Publication: Business Report Date: 2005-04-01 Reporter: Peter de Ionno

Arms Deal Offsets can be Judged Only After the Fact



Business Report




Peter de Ionno

Web Link


The multi-billion rand arms deal is being milked by all and sundry to score both political and moral points, but it is rather like closing the stable door after the horse has bolted.

The fact is that the deal - or deals, if you take into consideration the many contractors involved, although they have taken on a generic character - has been done. It will cost the country a lot of money and provide some modern military hardware to bolster the capabilities of the increasingly small, professional defence force that has replaced the mass conscript cannon fodder of the apartheid era.

With the deal being more or less set in stone, some, like the Democratic Alliance (DA), are now trying to score political points out of related issues, such as the national industrial participation scheme that the government has made conditional to all the contracts awarded. This is to ensure that the massive outflows of foreign exchange for jets or ships are matched by some investment in the domestic economy.

This kind of conditional buying has been technically outlawed by the World Trade Organisation, while the US is vehemently opposed to it, not principle so much as it potentially excludes the biggest arms exporter from some outright, and lucrative, business deals.

The DA's gripe is that some of the contractors have not met their first deadline for certain levels of investment in local offset programmes. It has suggested that they be made to pay the penalty fees involved. It also wants the department of trade and industry to report more fully and openly about progress in the programme.

While one can have some sympathy for the reasoning behind this kind of stand, the reality is that the department reports to parliament annually about the progress made.

These reports clearly highlight that is patchy and fraught with the kinds of ups and downs that most commercial deals are subject to. There is no way the government can force overseas arms manufacturers to invest here willy nilly if it down not make good and sustainable financial sense.

The arms contracts will run for 10 or more years, and a realistic assessment of the industrial participation projects will only be possible closer to closure.

In the meantime the DA and others can, and should, continue to alert the government to the need to monitor progress. But demanding that massive penalties be imposed for non-performance, albeit only in the form of bank guarantees, is a bit premature - and potentially harmful rather than helpful.

With acknowledgements to Peter de Ionno and the Business Report.