Publication: Business Report Issued: Date: 2007-09-02 Reporter: Donwald Pressly

Offsets Scheme Spins R11.4bn in Investments



Business Report

Date 2007-09-02


Donwald Pressly

Web Link


Cape Town - The offset programme related to South Africa's multibillion-rand arms deal has notched up R11.4 billion in returned investment since 1998, about R550 million more than the target set for the end of the 2007 financial year, official figures show.

While the annual report of Armscor - the arms acquisition agency for the department of defence - paints a rosy picture of the offsets, or countertrade programme, Independent Democrats leader Patricia de Lille said the figures could be taken "with a pinch of salt".

She said that she would only believe the countertrade figures if they were independently audited and monitored.

"At this stage, we simply do not have such an independent authority, so we are working in the dark. We are dependent on government figures," said De Lille, who has been a highly visible opponent of the South African arms deal.

If the Armscor figures are to be believed, however, the offsets need only provide a further R3.6 billion in the next five years - taking the obligation to just more than R15 billion - when the programme ends.

De Lille points out that this is a massive drop from when the deal was struck nearly a decade ago. The government spoke then about offsets in the region of R110 billion.

According to the estimates of national expenditure, the arms deal is scheduled to cost R47.4 billion by 2011.

This year the country will be spending about R4.2 billion on military equipment imports, including R2.5 billion on fighter aircraft requirements. Next year's bill will be about R4.5 billion.

Armscor's 2007 report, issued by chairman Popo Molefe and chief executive Sipho Thomo, notes that the defence industrial participation (DIP) obligations - connected with what the agency calls the strategic defence packages - are part of the government's initiative "to stimulate the economy".

The department of trade and industry manages the national industrial participation (NIP) programme, which applies a 30 percent obligation on the imported content of all government purchases above $10 million (R72 million). On top of that Armscor applies a DIP obligation of 50 percent on the imported content of all defence-related purchases that exceed $2 million. 

"It is the largest ever defence offset obligation with strict conditions for its performance, including fixed and preset six-monthly performance milestones, which are continuously monitored by Armscor through to 2012," says the report.

The SA Navy's corvettes carry an offset obligation of R2.9 billion by 2012, of which just less than R2 billion must be met by year-end. Already R1.95 billion has been done.

With submarines, the obligation was R1.12 billion, with the planned offset performance having set a target of R746 million for this year, of which R741 million was achieved.

Of the R15 billion in offsets planned, R11.4 billion was achieved - or an overall 105 percent performance rate to date.

Armscor noted that although the obligation had drawn to a close, the outstanding obligation related to technology transfer and this was "covered by ongoing exports".

Armscor noted that local defence-related companies had benefited from about 67 percent of the R5 billion contracted DIP programme. The main beneficiaries were Denel Aviation, which received technology transfer to set up a Gripen design and development centre, and the Grintek Group, which was contracted for the development and manufacture of electronic subsystems.

The total DIP obligation of BAE Systems was R4.3 billion and to date R4 billion has been discharged. Through the DIP obligations of BAE Systems and Saab, Denel Aviation - now Denel Saab Aerostructures - contributed components not only to the Hawk and Gripen aircraft, but also on the A400NM aircraft programme.

With acknowledgements to Donwald Pressly and Business Report.