Trade and Industry Minister Rob Davies has revealed that usual departmental practice was widely flouted in calculating offset credits awarded to contractors in SA’s notorious arms deal.
And, as a result, the weapons manufacturers came to be credited with between nearly 50 and about 200 times what they actually invested – in several cases on the basis of investments that failed to benefit the economy at all and in some cases have turned out to be a burden.
In terms of the contracts entered into under the arms deal, once offset commitments were approved, the way was cleared for payments to be made for the R60 billion-plus armaments bought under the strategic defence procurement (SDP) programme.
But, as revealed by Davies, replying to a parliamentary question by DA defence spokesman David Maynier, the lion’s share of arms deal offsets awarded were approved in what he described as upfront “package deals”, rather than measured against the actual economic performance of the investments in the economy.
Especially questionable in these package deals was the way that “sales credits” were calculated. Supposedly a record of how much money came back into the SA economy as a result of investments over a period of time, in the case of the arms deal offset awards such credits were awarded in advance in arms deal packages, which were signed off by the Department of Trade and Industry (DTI) at the same time the initial investment was made.
Maynier said the disclosures confirmed “my fear that the arms deal offsets were a huge rip-off. We first learnt that the offset credits were calculated using huge investment multipliers. Now we learn that offset credits were also calculated using huge sales credits that were not related to actual performance”.
Davies – who was appointed trade and industry minister nearly a decade after the strategic defence packages were concluded under the auspices of former minister Alec Irwin – emphasised, however, that awarding sales credits in advance was not the DTI’s usual practice.
“With the exception of the ‘package deal’ arrangements explained in (1) above (the arms deal packages), all other sales credits are determined using actual performance as a basis for the award of credits,” Davies said.
“Since NIPP (national industrial participation programme) credits are awarded post facto, all sales credit claims are submitted with the relevant sales invoices and export documents providing proof of actual sales before credits are awarded.”
But in the case of the SDP, such procedures were stood on their head.
The BAE/Saab consortium, which won the R10bn contract to provide 26 Gripen Saab fighter aircraft and 22 Hawk lead-in fighter planes to the SA Air Force, was given sales credits of $1 104 935 945 before its actual investment of $8 870 968 in local defence manufacturer Denel Aerostructures had garnered any sales at all.
At the same time, a still unexplained “investment multiplier” of 67.64 was awarded, to come to a final credit of $1 704 936 000.
Nor, in the intervening period, had the company performed in such a way as to justify the predicted benefit to the SA economy.
While the Denel group as a whole recorded a profit of R111 million in the 2010/11 financial year, the resulting entity, Denel Saab Aerostructures, recorded a loss of R263m in 2009/10 and last year turned in a deficit of R104m.
In his response in Parliament, Davies reaffirmed that the 2012/ 2013 financial year would see a detailed review of all NIPP projects “to make an independent assessment of the actual economic value generated by these projects, with the component of the SDP projects to be completed by the end of the financial year”.
The outcome, according to Maynier, might give an understanding of the “full horror of the arms deal offset rip-off”.
The Star