Defence barter deals are ideal for developing economies in times of economic instability, monetary crisis or currency devaluation and their pros and cons will be under the spotlight at the upcoming Public-Private Partnerships for Defence and Security conference next month.
Although bartering involves difficulties and inconveniences that may make it a less desirable payment option, developing countries experiencing a shortage of hard currency and cash may want to consider bartering as an option to buy military equipment, a 2022 Turkish study concluded.
The study further suggested that although barter arrangements may result in more complex bureaucratic processes, a barter system may be well employed by the defence industries in particularly developing economies.
Much of the world is suffering from economic instability and inflation, making barter arrangements all the more relevant, especially African countries also hit by debt and Covid-19 pandemic-induced financial shocks. The depreciation of the South African rand – which has fluctuated wildly against the dollar – also means barter arrangements would provide for easier long-term planning, as currency fluctuations would be less disruptive.
Dr Moses Khanyile, Director of the Centre for Military Science (CEMIS) of the Faculty of Military Science of the University of Stellenbosch, believes the South African defence industry needs to be more creative in developing not just products but markets, and has suggested one way of improving the industry’s performance is to barter defence products for other goods to overcome financing limitations.
Khanyile, also National Co-ordinator of the National Defence Industry Council (NDIC), notes that the NDIC has considered what it refers to as the ‘Resource-based Alternative Payment Solution’ (or the barter system) and presented this solution to National Treasury and Parliamentary Committees on Defence.
“It received overwhelming support. Given that the solution would rely on the support of banks to facilitate transaction, I presented the solution to one of the top-tier banks to test for feasibility and viability. The chosen bank confirmed that the solution is feasible, practical and appropriate for defence-related transactions especially in Africa which is endowed with so many mineral resources,” Khanyile told defenceWeb.
“However, it cautioned that care should be taken not to enter into such transactions with countries or individuals that are under sanctions by any country or international organisation because no bank will be eager to participate in such a transaction,” Khanyile cautioned.
Defence barter arrangements are not unusual – countries such as Nigeria have asked for weapons in exchange for oil and in the 1970s, France supplied Iraq with weapons in exchange for oil, and Saudi Arabia from the mid-1980s paid for much of its massive Al Yamamah arms purchases from the United Kingdom (including for Tornado fighters) with crude oil. More recently, six years ago Indonesia offered to trade palm oil, coffee and other commodities for Russian Su-35 fighter jets, although the deal did not proceed.
Following Russia’s invasion of Ukraine in 2022, nations around the world are expanding their defence forces, but doing so in a time of economic uncertainty. Defence barter arrangements are very much topical in these turbulent times and although they have for some time been proposed as an alternative to funding defence contracts, there has been little public discussion about how this would work for South Africa. This is set to change next month with the Public-Private Partnerships for Defence and Security conference, which will explore this subject in depth.
Experts will examine how barter arrangements work, what the benefits are to the parties involved, and the differences between barter, offset, and counter-trade mechanisms.
The inaugural Public-Private Partnership (PPP) for Defence and Security event is scheduled to take place on Wednesday 16 August at the Council for Scientific and Industrial Research (CSIR) in Pretoria. It is being organised by defenceWeb and the Aerospace, Maritime and Defence Industries Association (AMD) of SA.
For more information, registration details, and sponsorship opportunities, please contact Robert Mace: [email protected]