BusinessDay

Mar 5, 2014 | Ernest Mabuza

Commission hears Armscor’s counter-trade agreements with foreign arms suppliers outside of the 1999 arms deal amounted to R5.4bn between 1988 and 2000

ARMSCOR’s counter-trade agreements with foreign arms suppliers outside of the 1999 arms deal amounted to R5.4bn between 1988 and 2000, the Arms Procurement Commission heard on Tuesday.

Johannes Bernhardus de Beer, Armscor’s manager of defence industrial participation agreements, was testifying about the origin and rationale of the concept of Defence Industrial Participation within Armscor, the state-owned arms procurement agency.

Offsets by foreign suppliers were required investments in South African industries and were a condition of winning contracts under the Strategic Defence Procurement Package, or arms deal.

The government announced in 1999 that it had signed contracts with a number of suppliers to purchase about R30bn worth of military equipment to modernise its defence equipment. Some of the equipment included submarines, helicopters and fighter aircraft.

The offsets, monitored by the Department of Trade and Industry and Armscor, were intended to yield significant economic benefits for the country from foreign investments by companies that were associated with the arms deal.

It was projected that offsets would bring R10bn into South Africa, with 65,000 jobs created. However, according to a department report released in October last year, only 13,690 jobs were created, and R6bn of foreign investment achieved.

Mr de Beer said on Tuesday the counter-trade agreements between 1988 and 2000 led to long-term arrangements between the foreign suppliers and the local defence industry and some benefits were still in existence today. One of the examples of local industrial participation was the production of the Impala light fighter aircraft at Atlas, later known as Denel Aviation. The aircraft was based on the Italian MB326 Mk I and Mk II aircraft, and was used by the South African Air Force from 1966 until 2005.

Mr de Beer said that by February 2000, 12 out of the 18 counter-trade agreements had been fulfilled and a total of R4.7bn of value passed to the local defence industry.

Mr de Beer was also expected to testify — possibly towards the end of the week — about what the Defence Industrial Participation contract terms were and how these were implemented during the arms procurement process in 1999.

The commission, chaired by Judge Willie Seriti, is investigating allegations of fraud, corruption and irregularities in the 1999 acquisition of arms for the South African National Defence Force.

“The concept of offset and counter-trade is a worldwide phenomenon which originated from the days of bartering and developed to more sophisticated instruments of international business based on government procurement,” Mr de Beer said.

The commission continues.