to light in investigations by the UK’s Serious Fraud Office that arms deal consultant and influence-monger Fana Hlongwane had been paid about $200 million from slush funds to “manage” the consortium’s offsets programme.

Other commitments made to offset investments included those of French manufacturer Thales for $6.5m, the Ferrostaal-led German Submarine Consortium for e2.8m (R26m), the German Frigate Consortium for e2m and Italian helicopter manufacturer Agusta for $7.6m.

Presenting the report, Department of Trade and Industry deputy director general Nimrod Zalk admitted “mistakes” had been made and said his department would take the matter further in a two-pronged review of the offsets programme.

Firstly, Zalk said, a review of policies pursued in awarding offset credits had already been undertaken by his department, and would lead to changes in future offset agreements.

One of the key issues here was that of the so-called multipliers employed by the department in calculating supposed benefits to the economy as against actual financial commitments.

In some instances, as a closer scrutiny of the department’s project by project breakdown shows, such multipliers were employed to effect a giddy growth factor of up to 80 times the actual investment. In one – an export-based Treacle Fund sponsored by aircraft manufacturers BAE and SAAB – an investment multiplier of 90.1 was awarded. This turned an actual investment of R560 000 into a R50m-plus offset credit.

The second part of the department’s review announced by Zalk would examine the offset projects on a project-by-project basis and measure performance against credits awarded. Zalk highlighted before the committee in this regard that there was a possibility that distortions had crept in as a result of a reliance by officials on numbers supplied by the companies themselves – without independently crunching the numbers or ascertaining the truth of claims for themselves.

The detailed breakdown shows several projects where anomalies have seemingly crept in, for instance the Atlantis Training Centre – a project aimed at teacher education – where a total of 39 jobs are registered as having been created despite the fact that the centre has not been functioning for several years. Even more alarmingly, an actual investment of e3m is turned into a e200m offset credit.

Interviewed by Independent Newspapers, Zalk said actual performance would be measured against commitments made in business plans submitted. Where serious discrepancies were uncovered he said remedial action would be sought, and manufacturers could be required to make good. Zalk also said a thorough analysis would be made as to why certain projects – an estimated 10 percent of the total number – had failed, and where the company was found wanting, that obligor would be held responsible.

“Where we find contractual obligations have not been met, we would seek to ensure performance on the commitments,” Zalk said.

Currently, however, nearly all offset obligations by the weapons manufacturing consortia have been adjudged by the department to have been fully met. On this basis, payments have been released by the government.

In a media release, Maynier said the report provided “further evidence that the arms deal offset programme was a monstrous political fraud”.

At the same time, however, Maynier commended Davies for “agreeing to undertake a comprehensive review of all arms deal offsets implemented under the National Industrial Participation Programme”.

This week’s report follows an earlier progress report submitted by the department to the committee in the middle of last year.

Earlier attempts to get clarity – under the ministry of Davies’s predecessor, Alec Erwin, were routinely stonewalled on the grounds of commercial confidentiality.