Publication: Cape Times Issued: Date: 2003-09-23 Reporter: Melanie Gosling

Arms Deal Could Cost R370bn by 2019 and Cause Economy to Collapse - Economist



Cape Times

Date 2003-09-23


Melanie Gosling

Web Link


The government's R30 billion arms deal could cost South Africa R370bn by 2019 and cause the collapse of the economy, says Economists Allied for Arms Reduction (Ecaar) spokesman Terry Crawford-Browne.

He said yesterday that corruption in the arms deal was not the issue. His organisation was involved in a court action to get the arms deal cancelled because the country could not afford it.

Finance Minister Trevor Manuel had "put our necks into the noose of third world debt", he said. "In short, the minister has for 20 years ceded control of South Africa's economic and financial policies to European banks and governments and the International Monetary Fund.

"Studies in England had found that 95% of all third world debt to Britain originated in Exports Credit Guarantee Department transactions such as the arms deal," Crawford-Browne said.

He had arrived at the figure of R370bn by using the foreign exchange projections used by government-appointed international consultants, Warburg Dillon Read.

The consultants projected a rand/dollar exchange rate of R13.96 by 2009/2010 and R26.25 by 2018/2019.

Adding internal costs and a 2.5% escalation cost, this worked out to the arms deal costing South Africa R370bn by 2019.

A report by the "affordability team" appointed by cabinet ministers in 1999 to determine whether the country could afford the deal, stated that the government would be fully exposed to the depreciation of the rand against foreign currencies, which accounted for 75% of the total purchase price.

The report said the arms deal was different from other government procurements in key ways - the sums involved were extremely large, they involved fixed contractual commitments over a long period and were heavily import-based, and their costs were offset by associated activities, like national industrial participation, which could not be guaranteed.

The report concluded: "As expenditure levels increase, these risks escalate significantly. Ultimately the decision about expenditure levels really constitutes a decision about the government's appetite for risk."

In March the courts ordered President Thabo Mbeki and Manuel to give Ecaar documents that contained advice to the government on the arms deal from the international negotiating team and the financial working group.

Crawford-Browne said he knew from court testimony that the affordability assessment given to the government was at least 643 pages. It warned of impacts the arms deal would have on health, education and housing expenditure. "It warned that the costs of the arms deal would squeeze out state expenditure on these priorities," he said.

But the government had given Ecaar only 28 pages.

"On September 12 we filed new papers drawing the court's attention to the government's abuse of the judicial processes, and we intend to move for a final order that the loan agreements are null and void," he said.

With acknowledgements to Melanie Gosling and the Cape Times.