Armscor’s non-arms deal offsets amounted to R5 billion between 1988 and 2000


Armscor’s offset deals with foreign weapons manufacturers amounted to R5.4 billion between 1988 and 2000, almost as much as the R6 billion in offsets from the 1999 arms deal, Armscor has told the Seriti Commission.

On Tuesday Johannes Bernhardus de Beer, Armscor’s manager of defence industrial participation agreements, testified to the Arms Procurement Commission on arms offsets. These were important component of the Strategic Defence Procurement Package (aka arms deal), as foreign companies were required to invest in South African companies if they won arms deal contracts.

De Beer told the Seriti Commission that the pre-arms deal offsets between foreign companies and the South African defence industry were still benefitting the country, Business Day reports. For instance, the license manufacture of Impala jets (Aermacchi MB 326s) by Atlas (now Denel Aviation) gave local industry valuable skills and expertise.

Business Day reports de Beer as saying that by February 2000, 12 out of 18 offset agreements had been fulfilled and R4.7 billion of value passed to the local defence industry.

The Arms Procurement Commission was seeking to understand the idea behind offset agreements due to the controversy that they generated. De Beer will later testify on the offsets related to the 1999 arms deal.

Companies that won arms deal contracts had Defence Industrial Participation Programme (DIPP) and National Industrial Participation Programme (NIPP) offset obligations. NIPP activities were documented and monitored by the Department of Trade and Industry (DTI) while Armscor approved and documented all DIPP projects. In order to encourage investment in certain sectors, multipliers were added to some investments.

Offsets related to the arms deal only generated 26 000 direct jobs in ten years, instead of the 65 000 opportunities promised when the acquisitions were first mooted in 1999, according to the National Industrial Participation Programme’s (NIPP) Performance Review 2009. This means that arms deal contractors only created 40% of the jobs they committed to.
“The arms deal was supposed to generate roughly R110 billion in investments and 65 000 jobs,” said opposition MP David Maynier in 2012. “However, the figures revealed…show that the arms deal actually generated roughly R6 billion in actual investment and 13 690 new jobs.” These figures, however, exclude indirect jobs and jobs saved.

Earlier this year a report entitled “Strategic Defence Packages Performance Review Report,” together with a final audit report, was tabled in Parliament by Rob Davies, current Trade and Industry Minister. The internal audit audited 40 of 121 arms deal offset projects and found, among others, some companies obtained more credits compared to investments and sales created or caused by them.

The audit could not verify the total number of jobs created or whether they were sustainable. It also states economic growth, access to new markets, establishing new trading partners and technology transfers could not be determined. Of the 40 business plans audited, only 24 included estimates of the number of jobs to be created.

South Africa in 1998 announced that it was to acquire frigates, submarines, helicopters and fighters from a number of European suppliers to rejuvenate the prime mission equipment of the South African Navy and Air Force. The contracts, worth some R30 billion at the time, became effective on April 1, 2000.

The deals would see South Africa gain four sophisticated German-built Meko A200SAN frigates, three Type 209 MOD1400 submarines (also German-built), 26 Saab Gripen fighter aircraft, 24 BAE Systems Hawk Mk 120 lead-in fighter-trainers and 30 AgustaWestland A109 light utility helicopters.

In October 2011 President Jacob Zuma appointed a commission of inquiry, chaired by Judge Willie Seriti, to investigate allegations of wrongdoing in the Strategic Defence Procurement Package, which is now estimated to cost around R47 billion.

The Seriti Commission has just eight or nine months left to complete its work. It has been hampered by numerous delays.