Aug-Sept 2014 K.indd

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www.cosatu.org.za • AUG/SEPT 2014

Did the arms deal result in offsets bene fi ts, creation of new industries and jobs?

S ome of the reasons for the Strategic Defence Packages (SDP) known as the arms deal were that SA needed more weapons to strengthen its newly integrated defence force in accordance with the Constitutional obligations to protect the Republic. With hindsight this may have been a right decision to the extent that SA is expected to provide security needs not only to protect her sovereignty but to contribute to peace and security initiatives on the African continent. COSATU was one of the fi ercest critics of the arms deal. It criticised the arms deal on various grounds including the following; it would not increase investment in labour intensive industries and would not create jobs and that the cost of the deal was unaffordable and that it would enrich foreign banks in terms of loan repayments. Furthermore, it would result in a neglect of government’s obligations in providing housing, social services, health, and education and policing. According to COSATU the costs of the deal would be high whilst the bene fi ts were uncertain. The arms deal contract was signed in December 1999 with a cash price of R30 billion. This fi gure excluded fi nancing costs and costs of foreign exchange movements. Therefore, if the

is a programme that seeks to leverage economic bene fi ts and support the development of South African industry by using government purchases of goods or procurement. It should be noted that offsets were created by the arms industry as an incentive for arms-buying countries to enter into arms deals at the time when spending on arms was discouraged. An offset policy is a legitimate tool for industrial development and is consistent with the WTO in particular because SA is not a signatory to the Agreement on Government Procurement which discourages the use of offsets. participation programme applies to all sales of goods and services to SA government including parastatals, where the imported content of such goods and services equals to or exceeds US$10 million. The industrial participation obligation is calculated at 30% of the value of imports. This means that sellers of goods to the government e.g. fl eet of vehicles will have to create an investment in the SA equivalent to 30% of the value of imported goods. For instance government concludes a procurement contract of R100 million for import of arms from a European The industrial

rand depreciated the fi nancing costs would increase which it did in 2001 and 2002. According to Treasury the total cash spending between 2001 and 2014 amounted to R47 billion. Various commentators have suggested a fi gure of 74 billion rand. In terms of the arms deal contracts SA agreed to buy military weapons and equipment e.g. corvettes and helicopters from arms manufactures in Europe and in the US. In order to mitigate the negative impact of large purchases of foreign goods on SA’s trade balance, SA entered into offset agreements with the sellers of arms. Offsets are an attempt to balance the cost of arms and the bene fi ts to the buyer. This is a very dif fi cult exercise considering that the buyer always wants to maximise pro fi ts. Offsets, industrial participation and countertrade are used interchangeably to describe a contract between an arms-buying country and the seller of arms whereby the seller agrees to invest in the country in return for a pro fi table large purchase of goods. In SA offsets are regulated under the National Industrial Participation Programme (NIPP) policy. There are additional requirement for the defence sector under the Defence Industrial Participation Programme (DIPP). According to the DTI the Industrial Participation policy

ECONOMY