A Brief History of a Short Period of Time : The Arms Deal - a Litany of a Rampant Corruption of Power

Here's the deal . . .

The Cabinet announced in September 1999 its decision to procure about R30 billion worth of military equipment from several foreign manufacturers. The package deal which includes submarines, fighter aircraft, helicopters and other equipment, is to be sweetened by counter trade agreements providing employment opportunities in South Africa.

The country's largest-ever arms deal has its roots in the White Paper on National Defence, which was approved by Parliament in 1996. The White Paper provided for a Defence Review, which outlined a new force design for the SA National Defence Force.

In November 1998, Cabinet announced its preferred suppliers for the procurement of defence equipment for the SANDF. The arms deal has provoked acrimonious debate in the media and in the corridors of power. The arguments initially centered on whether the country needed such equipment or not. There were grave doubts about the decision to allocate enormous amounts of money to purchase equipment the country is not likely to need, while social welfare projects are sorely underfunded.

In recent months the dispute has focused on the lack of transparency, the method of procurement, and allegations of corruption. Members of the opposition in parliament have accused certain individuals in government of enriching themselves at taxpayers expense; of purchasing unneccessary equipment and of trying to quash investigations into the deals.

Why should South Africa buy new Arms?

The South African National Defence Force has suffered substantial budget reductions in recent years. These cutbacks mean that less money has been spent on replacing older equipment with modern weaponry. The outdated and inadequate military equipment has affected the readiness of the SANDF to deal with the challenges of the future.

The arms deals have been off-set with counter-trade promises to build factories in South Africa and thus alleviate the chronic unemployment crisis in this country.

The argument against

The arguments against these purchases have been well summed up by the Anglican Archbishop of Cape Town, Njongonkulu Ndungane, who stresses the need for poverty relief before weapons. He argues that the vast sums of money destined for arms manufacturers should rather be spent on social services. Critics also point out that since there is no credible threat against South African sovereignty, there is no need to spend billions on its defence.

What is the problem with the arms deal?

A good deal or a rip-off ?

The arms procurement package has provoked enormous controversies in the last three years.

The arguments against the deal can be summarised as follows:

• We don't need the equipment. We are not in danger of fighting a war.
• SANDF personnel do not have the skills to operate the new technology.
• The money could be better used for poverty alleviation.
• Generally accepted procurement practices were not followed.
• Low penalties (only 10% of contract price) if suppliers default.
• Corruption - Senior officials took large bribes to set up different facets of the deal.
• Senior politicians are trying to close down the Heath Unit because it has uncovered corruption involving government

ECAAR Allegations

(Economists Allied for Arms Reduction) ECAAR's spokesperson, Terry Crawford-Browne, has made some dramatic claims regarding the deal, which he says comes from information gathered by ANC intelligence operatives who were instructed to look into the deal by the ANC whistleblowers.

These include allegations that:

• Former Defence Minster, Joe Modise, took a payment of R10 million for setting up the German submarine contracts
• Links between the awarding of the Cell C contract and the arms deal through Shamin "Chippy" Shaik whose brother, Younis is head of the Cell C consortium and new-generation electronics and smart-card technology which amounts to a conflict of interest.
• It is alleged that the Cell C award was in reciprocity for Saudi Arabian contributions to ANC campaign funding
• Links through the Chairman of Cell C's holding company, Lt Gen Lambert Moloi to Modise (his brother-in-law) to Denel and to Futuristic Business Solutions, one of the prime co-ordinators of the Arms Aquisition Programme
• Involvement of shady characters such as Marc Rich, the American financial fugitive in Switzerland who was one of the leading oil-sanctions busters during the apartheid era; as well as to Special Branch Colonel Alf Oosthuizen who was a perpetrator of apartheid-era atrocities
• Allegations that the German sub-marine contracts were central to the Coega Project near Port Elizabeth and is merely a white elephant comparable to Mossgas.
• Pres Mbeki himself is applying massive political pressure to close down the Heath Unit because it has uncovered corruption involving government ministers and his own brother, Moeletsi Mbeki.
• That the present personnel within the SANDF don't have the skills or knowledge to operate the technology being bought
• That the proposed Conventional Arms Control Bill which has been revoked by parliament was an attempt to provide the State with indemnity against having to disclose any criminal activity by prohibiting public disclosure of allegations such as those made by Patricia de Lille and ECAAR. This would have invoked a culture of secrecy similar to that of the apartheid era, removing all transparency and accountability to the public or to fellow ministers.There is every indication that the government will try to reintroduce the Bill for tabling again next year

Is the Arms Package a good deal or Not???

In an effort to find out if the Arms procurement package was a good deal or not, we asked defence expert Mr. Helmut Rohmer-Heitman for his assessment of the deal. The SABC asked him to comment on to the following claims:

As you know the South African government is willing to pay SEK 15 billion for 28 JAS-39 Gripen fighters. Each plane will cost South Africa SEK 535 million.

We have received information from a source questioning the high price, informing us that SAAB's promotion of the JAS-39 Gripen to Brazil has been to a price of SEK 180 million, to Chile SEK 285 million and to the Philippines SEK 280 million for each plane.

The offer to Brazil has been for about 100 planes, to Chile 16-20 planes and the offer to the Philippines has been for 20+ planes.

The difference is substantial. Why should South Africa pay SEK 255 million more than the Philippines for each plane?

Mr. Heitman, a correspondent for the Janes defence Weekly publication, referred to claims made by Mr. Terry Crawford Browne and sent us the following response:

Arms query on Gripens

I speak - write! - under correction, but I do not think that any hard offer has been made to Brazil, Chile or the Phillipines. I do not know where Mr Crawford-Browne claims to get his information, but it seems suspect.

That said, three points:

1. There is a vast difference between the so-called "fly away" price of an aircraft on the one hand, and a package cost. The former is the aircraft "as is", with no spare engines or other spares, no engine test beds or avionics test benches, no specialised ground support equipment, no pilot training simulators, no pilot training and no ground crew and technical personnel training, and no support to the local industry to prepare to support the aircraft through a service life of 20 to 30 years. The latter will include all of those things. The difference can be as much as 100% or even more in some cases. The figures that Crawford-Browne mentions in respect of Chile and the Philippines may have been based on a quoted "fly away" cost estimate. The actual contract price would be very much higher. The figure quoted by him in respect of Brazil is too low to even be credible as a fly away cost - unless it was a quote at "fly away" cost for a bare aircraft without the multi-mode radar, the navigation/attack system, the communications system and the electronic warfare system. That would imply that Brazil would be fitting systems acquired from other manufacturers to their aircraft. The final cost of the aircraft in service would then be a lot more than South Africa is paying because of the additional design and integration costs. The bottom line is that one must compare package cost with package cost or fly away price with fly away price. Even then one must know exactly what is in the package and what the basic fly away configuration is (see below).

2. Two apparently similar or even apparently identical aircraft can have very different price tags depending on the model of the engine that is fitted, the type of radar (eg full multi-mode or a simpler system), the navigation/attack system (eg day only or day and night capable), the electronic countermeasures system, etc. It is impossible to make any real comparison without knowing exactly what the aircraft's systems comprise.

3. Having just said that comparisons are very difficult to make, I will now go ahead and make one, albeit in the full knowledge that it is simplistic: Assuming Crawford-Browne's figure of SEK 15 billion is correct, South Africa is paying about US$ 57.6 million per aircraft for the total package. The United Arab Emirates has recently signed a contract for 80 F-16 Block 60s at a price of $ 80 million each. To be fair, that includes some missiles, so one should probably cut that down to $ 70 million each. The F-16 is a bigger aircraft, but its is also much older in concept and technology, development having started in 1968 and the first aircraft flying in 1974. The first Gripen flew in 1988. The F-16 is also much more difficult and expensive to maintain and less suited to dispersed operations from "austere" airfields, which is something the SAAF's fighters are very likely to have to do if South Africa becomes involved in regional security.

The bottom line is that I believe South Africa is getting a good aircraft at a very good price. For my part I would have preferred a larger twin-engine fighter, but that would have taken the cost to over $ 100 million each - a bit outside what the pocket can handle!

A long answer to a simple question, but I hope it is of use.

To expand on this a bit: South Africa is paying just a little more for four patrol corvettes than the Indian Navy has just paid for one slightly better armed frigate, and is paying less for its ships than Malaysia paid for smaller light frigates that are not as well equipped. The submarines and Hawks are coming in at roughly market prices. I could not evaluate the A-109 price because there have been no recent sales of twin-engine military-standard light utility helicopters. The Lynx offer for the shipborne helicopter is somewhat better than the price obtained by New Zealand for the similar American Seasprite.

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To: Patricia de Lille, MP
From: Terry Crawford-Browne

Sweden's involvement in the R43 billion arms acquisition programme:

The South African government announced in November 1998 that it intended to purchase 28 BAe/Saab JAS39 Gripen fighter aircraft from Sweden at a cost of R10.875 billion, ie R388 million (about US$65 million) per plane. BAe has a 35 percent in the Saab Gripen

because the Swedish armaments industry is no longer economically viable, and the Swedes are trying to spread some of the costs.

The JAS 39 Gripen has been a financial disaster and political embarrassment. Costs have been way, way over budget at about SEK 60 billion (R46 billion), and the Swedish government is desperately trying to export the plane to countries such as Finland, Chile, Brazil, Philippines and South Africa. Only South Africa has agreed to buy the Gripen which is designed for Arctic conditions, not Africa. Aviation specialists say it would be quite useless in Southern Africa because of its short range.

Big business based around the Wallenberg family (which dominates Sweden's economy the way the Oppenheimers used to "own" South Africa) has pressured Prime Minister Goran Persson's government to market the Gripen. Persson's government is shaky and cannot afford to defy the Wallenbergs.

The Minister of Defence, von Sydow, visited South Africa in June 1998 to market the Gripen. The Parliamentary Monitoring Group asked me to attend a parliamentary breakfast hosted by Tony Yengeni. Yengeni was not pleased by my presence. Anyway, his question to von Sydow regarding the generosity of the offsets was very plain. His body language was "how big are the bribes?" Von Sydow replied that the decision was not his to make, but that he had got the message and would take it back to Sweden.

That was the first time that I met Roger Hallhag who is now the Swedish Prime Minister's Special Advisor on International Affairs. (He, you'll remember, was the Swedish representative at the conference at the Centre for the Book in November 1999). Archbishop Tutu had been invited by Swedish church NGOs to speak at a conference in Stockholm a week later in June 1998. He couldn't go, and sent me to make a 15 minute speech. Hallhag was the government's representative also on that occasion.

About 150 academics, politicians and theologians were present, and the conference received excellent radio coverage. I thanked Swedes for their support in the struggle against apartheid, but said Sweden should not now contradict that record by selling weapons to a country that faces urgent crises of poverty but no foreign military threat.

The Swedes like to think that they are squeaky clean, so I also briefly mentioned the Bofors scandal in India of the 1980s which brought down the Gandhi government. The media took over after that, and grilled their politicians about the immorality of selling armaments to countries such as South Africa. When I got back the Swedish Ambassador personally complained to Archbishop Tutu, but he had approved my speech before I left!

A one hour Swedish TV documentary followed in which Helmut-Romer Heitman confirmed that the offsets were actually more important that the equipment itself. Ron Haywood of Armscor and Ronnie Kasrils repeated this, Haywood saying what businessman could pass up on such as deal -- you pay R1 and get R4 back!

In terms of the Gripen deal, the offsets were touted by our government as being worth R48.313 billion and would create 23 195 jobs. Swedish business newspapers started querying whether Swedish taxpayers weren't being fleeced yet again. A Saab executive was quoted as saying that the South Africans (Jayendra Naidoo) were lost in the maze of their own figures. The Swedish archbishop threatened to sell church investments in any companies that participated in the offset programmes.

Then there were the Numsa allegations of funds being routed by BAe through two Swedish trade unions to buy Numsa's support of the arms package. The Auditor General's report refers to the tender specifications being altered in order to favour BAe over the Italians. It is BAe which is "driving" the acquisitions programme including the proposed privatisation of Denel, and Sweden has been sucked by BAe.

Because of the development overruns, the Gripen is already more expensive than the American F16 which costs about US$25 million per plane. Add the costs of offsets, and South Africa is being charged US$65 million per plane.

The attached email from Kristna Fredsrorelsen, Stockholm says that South Africa is being fleeced compared with quotes to Chile, Brazil and the Philippines.

The GCIS release in September 1999 listed 21 possible Swedish offset programmes. The details were extremely sketchy, but several of them appeared to have been linked to Billy Rautenbach's Wheels For Africa Group which held the franchises for Volvo and Saab in Africa south of the equator. Rautenbach has since gone bankrupt, is wanted for murder, and is alleged to be the financial brains behind Robert Mugabe's misadventures in the Democratic Republic of Congo.

The normal commercial recourse for contracts which have been tainted by corruption is cancellation. Should the Minister of Finance repudiate the SA government guarantees, the deals would collapse without cost to South Africa.

Terry Crawford-Browne (Economists Allied for Arms Reduction)
January 11, 2001

With acknowledgement to SABC News.