Publication: Business Report Issued: Date: 2006-10-08 Reporter: Mzwandile Jacks

Terry Crawford-Browne Sticks to His Guns



Business Report

Date 2006-10-08


Mzwandile Jacks

Web Link


Johannesburg - The cabinet ignored a warning in 1999 that the arms deal, including its offsets, was a risky proposition because South Africa could face mounting economic and financial difficulties in 2006/07, it has been claimed.

Terry Crawford-Browne, an independent economist and prominent anti-arms deal activist, in a book that will be published, alleges that the government's own consultants had conducted an affordability study and had projected a negative economic consequence for the arms deal.

"With the balance of trade deficit now at record levels and the value of the rand in relation to the US dollar having fallen 33.6 percent between May and October 2006, there is no doubt that the study noted all this with remarkable prescience," he writes.

"Interest rates have risen sharply and the long-promised 6 percent economic growth rate has again proven to be illusory."

By implication, his book claims that were it not for the obstinate nature of the October 1999 cabinet ministers, the arms procurement programme would be in a much better shape than it is now.

He claims the affordability study projected that instead of creating over 65 000 jobs, the arms deal and its offsets were more likely to lead to the loss of between 115 000 and 200 000 jobs *1.

The chapter does not explain how this would happen *1. But the negative economic consequences that would affect the arms procurement programme could lead to loss of jobs, he says.

The government-sponsored study, Crawford-Browne claims, noted that arms procurements were likely to impact negatively on expenditure by other government departments in two ways.

First, certain amounts of expenditure will be shifted from other government departments to defence for the arms packages.

Second, an additional expenditure on the defence packages will reduce the funds available to other departments.

"The study also noted that the South African government is fully exposed to the depreciation of the rand against foreign currencies, which account for about 75 percent of the total purchase amount.

It also noted that there was no effective means of hedging the currency risk inherent in the procurement. It said there was clearly a risk that currency depreciation could be more rapid than anticipated gradually or because a sudden shock such as that precipitated by the 1998 Asian crisis.

"Any deviations from these assumptions are for account of government, with the obvious implication that the cost of the packages and their financing could be considerably higher than expected," writes Crawford-Browne.

Richard Young, the managing director of CCII Systems, meanwhile, launched a scathing attack on the defence industrial participation (DIP).

"The so-called DIP on the corvette combat suite is totally a contrived thing *2. And despite the SMME/PDI/BEE value having been apparently discounted in the final scoring, it is clear that major behind the scenes interference was happening at the highest levels *3 of the approval process to ensure that favoured BEE entities were selected," Young said.

Crawford-Browne could not say when his book would be published.

With ackowledgements to Mzwandile Jacks and Business Report.

*1       The Arms Deal and its offsets surely brought to its knees the South African defence-related industries (DRI), created at enormous expense to the South African taxpayer, but properly managed and recipient of the bulk of the local business quite sustainable and even profitable over the long term.

But no, Modise wanted the product of golden goose right now (just as quick as he could get into that revolving door) and the local goose was far, far leaner than the plump foreign versions in the United Kingdom, Germany and France.

*2      The entire SDP arose out of the corvette acquisition which had already been approved in principle in 1995. Almost the entire combat suite (except three non-strategic sub-systems [SSM, SRS, HSM] to be acquired abroad) had already been designed and largely developed by the South African DRI by 1999 and giving this segment DIP value was entire inappropriate. The combat suite supplier should have been required to provide IDIP to the value of their contract, i.e. 60% or 100% of the R1,4 billion price of Thomson-CSF’s portion, plus the portion of the suppliers of the SSM, SRS and HSM.

*3      The documentary evidence shows that, inter alia, the President *a , the Deputy President *b, the Deputy President of the ruling political party *c , the Minister of Defence *d, the South African Ambassador to France *e and the Chief of Acquisitions *f were all involved in order to ensure that favoured BEE entities *4 were selected by the foreign bidders.

*a      Mandela
*b      Mbeki
*c      Zuma
*d      Modise
*e      Masekela
*f      Shamin Shaik

*4      One of the most favoured BEE entities is a company called Futuristic Business Solutions (either (Pty) Ltd and/or FBS Holding), owned by Joe Modise's MK aide-de-camp Lt Gen Lambert Moloi, Moloi's son-in-law Tsepo Molai and two of Chippy Shaik's best friends, Yusuf Mohammed aka Comrade Joe and Ian Pierce (the Accountant).

FBS was accordingly given 20% of the equity of African Defence Systems (Pty) Ltd by Thomson-CSF of France, while Chippy Shaik's brothers' (plural) Nkobi Holdings also got 20%.

Lt Gen Moloi is director and chairman of ADS.

FBS also got some very sweet lobbying and logistic support contracts from the German Frigate Consortium headed then by Thyssen Rheinstal Technik , now called ThyssenKrupp Marine Systems (with  Rear Admiral (Junior Grade) (Retd on 2006-09-30) at its helm as Vice President for Sales (including selling a fifth corvette to the SA DoD).

The great industrial and technology giant FBS was included as a full partner in the South African Combat Suite Group.

But quietly, after just five years, FBS ceased to exist as an operating entity and now, thank you most kindly, it shareholders and directors just earn dividends and directors fees from the comfort of their own homes.

BEE at its best - viva.