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Africa Policy E-Journal
South Africa: Arms Purchases +++++++++++++++++++++Document Profile+++++++++++++++++++++
Region: Southern Africa +++++++++++++++++end profile++++++++++++++++++++++++++++++ South African Council of Churches Public Policy Liaison Office 9 December 1999 Statement on Defence Expenditure and Poverty Alleviation On 24 November 1999, the South African Council of Churches, the Christian Council of Sweden, the Coalition for Defence Alternative, and the Swedish Fellowship of Reconciliation convened a seminar on Defence Expenditure and Poverty Alleviation as part of the "Civil Society Encounter" held in conjunction with the state visit of the Swedish Prime Minister, Goran Persson. The meeting was addressed by the Rt. Rev. David Beetge, Anglican Bishop of the Highveld, Rev. Bo Forsberg, Director of Diakonia (Sweden), the Hon. Nozizwe Madlala-Routledge, the South African Deputy Minister of Defence, and Mr. Roger H„llhag, International Policy Advisor to the Prime Minister of Sweden. The convenors thank the seminar presenters and participants for their commitment to open debate on defence and development issues. The South African participants also thank the Swedish government and people for their assistance in the struggle against apartheid and for their continuing support for transformation and development in South Africa. In light of the information presented at the seminar, the four convening organisations ACKNOWLEDGE that:
Further, WE RECOGNISE that, in spite of the persistent calls for a reconsideration of the arms deal, the South African government and industry representatives from Sweden, Britain, Germany and Italy met in Pretoria on 3 December 1999 to finalise the deal. THEREFORE, WE CALL UPON:
South African Council of Churches
This information is produced and distributed by the Public Policy Liaison Office of the South African Council of Churches. The Public Policy Liaison Office monitors and analyzes key public policy issues under consideration by parliament and government ministries, alerts government to the concerns of the SACC, and assists people of faith to be more familiar with and involved in public policy debates. To be added or dropped from this distribution list, please write to liaison@sacc.org.za.
For more information, contact:
Southern African Centre for Defence Intormation (SACDI) Brief No. 2: Guns or Butter? The SANDF's R30 billion weapons procurement package On the 18th November [1998] cabinet approved the planned purchase of R30 billion worth of weapons for the SANDF. The 'procurement package' includes jet fighters from Sweden and Britain, maritime helicopters from Britain, light utility helicopters from Italy and corvettes and submarines from Germany. Not surprisingly the cabinet decision has provoked widespread criticism and condemnation from many sections of civil society, including private sector economists, human rights organisations, peace groups and church leaders. Much of this criticism has centred on the opportunity costs of the procurement package - is it appropriate for government to be spending vast sums of money on weapons when social services continue to be desperately underfunded, and when poverty alleviation and development issues continue to be neglected or ignored? Firstly, it is important to note that the cabinet's approval of 'preferred suppliers' of jet fighters, helicopters, corvettes and submarines merely confirms the recommended force design equipment option contained in the 1998 Defence Review, which was approved by parliament in April this year after a fairly exhaustive and inclusive two-year public participation process. During this process, civil society and parliament had a number of opportunities to critique the financial and military implications of the various force design equipment options. Thus, while many people may still question the military rationale or justification for jet fighters etc; parliament and the cabinet have decided in principle that such equipment is necessary to modernise the SANDF and to meet South Africa's future defence needs. However, the approval of these weapons purchases does raise a number of important financial, economic and political issues. From a financial point of view, can South Africa afford to spend R30 billion on armaments, given the government's funding constraints, its commitment to fiscal discipline and its stated desire to reduce the country's budget deficit? ... Government has constantly emphasised the industrial participation or 'offset' aspects of the weapons package. Furthermore, it has stated that the contracts and offset proposals which are attached to the procurement package will generate investment worth R110 billion in the next 17 years, and create up to 65 000 jobs over the next 7 years. Offsets are a common feature of the international arms trade, whereby conditions are imposed on the foreign supplier of weapons (e.g. Germany) thereby enabling the purchasing government (e.g. South Africa) to recover or offset some or all of the purchase price. Offset schemes are usually designed to achieve a relocation of economic activity from the country of the equipment supplier to the purchasing nation. Direct offsets involve participation of the purchasing nation's industry in some aspect of the contract for supplying foreign defence equipment (e.g. South African weapons systems being purchased for use in German built submarines). Indirect offsets involve goods and services unrelated to the purchase of the specific foreign defence equipment (e.g. the German submarine consortium's proposal to invest US$1 billion in a flat stainless steel plant at Coega in the Eastern Cape) In 1997 cabinet approved national industrial participation (IP) policy which covers direct and indirect offsets related to all government purchases from foreign suppliers. The Department of Defence, in conjunction with the DTI, has also approved policy on defence industrial participation (DIP) policy). Under this policy all defence imports over US$10 million are required to have at least a 50% (i.e.US$5 million) industrial participation component, which is targeted at the local defence industry. Before attempting to assess the economic dimensions of the offset aspects of the weapons package, it is worth noting that in our current economic climate government has every incentive to 'inflate' the purported economic benefits of the industrial participation components of the procurement package. While the industrial participation component of the procurement package may result in some tangible net benefits to the South African economy (e.g. direct investment, jobs) in the absence of detailed information on the foreign suppliers' offset and industrial participation proposals, government's claims are difficult to quantify and thus largely speculative. In addition, if the figures are to be believed, this means that each new job will cost R1, 7 million to create. This seems somewhat expensive in the current South African context. Government has attempted to create the impression that because of the offset arrangements, South Africa will not have to pay for the weapons. This is simply not true. Certain parts of the economy, including the defence industry, stand to benefit from the procurement package. However, government (i.e. the Finance Ministry) will still have to find R30 billion to pay for the weapons. If our exchange rate depreciates significantly over the payment period, then government will have to find additional resources. It has been reported that the offset and industrial participation agreements only carry a 5% penalty clause. If this is the case, then there will be little or no incentive for the European suppliers to honour their offset and industrial participation agreements. Furthermore, it is unclear whether government, both within the Department of Defence and the Department of Trade and Industry, has the requisite capacity to monitor and evaluate the implementation of the industrial participation agreements. For example, will the Minister of Defence be able to report to parliament on an annual basis on the actual number of jobs that have been created as a result of the weapons purchases? Who will take responsibility if the number of jobs created as a result of the weapons package is significantly below what was stated at the time of the signing of the industrial participation contracts? There are also a number of concerns about the extent to which the investment attached to the defence industrial participation agreements represents genuinely new business, which would not otherwise have been obtained without the weapons package. If European companies are only willing to invest in South Africa as a result of major weapons purchases, what does this say about our desirability as a destination for direct fixed investment? Put differently, would these European defence companies have (ever) considered investing in South Africa without the 'incentive' of the procurement package? Given the fact that government will in all likelihood proceed with the planned purchase of jet fighters, helicopters, corvettes and submarines, it is important that civil society engages with government to ensure that the country extracts the maximum economic benefits from the weapons purchases in terms of investment and job creation in the non-defence sectors of the economy. Furthermore, civil society should also assist government in monitoring the European weapon suppliers' commitment to honouring their offset and industrial participation agreements.
On-Line Sources for Additional Information on this and related issues include:
South African Ministry of Defence
Institute for Security Studies (ISS)
Centre for Conflict Resolution (CCR)
African Centre for the Constructive Resolution of Disputes
(ACCORD)
Coalition for Defence Alternatives Briefing Document, August 1999
Documents previously distributed in the e-journal are
available on the Africa Action website: To be added to or dropped from the e-journal subscription list, write to e-journal@africaaction.org. For more information about reposted material, please contact directly the source mentioned in the posting.
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Africa Policy E-Journal
